Customer segmentation by category

At its simplest level, customer segmentation is the practice of looking at your target audience in smaller chunks rather than as one big group. By segmenting your customer base by their demographics, you can develop more focused marketing and forge deeper human connections with your target customers.

With many businesses — perhaps yours included — the product or service offering can become complex or broad-reaching enough that it no longer makes sense to consider your customer base as just one particular type of person. At a certain point, your target audience will become even more diverse than the products and services they purchase from you. As a business owner or a marketer, it makes sense to treat your audience as a diverse group by using customer segmentation.

There are many different ways to segment customers. While there isn’t a “magic bullet” method of segmentation that works perfectly for all campaigns and markets, you can surely find a way that works for you with some experimentation. Ultimately, the most useful types of customer segments will vary from industry to industry.

Demographics are the various ways of using statistics to group people together to track data and make educated predictions about those people based on their group memberships.

Some of the most commonly used demographics in marketing are a customer’s

• Age 
• Gender 
• Relationship status 
• Living situation (city, rural, suburban) 
• Life experience (college student, parent, newlywed, divorced, retiree, etc.) 
• Employment

Understanding the demographic makeup of your customer base will allow you to predict the buying behaviors more reliably, as well as inform which types of marketing work, and for whom. 

Geographic segmentation groups your audience by their physical location in the world. Not only is this a valuable way to segment customers for brick-and-mortar businesses (which are well-served to aim their marketing efforts at those within driving distance), but it can also help e-commerce businesses to localize their marketing campaigns for differences in culture and economics.

While demographics group people by intrinsic aspects of a person’s being and their current living circumstances, psychographics are more focused on the psychological motivators and preferences that certain individuals have. For instance, if you are into classic rock, like Italian food, prefer traveling to sunny locations, and love dogs, these are all examples of psychographic groups that you belong to.

Behavioral segmentation categorizes customers by their online activity and buying behavior. How long does a particular user stay online, and at which hours? When are they logged into the channels you hope to market through? Under what conditions and circumstances are they most likely to purchase something? Knowing these behaviors as they relate to your customer base can be a great way to predict which individuals are more ready to buy so that you can focus your marketing efforts in their direction.

Is your ideal audience viewing your ads on their desktop or a mobile device? Which browser or app did they use to reach you? Knowing the channels through which your customer base is likely to view your content will allow you to optimize your content to the standards and best practices of those channels.

When your business focuses on a B2B market, the demographics of individual people might be a bit too specific for marketing purposes. For more meaningful consumer segmentation in the B2B sense, replace demographics with “firmographics,” the central aspects of a company that categorize and differentiate it from other organizations. For instance, what industry do companies in your target audience belong to? How many employees does the company have? What is their annual revenue?

While a person’s age is a good demographic indicator, what’s even more telling is their life stage. What common experiences or phases are they experiencing at the moment? Are they a college student, a newlywed, a parent to teenagers, empty nesters, etc.? People in each of these life stages have their own particular concerns and needs for products and services, so segmenting by life stage can be a valuable way for you to hone in on certain parts of your market. 

Transactional segmentation groups your buyers according to their unique shopping and spending habits. How do they interact with your brand, and how often? When and why are they most likely to buy your products, and what payment methods do they prefer? Segmenting by transaction type and frequency allows you to understand who your most engaged customers are. By understanding who your top spenders are, you can further segment your marketing efforts to tap into your most profitable markets.

Using the criteria above, you can rank the different segments of your audience to determine your overall marketing strategy. There are two main ways to rank the segments of your target audience: needs-based segmentation and value-based segmentation.

Needs-based segmentation looks at the demographic or firmographic information of your customers and takes into account the unique needs that that type of person or company might mention in relation to products and services. Customers are segmented according to the specific needs they express concerning your product.

For example, imagine you sell bicycles. A customer looking for green transportation for their daily commute will have an entirely different use case than a customer who wants to upgrade their mountain bike for outdoor recreation. These two customers would be segmented into different subgroups based on their needs for the product.

On the other hand, value-based segmentation will group your customers according to the revenue they can produce for your company. Continuing with the bicycle example, you might notice that young adults gravitate toward your less expensive models because of limitations in their income. At the same time, more established, middle-aged customers are more willing to spend larger amounts to ensure a certain level of quality. In this case, it’s probably a good idea to subdivide your marketing budget between these two customer groups since selling to one brings in more revenue than the other, so focusing your marketing efforts on a more mature audience might have more profitable results.