Customer segmentation: Guide to types, tips, and strategy
Customer segmentation isn’t just for marketing and product teams. Learn how you can put segmentation to work to create personalized support experiences for your customers.
Last updated September 8, 2022
You see it in office lunchrooms, at high school dances, and on the internet: People love belonging to groups. It isn’t just a random occurrence, either—human beings are social creatures and naturally want to organize themselves into groups.
In the business world, grouping customers—or customer segmentation—offers valuable insight that allows you to customize your customer experience and build relationships with buyers. But before you can start tailoring your customer support, you need to know how to organize shoppers so you can personalize your interactions for each group.
If you’re ready to learn the basics, we officially invite you to sit with us at the lunch table so we can share the best pieces of the customer segmentation pie with you.
Follow along to enjoy some bite-sized lessons including:
What is customer segmentation?
Customer segmentation is the process of grouping customers together based on shared traits. You can also think of it as putting customers into meaningful buckets to differentiate support experiences.
Depending on your team’s goals, there are many ways you can segment your customers and connect with members of a certain group. It’s best to determine what they have in common—whether that’s a geographic location, career, or hobby. You can also organize by behavior (like buying habits) or demographics (like age or gender). No matter how you separate your customers, segmentation enables you to meet their needs and boost retention.
Customer segmentation vs. market segmentation
The main difference between market segmentation and customer segmentation is the goal behind each process.
- Market segmentation can help you gain new customers and develop new markets. It also encompasses the entire market—your current customers as well as your competitors and potential customers.
- Customer segmentation, on the other hand, is more specific and provides a detailed view of your existing buyers. You can use this data to attract new customers, but it’s also helpful when you’re trying to retain customers and foster customer loyalty.
Proper customer segmentation not only increases revenue but also enables you to better understand your business operations. The process can help you accomplish many distinct and diverse goals:
Why segment customers?
- Offer hyper-relevant solutions
- Provide faster support
- Boost marketing efforts
- Build customer loyalty with personalized content
- Understand which customer segments bring the most value
- Increase engagement by connecting with customers on their favorite channels
- Identify new opportunities for products and services
Offer hyper-relevant solutions
There’s often not a one-size-fits-all fix. Different customer segments require different solutions.
Imagine offering a small business owner the same solutions you have available for enterprise customers. It would be overwhelming for them to hear that they’d need to create integrations with developers they don’t have and use professional services they can’t afford.
On the flip side, if your support team only catered to small businesses, it would cause big problems for enterprise clients. What if the only way to get help as an enterprise customer is through self-service? Time is ticking for your deadlines, and you have production-impacting needs that demand urgent, customized subject-matter expertise.
Segmentation fixes such issues. Grouping your customers by business size, for instance, gives support agents a guideline to follow when offering solutions.
- If it’s a small business: The agent will focus on simple solutions the client can handle on their own.
- If it’s an enterprise: The agent will provide thorough, high-touch resolutions to match their complex needs.
Provide faster support
Segmentation streamlines the support experience, too, allowing agents to resolve issues more quickly.
When a segmented customer makes contact, the agent already has the information they need to immediately tackle the problem. If you use customer service software, the platform can automatically capture details from the customer’s initial query and compare it to similar issues reported by other customers in the same segment. This can help the agent find a solution faster.
Customer segmentation can also ensure you connect the customer with the right support agent the first time around. Customers don’t want to be transferred from agent to agent, especially when they have an urgent issue.
Minimize multiple transfers by assigning agents to certain customers based on their segment. For instance, agents focused on one product line or customer type are familiar with the issues commonly encountered in that group, so they can answer questions quickly and thoroughly.
Boost marketing efforts
Using customer segmentation in customer service can positively impact other teams.
For example, you may use customer segmentation to increase the relevance of your brand messaging and marketing campaigns. Say you identify a sizable group of customers that left a competitor because they wanted a particular product feature that only you offer.
This type of information is gold for your marketing team. It helps them get incredibly specific with both their messaging and their recipient list.
Build customer loyalty with personalized content
Customer segmentation allows you to tailor your support experiences to the needs of certain groups. This shows buyers that you care about them and understand them, leading to increased satisfaction and engagement.
- 90 percent of consumers say they’ll spend more money with companies that provide personalized service.
- 68 percent of shoppers expect personalized service interactions with a brand.
Customer segmentation is the key to offering those customized experiences that consumers want.
Companies that use advanced personalization see a return on investment of 20:1.
Treating customers differently based on their needs is one of the most important ways to have a meaningful relationship that drives growth, loyalty, and revenue. According to a Liveclicker report, companies that use advanced personalization see a return on investment of 20:1. This ROI isn’t surprising when you consider how customer segmentation enables brands to improve their support and marketing efforts.
Understand which customer segments bring the most value
There are many ways to determine which customer segments bring the most value to your business. As you may already know, 80 percent of your company’s revenue comes from 20 percent of your customers. Analyzing the following metrics for every customer segment can help you find that 20 percent.
You can also analyze KPIs to understand each segment. Those baseline metrics include:
- Customer satisfaction (CSAT)
- Net Promoter Score® (NPS)
- First-reply time
- Resolution type
- Time to resolution
- Average agent touches
- Average number of requests
- Retention and churn
- Escalation metrics
Don’t forget that your most valuable segments may change over time. New opportunities will come along as your company scales and grows, so you may prioritize different segments as your customer base evolves.
Increase engagement by connecting with customers on their favorite channels
Customer segmentation can help you learn how your customers want to communicate with you. When you group customers by their preferred channels, you can meet them where they are and start forming deeper relationships with them.
For example, you can separate your customers by city, age, and industry to learn which communication methods certain groups prefer. You could discover that one segment overwhelmingly uses Instagram DMs to engage with businesses, allowing you to improve your customer communication strategy and increase engagement with that particular audience.
Identify new opportunities for products and services
Understanding the behaviors of certain segments and making adjustments to your products or services could present new business opportunities.
Take IKEA, for example. IKEA relies on a DIY approach—it sells customers furniture that they self-assemble. But when IKEA was preparing to expand into India, the customer segment data suggested that the company’s traditional concept wouldn’t work because consumers there were used to buying fully assembled furniture.
IKEA understood the opportunity and pivoted its business to include assembled furniture and added delivery methods like solar-powered Indian rickshaws to align with the culture.
It’s always great to land new customers, but oftentimes, new opportunities for products and services are right under your nose. After all, repeat customers are willing to buy from you again—and spend more. Catering to your segments and their specific preferences and expectations can help you look at your existing customer base with fresh eyes and identify more business opportunities.
How to segment customers
To keep up with fast-changing customer expectations, it’s important to have the most current customer data so your business can adapt. To understand evolving behaviors and preferences, you must know how to segment customers to gain the best insights.
1. Do industry and market research: Understand the state of your industry and current trends, and get an overview of customers’ wants and needs.
2. Examine your current customer base: Determine what types of customer segmentation would most benefit your company and present the most opportunities for growth.
3. Adopt a customer segmentation tool: Integrating a tool like Zendesk can enable you to easily categorize and segment your customer base so you can collect accurate data quickly.
4. Gather customer experience data: Capture quantitative and qualitative data through customer feedback methods, and track it with a customer relationship management (CRM) system.
5. Evaluate the data: Analyze the customer experience data to identify trends and opportunities in your segments.
6. Refine your customer segments: Keep improving your segments with new sets of criteria to enhance the customer experience, find more opportunities, and scale your business.
8 types of customer segmentation
There’s not a universal segmentation method that’s equally meaningful for all businesses. You need to look at the data and see which customer segmentation model makes sense for your customers, employees, and business.
Many companies sort their audience based on eight types of customer segmentation.
1. Demographic segmentation
Demographic segmentation separates customers by basic identifiers, like:
- Marital status
Demographic segmentation can help marketing teams use demographic data gained from market research. They’ll personalize their messaging for customers in a particular group.
Support teams can use it, too. Age segmentation, for example, can give your agents a heads-up on communication preferences. Younger customers will likely prefer chat or social media support, while older generations will appreciate an email or phone call.
If you’re conversing with a Gen Z shopper on Instagram, break out the emojis. If you’re sending a baby boomer an email, you’ll likely use full sentences and a formal tone.
2. Geographic segmentation
Geographic segmentation involves grouping customers based on where they live or work. This includes:
- Location: Customers are grouped by where they are (country, state, city).
- Language: Customers are grouped by the language they speak.
- Transportation: Customers are grouped by the transportation methods available in their area.
- Climate: Customers are grouped by the climate of the area (desert, rainy, snowy).
- Workplace: Customers are grouped by where they work (on-premise, work from home, hybrid).
This type of segmentation can help you tailor your product development, sales strategy, and marketing tactics for certain customer groups.
Imagine you own an online clothing store and want to sell winter coats and clothing. Customers in Ohio—where the winter weather is harsh—will have different needs and preferences than customers in San Diego. So, you’ll want to target your products and marketing efforts accordingly.
3. Behavioral segmentation
Behavioral segmentation divides customers according to how they interact with your brand. This type of customer segmentation entails:
- Recognizing buying patterns
- Identifying how your product or service is being used
Leveraging this information will give you powerful customer segmentation data to enhance your offerings and customer service.
For instance, if numerous customers are contacting your support team with similar questions, you can create a help desk resource that addresses those recurring inquiries. This will not only improve your customer support experience but also make life easier for your agents.
Support interactions can even provide data on the customers who may be open to an upsell or cross-sell. When you know which customers are more likely to make repeat purchases or upgrade their plan, you can focus your cross-selling and upselling efforts on those segments.
A rewards program provides a lot of insight into customer behavior. Even a simple, “Buy 10, Get One Free” stamp card can give you a wealth of valuable behavioral information.
4. Value-based segmentation
Segment customers based on the lifetime value they provide to your business so you can allocate support resources where they’re needed most. If a certain type of customer isn’t generating a lot of revenue, you may want to rethink the level of support you’re offering them.
This allows your team to find cost-saving alternatives—such as self-service options—for lower-revenue-generating customers so your agents can spend more time helping higher-value customers. These clients are also far more likely to have complicated support issues that a help center or chatbot can’t solve.
Say a small business is calling your support team two or three times a month. Maybe you know the cost per unit for a phone call is $45, and your small-business clients pay only $15 for the product. You might want to take a closer look at phones as an unlimited channel for that customer segment.
5. Needs-based segmentation
Needs-based segmentation is the process of grouping customers who have similar and specific requirements for products and services. Oftentimes, the customers are grouped by shared experiences, and the company aims to learn their pain points, problems, wants, or needs.
- Product needs: Some customer groups require certain features; otherwise, they won’t use your products.
- Service needs: Customers expect and want particular services when interacting with your business.
If your restaurant doesn’t offer vegan dishes, you could alienate your vegan customer segment. Understanding the issue allows you to cater to that group by offering a few vegan options, creating a valuable opportunity to build relationships and customer loyalty.
6. Technographic segmentation
Technographic data tells you how familiar and comfortable customers are with technology. It also indicates what types of technology they prefer to use. The best way to gather this information is through customer surveys.
Technographic segmentation is particularly useful for software as a service (SaaS) companies that develop new products that can work well with other solutions.
Imagine your business wants to create a mobile application but only has the resources to build it on one platform. User segmentation will help you learn whether the majority of your customers are iOS or Android users, which will make that decision easy for you.
7. Psychographic segmentation
Psychographic segmentation separates customers into groups according to their:
This type of customer segmentation is among the most effective, as it allows marketing teams to get a glimpse into customers’ thoughts and perceptions and how they feel about companies’ products and services. You can use this data to craft a brand personality that aligns with your customers’ psychological characteristics.
Customer surveys—like CSAT and NPS—can provide first-hand information and vital feedback that help you gather insights and identify what drives their buying behaviors.
Say you sell handcrafted jewelry, which often comes with a higher price tag. You can use psychographic segmentation to identify customers who can afford to spend money on luxury goods—and enjoy doing so.
8. Lifecycle stage segmentation
This segmentation model involves grouping customers based on where they are in the customer journey. It highlights how customers’ support needs change as they move through different stages of their lifecycle.
For example, instead of asking basic questions on how to use your product, veteran users will ask questions to help them maximize your product’s efficiency.
Lifecycle segmentation is especially important with long-term B2B customers. These clients are likely to continue growing the longer they stay with your company, meaning their support needs will change, too. B2B customers tend to rely heavily on customer service to help their businesses expand.
Customers often need a lot of support during the onboarding process. In this stage, they’re familiarizing themselves with your product and likely experiencing issues often. In response, your agents might check in regularly with customers while they’re onboarding and then gradually reduce their support after a couple of months.
5 steps to building a customer segmentation strategy
Your customer segmentation strategy is your roadmap to how and why you’re organizing your audience. This plan should describe the reasons you’re using segmentation, the model you’re choosing, and the ways in which you’ll measure success.
Step 1: Determine your goals
Before you define your customer groups, think about how segmentation is serving the bigger picture—your business and your customers.
Start with identifying your company-wide goals. Reviewing these objectives will help you determine which segments best complement the company’s larger customer experience strategy.
For instance, if the company strategy is to focus on cost efficiency, it may make sense to focus on self-service and bot-powered experiences for certain segments.
Consider your customers’ goals, too. If clients report that onboarding takes too long, you might use segmentation to allocate more agents to early-stage customers.
Step 2: Identify the best way to segment your customers
With your goals in mind, decide which segmentation model makes the most sense for your business.
Begin with segments that already exist within your company. If other departments are using customer segmentation, try their models first. When all your teams segment the same way, you gain a common framework for discussing customer needs.
If those segmentation methods don’t work for customer support, create your own support-specific segments that closely align with your goals. Say your support team isn’t scaling solutions well based on customer business size—you could segment by company size to offer more tailored treatment.
Step 3: Target and reach your customer segments
Having the right customer segmentation model is only the first part—now you have to understand which segments to target and how to engage with them.
Taking a customer-centric approach will help with your outreach. Putting yourself in your buyers’ shoes and personalizing each interaction will enable you to create engaging experiences that build stronger relationships and give you a competitive edge.
According to our CX Trends Report, 70 percent of customers expect personalized experiences when interacting with a business. Boilerplate content won’t cut it—tailor it for your customer segments. Customize emails, create new targeted content, and understand the unique support needs of each segment.
Step 4: Revisit your strategy regularly
Delivering tailored experiences should streamline your problem-solving process and increase customer satisfaction and loyalty. Segmentation should also help support agents understand your audience better and reach solutions faster.
If you’re not seeing these outcomes, you probably segmented your customers by the wrong traits—and that’s okay. You may not choose the right segments the first time around. What matters is taking action and adjusting your segmentation strategy when your tactics aren’t working.
Be prepared to revisit your strategy regularly and make changes as needed. It might take some time to find the groupings that work best—don’t give up.
Step 5: Collect and analyze feedback
Collecting, analyzing, and implementing customer feedback is crucial to delivering a great customer experience. Here are a few of the best ways to gather feedback from your customer segments.
- Customer surveys
- CSAT score
- Net Promoter Score® (NPS)
- SMS surveys
- Website feedback widgets
- Customer service representatives and sales agents
- Advisory boards
- Social media posts
- Conversations with customer-facing teams and individuals
- Product pilots and early access programs
Once you’ve compiled the feedback, you can analyze the data to discover valuable insights into what motivates, excites, and frustrates your customers. This will help you nail down your brand positioning, create effective messaging, and personalize support for different segments.
How to pick the right customer segmentation software
Not sure how to start segmenting your customers? Instead of doing it manually, you can use reporting and analytics tools that automate groupings and present customer information clearly.
Look for a customer service solution that has:
- Robust filtering options to drill down on the right customer segments
- Sleek dashboards and charts to show segmentation data
- Collaboration options to share key insights with stakeholders
With instant access to customer insights, you can fine-tune your support experience and provide the personalization your audience wants and expects.