The complete guide to customer segmentation

Customer segmentation is the process of classifying customers into specific groups based on shared characteristics. This allows companies to refine their messaging, sales strategies, and products to target, advertise, and sell to those audiences more effectively.

This approach is used for both Business-to-Consumer (B2C) and Business-to-Business (B2B) marketing. B2C consumer segments are generally based on things like demographics, lifestyle, values, and needs. B2B marketers, on the other hand, tend to segment customers by industry, location, payment terms, or the specific products a company previously purchased.

Segmenting customers makes it easier for companies to sell their products and services. It is the difference between marketing a product to anyone and everyone, versus tailoring your messaging to address the needs or interests of specific groups of customers. 

Marketers often create buyer personas, or research-backed representations of their ideal customer, for each major customer segment. They will categorize customer groups using demographics, psychographics, shopping behaviors, and purchase motivations. 

Once a company has established buyer personas, it can map out a buyer’s journey that represents the decisions and steps a customer takes before, during, and after a purchase. This enables it to tailor its marketing messaging, branding, and pricing to every step in the journey.

Customer segmentation and vivid buyer persona descriptions bring specific buyers to life, increasing the chances of selling products and reducing the high risk of product failure. Companies use these descriptions to upsell and cross-sell additional products, improve the customer experience, and build overall brand loyalty. Segmenting helps companies identify their best groups of customers, understand which messaging and buying channels they prefer, and sell in a cost-effective manner.

Organizations often segment customers as part of a larger market research effort to understand the opportunities that exist in the marketplace. This includes finding the answers to questions like:

Market research surveys are frequently used to collect detailed data on customer motivations and behaviors. These typically cover questions like:

Often, these questions will be asked to the same audience several times over a longer period of time. This is known as a panel survey, which measures changes in customer attitudes and provides valuable insights to marketers.

You can use market research templates and other market research resources to understand why someone buys a product. But you also have to know who will buy the product. This is where customer segmentation comes into play. When you determine the characteristics of people who like and will buy your product, you can effectively divide your customer base into subgroups.

You will need to collect data to segment customers into specific groups. Surveys are a great way to get data related to demographics, purchasing patterns, preferences, and other distinct categories. You can also use interviews, existing customer data, focus groups, and other data collection methods. 

Once you have sufficient data, you can begin categorizing your customer groups. Demographics are a common way to segment customers. You can use surveys to collect data about a customer’s age, gender identity, income level, educational degrees earned, and marital status. Depending on your research goal, customer segmentation questions may also address who makes purchase decisions in the household, what lifestyle challenges they have, and similar purchase behavior details. These are a few examples of groups you can survey through SurveyMonkey's Audience panel:

Based on the answers to these questions, you can define specific customer groups that will (and won’t) buy your products.

Once you have segmented your customers, you can work on targeting those groups. However, people often confuse segmenting and targeting. Segmenting is when you create multiple groups of people who have common traits. Targeting is when you focus on a particular segment or segments because they have a higher potential of buying your products. 

For instance, you might have a new type of tea to sell. Your customer segments might include people of different demographics who drink tea for health benefits, for a caffeine boost, or as an inexpensive alternative to soda. 

You will need to understand which customer segment is likely to buy your new tea. Demographics and behavior traits will help you define the right customer segment for your product. Both B2C and B2B companies use this approach to clearly identify the customer segments who will have the highest probability of sales.

However, to define your target audience, you will need to answer questions that further clarify your customer segment and how you might sell to them. Questions include:

Now you can create a survey for your target audience and include questions like:

When conducting a survey, you will want to make sure that you sample the right number of people in your customer segment. For instance, you might want a representative sample of 30 million people to see if they will buy your tea. Depending on your target audience, you might find that 400 survey responses from your target audience will provide the insights you need.

By using statistical sampling, screening questions, and appropriate questions, you will get the survey data you need to see if your tea will be a big seller.

Customer segmentation involves dividing people into groups according to common traits. To accomplish that, marketers use customer segmentation models that define which criteria best describes the ideal audiences who will buy their products. 

Companies gather customer data, market research survey results, purchase transactions, current trends, competitor analysis, and other information that will help them categorize buyers into distinct groups. Automation has made collecting data about their existing customer base and potential customers easier to collect and analyze.