What is customer segmentation?

The amount of information that a company is able to work out about its customers based on their consumer behaviour alone is simply enormous. And yet, there is so much in that wealth of data that remains untapped.

In 2018, marketers on a global scale admitted that they expected to waste just over a quarter of their marketing budget on communication strategies that did not work. That is a mind-blowing amount of waste.

Knowing what we do about the impact of personalized, precision marketing, it’s hard to believe that these companies are doing all they can. It is one of the most basic principles of business (it’s actually on BBC bitesize, the school revision website) and yet it can be a downfall for so many. Even international, household-name companies can experience huge product flops because they are trying to sell the wrong things to the wrong people: just look at the long list of Coca-Cola products consigned to ancient history.

Of course, product development is a different kettle of KPIs from the marketing department, but there are lessons to be learned from all areas of a business, at all times. So, how are you doing on the key principles and how targeted does your customer segmentation look?

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Segmentation: the basics

It’s never a bad thing to go back to the beginning if only to keep an open and critical mind about your business and its performance. Segmentation is the principle that customers with different profiles behave and buy differently, therefore, the way you communicate your products to them needs to be tailored. Men and women often display different consumer habits (as well as buying very different things in obvious areas like clothing retail), as do different ages, faiths, those with different incomes, and professions.

It’s not just demographic, it’s psychological too. Some people respond better than others to certain types of personalisation. People’s behaviours are different. Using your marketing budget like a blunt instrument is going to have increasingly poorer returns as the average consumer gets wiser and professional, supportive products become more sophisticated.

Far from perceiving the knowledge that companies hold about them as a personal data breach, most people expect personalised marketing, and 36% of consumers want their customer journey to be more personalised than it currently is.

The facts and figures around personalised content are startlingly clear. There are simply too many to list here, but this Forbes article handily lists them all in one place. Demand for personalisation is very high among average opinions, but levels of irritation at mass marketing and poor personalisation are up too. Ultimately it affects the bottom line. One figure really stands out: companies using advanced levels of personalisation in real-time are seeing 20:1 ROI. That is $20 for every $1 spent, which is a jaw-dropping level of return.

What segments should be at the heart of your strategy?

There are some non-negotiables here, but the prominence of each segment is going to depend on your product and your specific patterns of consumer behaviour. This is why marketing is part cold, hard economics, and part subtle dark art. You need both to make your strategy fly, and the magic of balancing both parts is down to a) experience and b) the ability to learn from the successes and failures of yourself and others.

The demographic segments

1.     Gender

The world has changed a great deal over the past five years, but there are also key factors that have stayed the same. This fundamental category still determines product choice and behaviour across market areas. Obvious examples are skincare products, clothing, footwear, and accessories. Of course, there are subtleties in this. For example, in the 2010s there was an explosion of women buying skincare products for their male relatives and partners. This is the type of message treatment that you need to hand over to your copywriter, telling them to be creative with their copy but also audience-specific.

It’s important to be wary of assumptions and lazy stereotypes, however. There have been some pretty shocking marketing campaigns that have simply misread what a gender segment actually requires. Special lady pens, pink lady drills, ridiculous macho body product names – even a failed presidential campaign. All of these have grabbed the headlines for the wrong reasons.

Russ Khan of PUMA put this really astutely: “I think for a long time athletic brands said, ‘We can just shrink it and pink it and that will be good enough for the female consumer.’ And good enough is not good enough anymore.”

The way to deal with these issues is to, firstly, think about true consumer needs and build your communication around that. The best way to do that is to talk to your customers and put what they say into practice. No one is saying that gender doesn’t influence marketing, but times have moved on and communications need to reflect that.

2.     Age

This is a complicated one, because the age of a consumer influencers what they buy, how they purchase it, what they spend, how they learn about the product, the channels they will use and, to an extent with some product types, when they will buy.

This is a lot of information, but it’s not hard to tease out because different age groups largely tend to share common behaviours and habits with one another.

Age shouldn’t just influence your marketing strategy; it should be at the heart of how you plan for your customers’ user experience. We know that age is a significant influence on what technology a consumer will prefer to use. For example, older technology users are far more likely to employ a voice search than younger blitz-typers with different habits.

3.     Location

This is a hugely untapped source of information about consumers. One of the beautiful things about the UK is its strong sense of regional identity. One-size-fits-all marketing in this regard is missing out on some serious opportunities. Remember the statistic above about the 20:1 ROI for businesses using serious personalisation including real-time features? So many things change about a location in real time: weather, news, weekly habit, annual calendar, local tradition, environment. The list goes on. How informed are you about your consumer density in different regions? What do you know about these places and what’s important to the people there?

The advantage of this is that it’s also so easy to test. Try using this approach towards one of your regional segments and see how it works. If it yields results, fantastic. If you could do better, try again. Research makes perfect in this area. It’s also a crucial time to keep an eye on consumer behaviour change. While during the pandemic, there was a boost to big business, as small business suffered, large percentages of people report guilt about this. Roughly 30% of people overall don’t want to continue their reliance on Amazon, and the percentage gets higher the younger the consumer.

Local messaging will become increasingly more important as expectations of personalisation and values change over time. It’s also a great way to incorporate relevant messaging into your comms because so much of this information already exists in the public domain.

4.     Faith

One-quarter of the global population is Muslim. There are four million Muslims living in the UK alone. There are plenty of Muslim marketing agencies out there doing stellar work, but the reality is that faith markets across the UK generally are neglected. Globally, the Islamic finance market alone is looking at a 10% increase in growth by 2022 and in the US, the faith economy is valued greater than the top 10 tech firms.

It’s a gigantic market, but apart from some high-profile examples in the press, you wouldn’t know it. Maybe it’s because it feels easy to get this angle wrong, or perhaps because mainstream marketing departments don’t feel informed enough.

There are naturally some good and some bad examples. Muslim Ad Network has some really fantastic insights, including the important point that Muslims are not just consumers during Ramadan. Imagine if a mainstream supermarket only advertised food during Christmas? Obvious that is a ludicrous idea. It’s time to realise that there are millions of people in the UK looking for relevant communication and representation from business and not finding it right now.

5.     Profession

There are some professions that structure people’s lives in ways that are really easy to target with a segmentation strategy. Teachers are an obvious one, with behaviour and spending depending on the time of year. Clothing, stationery, and leisure are all affected by term-time pressure and holiday freedom – and this applies to students too. Teachers, students, and NHS staff all know that companies will develop discounts especially for them, and there are plenty of blogs out there that these groups will check out to help them make the most of their money.

6.     Income

Otherwise known as socioeconomic status. It’s best to stick to facts rather than assumptions here. If someone has a lower-paying job, payday is going to be more important, and the first two weeks of a month will be times of greater expenditure.

This information is so tied up in the types of purchases that people make. It’s always good to look for more specific information about your customer such as when they purchase, what they buy and how much they spend on average if you want to accurately inform your marketing strategy without jumping to conclusions.

7.     Special occasions

Recognising someone’s birthday is a superb way to encourage them to treat themselves with one of your products. More and more companies are using this information, as most customers with an account have to enter their birth date to prove they are old enough to use the website. H&M offers a great birthday discount which is valid until two weeks after your birthday. There are website pages devoted to the best company discounts because they are so popular.

It works to entice new customers to you, and it also works to reward those loyal to your brand. When you are marketing to an existing customer, it’s one of those examples of personalisation that really works.

8.     Marital status

Consumers at different stages of life, regardless of specific age, are going to have different needs and expectations. The same product might have a completely different meaning depending on what you are using it for. Take a piece of marketing for a car as an example. If a car is being marketed to a single woman, it could make sense to aim that idea at going on holiday with a group of friends. For a woman with a young family, a different emphasis will be needed.

The behaviour segments

These are slightly different from identity segments as they are based purely on how your consumer interacts with your business. These fall roughly into two categories: existing customers who have made purchases, and those who have shown interest in some way but are not yet part of your solid base. There are so many methods you can use to uplift the purchase commitments of both these groups, all of which have solid success rates when applied systematically.

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Existing customers

Hallelujah for these! These individuals are at the core of your business; they generate both your income and the majority of the data that you need to improve your performance. But there is great variation in the way that different subgroups of customers behave, which is why these segment headings are essential too:

Top purchasers

It is never going to stop being essential to remember that 20% of your customers create 80% of your business. You will have heard this before, and you will hear it again. It is possible to further improve the value of your top purchases with both online and offline strategies. Loyalty programmes and (carefully planned) upselling will work in the context of online and in-store purchasing. Reward is key to improved value in this segment and remember that their dedication to your product means that you can afford to spend a little on them. Think about what would really make them feel good.

Customers that love new products

These customers are not only stellar for your bottom line, but they provide you with free exposure. New product launches are crucial times because it’s when many of your defining customer reviews take place. There will be a lot of them very quickly so it’s important to plan which segments to reach out to. We always encourage our clients to be especially vigilant of review content at this time as it can really make or break the performance of a new product.

Repeat (or periodical) purchasers

So long as you maintain a good relationship with this group you will be in a sturdy place with your business. These habitual customers have products that they like, which feature as a regular part of their lives. But please don’t become complacent. This base is essential, and while some anecdotal reports state that pandemic behaviour has inspired greater loyalty from customers in troubled times, other reports identify seriously shaken customer loyalty. International consultancies like Deloitte are putting immense resource into guiding brands through this difficult time and, at Feefo, we also encourage you to keep your ear to the ground and track what your customers think about you in as many ways as possible. Because we ensure that feedback comes from verified customers only, we know that the quality of the information we collect is reliable and reflective of your actual customers’ experiences.

New customers

These individuals need quick validation and rapid follow-up. The more time goes by after a first purchase the more likely they are to forget about you.

Hesitant customers

These individuals need to be reassured and have their doubts allayed. Many of them may be in the research stage of purchase, so make sure you know what key words are being used about your products by potential customers.

Coupon seekers

The key with these individuals is to capture their data. If they are attracted to your business by the idea of a discount, let them be. If there are enough of them, you will be able to stimulate business. Plan what you are willing to part with for less cash carefully, as a chaotic campaign can cost you money.

Cart abandonment customers

Deep breaths. This is a frustrating segment. There will always be some rate of abandonment, but a lot of these can be dealt with by a careful CX journey and follow-up after they have left at your virtual register. Remember that not everyone abandons the same amount in the same way. Customers who have been researching for a while may not have noticed a few days go by. Some strategic abandoners may even be waiting for a follow-up discount. Follow-up here is the key, so look carefully at your data and make sure your sub-segment carefully.

These sub-segments can be tricky, but they represent a huge amount of untapped potential. They might have made an initial purchase, or they might have shown interest only, so make sure you have a communication strategy ready for each behaviour. Much of this can be dealt with through the glories of automated email software. Just make sure the level of personalisation is right and your information is accurate.

The techno-segments

Who is using what device? Mobile, desktop, tablet? This matters because different devices enable, support, and lead consumers to purchase differently. Desktop users literally have more space to look and see, which is why they click on ads more frequently. It might be that your business comprises greater mobile purchasing than desktop, however. These crucial details will influence how you design your customer experience and how you communicate with them.

Channel segments

Think about all the routes that your customers are using to reach you:

  • Pay-per-click
  • Organic
  • Email
  • Social
  • Streaming

You are likely to know what your primary routes are, but this is a careful mix of balancing prior behaviour and looking at how behaviour changes over time. McKinsey conclusively reports that consumers are more and more likely to look across multiple channels when they purchase, so viewing these as isolated routes is no longer going to work. Customers are beginning to have greater expectations of integrated experiences, so make sure you are prepared for this.

NPS (net promoter score) segments

This one is important. Of course, you are always going to have a number of negative reviews, it’s part of the ultra-connected world we live in. However, this is an area where a solid company strategy, a united and invested approach across your business, and quality customer experience support will lead you wherever you want to go.

We’ve been helping companies showcase their best reviews and supporting them to deal with their bad ones for over ten years. There’s no problem that can’t be solved with careful tracking and insight, so don’t let passive or negative NPS get you down.

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Notes on cross-over

If you are fairly new to this, it must sound like a lot of information. Start small and start basic with what you know not what you assume about your customers. Your business won’t immediately fail if you don’t have all of these segments in place – however, it will grow and improve as you begin to maintain and diversify your segments at the right pace.

People will always fall into more than one category, so plan what you want to start with and review performance regularly. You can build more in as you go along and as your team grows stronger – and there is an enormous amount of software support out there, so don’t think this all needs to be done with Excel and a prayer. Good luck and happy segmenting!


Net Promoter® and NPS® are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.


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