Understanding your customers is essential to success. Instead of guessing what your customers want or need, it allows you to create messages and offers that resonate with your audience. Taking it a step further, segmenting your customers into groups based on similarities allows you to understand those groups more deeply. This allows you to create tailored campaigns that address the specific needs of each segment.

What is customer segmentation?

Customer segmentation is the process by which a business divides its customers into groups based on common characteristics. This allows the business to effectively and appropriately market to each group. In business-to-business (B2B) marketing, customers can be segmented based on a variety of factors, including:

• Industrial sector
• Number of employees
• Products previously purchased by the company
• location

In B2C (business-to-consumer) marketing, customers are typically segmented based on the following demographics:

• age
• gender
• Marital status
• Location (urban, suburban, rural)
• Life stage (single, married, divorced, parent with children who have become independent, retired, etc.)

Why Segment Your Customers?

Customer segmentation helps marketers execute marketing strategies that are better tailored to different customer subsets. This effort can involve both communications and product development. Specifically, segmentation helps companies:

• Create and deliver targeted marketing messages that resonate with a specific group of customers. This message may not be relevant to another group, who will instead receive messages tailored to their needs and interests.
• Choose the communication channel that best suits your segment. For example, you could use email, social media posts, radio ads, or a different approach depending on the segment.
• Improve products or identify new product or service opportunities.
• Build better customer relationships.
• Test your pricing options.
• Focus on your most profitable customers.
• Improve customer service.
• Upsell and cross-sell other products and services.

How to segment your customers

Customer segmentation involves collecting specific data about your customers and analyzing it to identify patterns that can be used to create groups. Some customer data can be collected from purchase information, such as job title, geographic location, or products purchased. Some data can be obtained based on how the customer entered the system.

For example, an online marketer using an opt-in email list can segment their marketing messages based on the offer that drew them in. However, demographic information such as the customer’s age or marital status may need to be collected in other ways.

Common methods of information collection include:

• Face-to-face or telephone interview
• Survey
• General research using published information on market categories
• Focus group
• Loyalty Program Data
• Signup form for online store
• Direct conversation
• Customer Reviews
• POS(Point of Sale) data
• Customer Support Interactions
• Purchase History
• Online Analysis

Shopify’s segmentation tools let you collect this data directly from your online store traffic. Create your own segments to discover powerful insights about your customers and drive sales with custom campaigns. Shopify also includes default customer segments and templates to help you get started. As your business grows, you can refine, add, and even remove customer segments. You can build your customer segments by adding filter names, operators, and values ​​in the editor on your Customers page.

Leveraging Customer Segments

The common characteristics of customer segments can guide a company in deciding how to market to each segment and what products or services to promote. For example, a small business selling handmade guitars might decide to promote lower-priced products to younger guitarists and higher-priced premium guitars to older musicians, based on segment information that younger musicians have less disposable income than older musicians. Similarly, a meal-by-mail service might emphasize convenience to millennials and the benefit of “Mother’s Homemade” to baby boomers.

Once you’ve identified your segments, make a list of their common characteristics, paying particular attention to their pain points and needs. Use these commonalities to develop your segmented marketing strategy and promotions. You don’t have to offer every promotion to every customer. Send promotions only to customers who are interested in them. For example, a discount on dog food might not generate any sales for customers who don’t own dogs. So consider creating a segment of dog owners and sending them only that promotion. The key idea behind a customer segmentation strategy is that you don’t have to send every promotion to everyone all the time, but you should target your promotions to the right audience. You can also include customers in multiple segments. You don’t have to lock every customer into a single group. For example, people in the dog owner segment might also be part of a parent segment.

Customer segmentation models can be used by any business, regardless of the size or industry of the company, whether online or offline. The process begins with data collection and analysis and ends with the appropriate and effective use of the collected information.

Customer Segmentation Example

Some examples of how you can create customer segments include:

1. Demographic Customer Segmentation

Segmenting Customers by Demographics Demographic segmentation is the process of grouping customers based on facts about their lives. This can include factors such as:

• gender
• age
• job
• Household Income
• Marital status

For example, if you run a bookstore, you can create a segment aimed at parents and advertise children's books. Or, you can create a segment based on age and advertise the right books to the right audience.

Candle brand Otherland could create a segment targeting '90s-born millennials and advertise a '90s-inspired product line to them.

2. Geographic Customer Segmentation

Geographic segmentation refers to dividing customers by location or region. This can include factors such as:

• location
• Preferred language
• Cultural elements

For example, a customer in Florida might be marketed swimwear year-round, while a customer in New York might be better served by advertising winter coats during the colder months. Segmenting customers by location allows you to deliver messages in their preferred language when selling internationally, and even incorporate relevant pop culture sentiments for their location. Allbirds delivers different messages to customers based on their location. For customers in the UK, it highlights lightweight footwear that’s perfect for summer.

3. Behavior-based customer segmentation

Behavioral segmentation refers to grouping customers based on their online behavior, primarily based on previous purchase history, purchase frequency, and which products they are most interested in.

You can group your customers as follows:

• Purchase behavior
• Usage Patterns
• Customer Loyalty

For example, a hair care brand might create a segment for customers who only buy shampoo but not conditioner, and offer them a promotion related to conditioner. Or, it might group customers who buy the same product every month and offer them an exclusive offer to keep that purchase pattern.

4. Psychological Customer Segmentation

Psychographic segmentation means dividing your audience based on their attitudes, values, lifestyles, interests, etc. Here are some ways to segment your customers:

• Interests and Hobbies
• Lifestyle and values
• personality traits

You can use previous product purchases, survey responses, and shopping behavior to understand what kind of lives your customers lead, what they enjoy, and what they value most. For example, if you run a wellness supplement brand, you might segment your customers who enjoy hiking every weekend, and another segment who prefer to go to the gym before work.

Indoor plant brand The Sill offers three subscription options based on customer interests and lifestyles: a pet-friendly subscription for those who live with animals, and an easy-care option for those who have busy lives and little time to care for their plants.

5. Technical Customer Segmentation

Technical segmentation means grouping customers based on the technologies and apps they use, how they find your brand online, and the channels and devices they prefer.

This segmentation may include:

• Online behavior
• Technology introduction
• Preferred Device

For example, you could send SMS notifications about a new product line to customers who prefer to receive text messages. Or, you could send personalized messages to customers who found your brand on Instagram or TikTok.

Start segmenting your customers today

Customer segmentation is a great way to start a personalized strategy and develop promotions and campaigns that are directly relevant to your target audience. Shopify’s built-in customer segmentation tools make this easier than ever.

This tool allows you to better understand and leverage your data for free, all on the same secure platform you use to run your business. Discover endless possibilities with Shopify’s segmentation tools.

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