Types of Customer Segmentation and when to use them

Part of the "Marketing your Startup like a Boss" series.

Segmenting your market into "Customer Segments" is critical in identifying who you are targeting and what makes them tick. Get this right and you are much more likely to get cut through.

There are 3 broad ways brands segment their market.

  1. Demographic Segmentation:
    • This uses demographic information like age, sex, ethnicity income etc.
    • It's pretty blunt and does not really give any insight into what message might land well. For example just because my Mom is a 63 year old female doesn't tell you how to create a message that will have an emotional resonance with her
    • However this type of data tends to be the easiest to come by and so is often used
    • For example you can see the age breakdown of your site visitors in Google Analytics
    • It is very frequently used by companies who need a common language when working with other businesses because the data is so black and white
    • For example it's often used in media buying due to the availability and clarity of the data. A media company can tell you the age of the, income levels etc of people in an area you might want to buy a billboard or of people who watch a certain TV show you might want to buy and ad in.
    • As a result, despite this being a really shit way to understand your customers, you should probably get a good handle on this type of information on your target market as you may need it
  2. Attitudinal Segmentation:
    • This type of segmentation uses beliefs, attitudes, needs etc
    • Tt tries to get at the core motivations of the customer
    • It's therefore highly effective at trying to develop a message that will resonate
    • If you know that your customers are very family oriented and fear for their children's future and you are a bank... you can leverage that insight to promote long term savings accounts for parents who want to send their kids to college
    • So what makes your customers tick? Why do they use your product over others? What need are you fulfilling
    • Big brands will frequently do focus groups, surveys, pull data on customer usage to define a number of attitudinal customer segments in the market and decide who to target
    • When Nintendo launched the Wii you could see that they looked at the market and rather than going after the "Core Gamer" market they went after a completely different customer segment "The Family". They designed their games to be communal, fun and their advertising backed up this positioning. It was a classic example of a company nailing attitudinal segmentation to attack a market from a new angle
    • Attitudinal segmentation is incredibly powerful, however it is as much art as science. Demographic data is black and white whereas this type of segmentation requires you to gather more abstract data to form a number of different customer segments in your market
  3. Behavioural Segmentation:
    • Based on the way a customer responds to, uses or knows of a product. 
    • For example you might segment by how much your customers use different product sets or what stage of their lifecycle they are in; new customer v churned customer
    • You might have one customer segment who religiously buys one of your products but never the others and another customer segment who dabbles in all of them
    • This type of data is readily available to you as you can leverage your existing customer data
    • You might create a "VIP" segment who are big users of your product and your main goal is retention whereas you might have "Ad hoc" users and your goal is to increase frequency of usage.
    • This information is powerful in defining CRM strategies e.g. what type of offer to hit each group along their lifecycle.
    • Beware though that while this is a great way to better manage your existing customers it's not a great way to understand how to attract a new market segment. If you rely on your internal customer data and use that to define a customer acquisition message you will just get better at attracting the same customer type you currently have. You would never have done what Nintendo did and identified a new target market...

Summary:

When thinking about which type of segmentation to use you need to consider what the use case is. 

  • Demographic data is great because it's readily available but really poor at helping you define what message to put in someone and when.
  • Attitudinal data is great at helping you define the actual message (copy and design) and to give it emotional resonance.
  • Behavioural data is great at helping you know when to land a message to better manage your customer base e.g. who to upsell and when.

Many companies will combine all segmentation types to get a really detailed view of the segments in their market. They then use this to create a "pen portrait" of their ideal customer.

Check out this example Pen Portrait by Yves Saint Laurent:

 

My name is Elizabeth Duke and i am 29 years old. I currently work as the PR manager for a top London Public Relations Firm.

I have a keen interest in Fashion, and i like to do a 'season' shop, once every 3 months. I buy Investment pieces; items that i feel with withstand new trends and offer a classic and simplistic feel. I like to shop in Yves Saint Laurent and Gucci for the more timeless items, but i also shop at Stella McCartney, especially in the summer months, for the fresh and feminine style of the brand.

I currently live in Chelsea, London in a penthouse apartment with my husband, an Investment Banker. We like to visit our country house in the Cotswolds and also enjoy regular visits to our holiday villa in St. Tropez, France.

My interests include Gastronomy and fine wines, Fashion, as previously mentioned, travelling and experiencing new cultures as well as luxury spa retreats. I like to indulge myself with regular treats, and i take great pride in my appearance. In terms of my dislikes, i am not a 'bargain hunter', i have little interest in 'Fashionable but cheap' items, and i dispise high street retailers who create replicas of the designer brands.

I read Vogue, Harper's Bazaar and Tatler; the lower market gossip magazines such as Heat, Closer or More are of no appeal to me. The lives of celebrities should be private and not advertised as a public spectacle.

As far as my career is concerned, work comes first and a family comes later at this present point. I love the fast paced, dynamic and ever changing variety of my industry, and i constantly thrive for more.