Every customer is different, and has unique needs and goals. You can make the best use of the customer data in your CRM and marketing tools to create messages, features, and incentives that satisfy your target audience, the ideal group of customers for your product. This is easier with a customer segmentation strategy.
Customer segmentation is grouping your target market into segments based on the similar traits they share. Customer segments are a subset of your target audience; customer segmentation is also called audience segmentation.
A one-size-fits-all approach to marketing offers limited success as it ignores the unique needs and goals of the different segments within the larger customer base. A marketing strategy that considers the needs of every individual is able to attract more sign-ups and deliver better customer experiences.
In practice, you can use customer segmentation in various ways, including:
New product development: The success of a new product idea hinges on its ability to solve a problem or meet a need. Know your customer first, build later is common wisdom. Through the segmentation process, you can dig deeper into your customer base, and then create a product plan stating objectives, stakeholders, and deliverables.
Product improvement: You have the opportunity to analyze your target segments’ interactions with your product and customer service at a granular level to uncover common customer behaviors and pain-points. The data can be put to use in planning product updates.
Build marketing campaigns: Marketing messages are more effective when they speak directly to your users. But as your users are not a homogenous bunch, a promise or incentive that works for one may not work for another. Using segmentation data, you can create different versions of an ad or social media post to engage everyone.
Pricing success: Market segmentation is a starting point for SaaS pricing, helping differentiate customers by purchase drivers. It can be used alongside competition-based pricing to align with how customers perceive value.
Create customer personas: Segments are a higher level classification of the target audience. They serve as reference in creating customer profiles or personas whose characteristics mimic those of your ideal customer.
Customer segmentation models consider the common characteristics of the target market. The categories include:
Demographic segmentation: Groups users by job title, income, marital status, age, education, and gender. SaaS businesses can use these and others like company size and work profile. For example, Netflix offering a mobile subscription plan (its cheapest) only for price-sensitive Indian consumers.
Geographic segmentation: Groups users based on their geographic location. Segmentation can be done by country, state, city, timezone and real-time location.
Psychographic segmentation: Groups users based on their personality, values, attitudes, and interests of the target audience.
Technographic segmentation: Creates groups of customers based on app, mobile device (e.g. iOS, Android, or Windows users), desktop, and software usage.
Behavioral segmentation: Groups users based on how often they use the product, the benefits they seek, and the specific features they use. Tools such as Toplyne allow you to build sales pipeline based on product usage behavior.
Needs-based segmentation: Groups users based on their needs (whether rational or emotional) from your product.
Value-based segmentation: Groups users based on their economic value to your business. For example, whether they are lifetime free, low MRR, or high MRR customers.
Changing customer needs can affect your segmentation model. A customer segmentation analysis, where you review your existing segments every 18-24 months, is necessary to retain groups that contribute to your long-term growth.