Customer Segmentation : Explanation, Types, Examples

Priyanshi Shah September 6, 2020January 16, 2023 0 Comments

This guide will cover, “What is Customer Segmentation, Definition, How to Segment Customers (Using RFM Analysis), Types of Customer Segmentation and Examples”.

Explanation:

Customer segmentation is the practice of separating customers into groups and categories. All customers look and act differently. By grouping them into similar categories, marketers can maximize the ROI of their campaigns.

Segmentation allows marketers to better tailor their marketing efforts to various audience subsets. Those efforts can relate to both communications and product development.

Definition:

Market segmentation is the activity of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers based on some type of shared characteristics.

How To Segment Customers?

Using RFM analysis

Combination of 3 parameters.
Recency, Frequency, Monetary.
Combine the scores to group your customers.

What is RFM Analysis:

Recency: How recently a customer purchased.
Frequency: How often a customer purchased.
Monetary: Total value of customer spending.

There are a total of 11 segments in which the customers are divided. And a brief explanation of these segments is mentioned below:

1. Activity: These are the customer who bought recently, often, and spend more.

Action to take:

Reward them
Ask for reviews
Ask for feedback on new products
Email exclusive offers
LOYAL CUSTOMERS

2. Activity: These are the customers who spend money often, and responsive to promotions.

Action to take:

Reward them
Ask for reviews
Upsell higher value products
Offer new offers/ collections first
PROMISING

3. Activity: These are the customers who bought recently, not top spenders, have the potential to become loyal/champions.

Action to take:

Nurture them
Offer memberships and loyalty programs
Recommend other products
NEW CUSTOMERS

4. Activity: These are the customers who bought recently and for the first time.

Action to take:

Provide a great first experience (i.e. upgrade shipping for free)
Give early “success”
Say “thank you”
Start building a relationship
ABANDONED CHECKOUT

5. Activity: These are the customers who almost bought but abandoned their checkout on the final step.

Action to take:

Send a personalized message and offer pre-sale support
Send an auto-email campaign to recover
Retarget through Facebook/Google
WARM LEADS

6. Activity: Those customers who are above average recency but don’t buy much. Still warm to your brands don’t lose them because if you lose them it becomes really hard to get them back.

Action to take:

Create a follow-up campaign designed to bring them back
Make limited time offers
Reactive them in some way
COLD LEADS

7. Activity: These are the customers who haven’t bought in a while and never spent much.

Action to take:

Share valuable content and resources
Recommend popular products
Offer small discounts or give gift cards
NEED ATTENTION

8. Activity: These are the customers who are average recency and spend values but your business needs them to make another purchase.

Action to take:

Follow up about new products and services
Offer proactive support, call them up
Win-back with discounted top-ups
SHOULDN’T LOSE

9. Activity: These are the customers spent a lot and frequently, but haven’t bought in a long time.

Action to take:

Create win-back email/SMS campaigns
Remind them about unused gift cards or loyalty points
Don’t lose to competitors, talk to them
SLEEPERS

10. Activity: These are the customers who spent above-average money, but it’s been a long time since they’ve bought.

Action to take:

Send personalized emails to reconnect
Offer discounts to return
Remind them about loyalty points/gifts cards
LOST

11. Activity: Those customers who have the lowest points across the board

Action to take:

Revive interest with reach out campaigns
Ignore, don’t spend too much time/money here
Don’t offer discounts for risk of diluting your brand

Now export your customer list and figure out which customers sit in these 11 segments.

Update these lists at least once a month.

Also Read: Brand Image: Explanation, Types, Importance, Example

Types Of Customer Segmentation:

1. GEOGRAPHIC:

The geographic segmentation is used to divide customers into states, regions urban/rural, nations, cities to divide the consumer base into various groups.

2. DEMOGRAPHIC:

The demographic segmentation is used to divide consumers based on their age, gender, religion, etc.

3. BEHAVIOURAL:

Behavioural segmentation is used to divide consumers based on their opinions, beliefs, attitudes, perceptions.

4. PSYCHOGRAPHIC:

Psychographic segmentation is used to divide consumers based on personality, lifestyles, class.

5. LIFE STAGE:

The life stage segmentation divides the customer based on their life stage like unmarried, married with no children, single parent, etc.

Examples Customer Segmentation:

NETFLIX:

Netflix delivers comedy shows, action series, love series, etc to its customers. It divided the customers into behavioural segmentation and provides the shows on the basis of their opinions and interest. The company knows about the latest show you have watched and saves that very data. And later recommends you the shows of your favorite concepts.

TRAVEL FREAK:

Travel freak divides the customer in psychographic segmentation by keeping the information about the customer like how often he/she travel. And then provides various offers and trips so that the customer shows interest in their company.

ZARA:

Zara divides the customer into demographic segmentation and provides the clothes according to your gender, age. Once you fill the form of age and gender the Zara keeps the record of it and then shows you the latest trends of your gender and age with various offers.

Also Read: Product Mix: Explanation, Strategies, Dimensions, Example