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What Is Customer Segmentation Analysis & 7 Steps for Doing It Right

Customer segmentation analysis can revolutionize your strategy. Learn the essential steps to segment your customer base and drive results.

customer segmentation analysis
avatarAkram HassanMay 28, 2024

Customer segmentation analysis plays a crucial role in understanding your customers' preferences, behaviors, and needs. Imagine being able to offer personalized experiences that resonate with your audience, driving loyalty and growth for your business. This article will provide valuable insights on how to achieve this goal, creating personalized customer experiences that foster lasting connections and increase revenue.

Rengage can help you create personalized customer experiences to drive loyalty and growth.

What Is Customer Segmentation Analysis?

Capabilities of Customer Segmentation Analysis

Customer segmentation analysis is the process of discovering insights that define specific segments of customers. Marketers and brands use this process to determine what campaigns, offers, or products to use when communicating with specific segments.

The five Ws of segmentation are:

  • Who
  • What
  • Where
  • When
  • Why

Why It's Essential for Businesses to Understand and Segment Their Customer Base

Understanding and segmenting their customer base is essential for businesses because it allows them to determine the best campaign to create to reactivate lapsed customers or understand the value of certain segments by analyzing a segment’s predicted Future Value, average order value, loyalty tier distribution, and more.

Highlighting the Importance of Tailoring Products, Services, and Marketing Strategies to

Different Customer Segments

Businesses need to tailor products, services, and marketing strategies to different customer segments because it allows them to understand what campaigns, offers, or products to leverage when communicating with specific segments. For example, a retail brand looking to determine how to reactivate lapsed customers might create a segment of customers who purchased in the past and haven’t purchased or browsed the eCommerce store in the past 30 days.

5 Benefits of Customer Segmentation Analysis

Benefits of Customer Segmentation Analysis

1. Identify the Most Profitable Customers

Customer segmentation allows businesses to identify their most profitable customers. High-value customers help offset acquisition costs and contribute to overall profitability. Utilizing a customer relationship management (CRM) tool like BIGContacts enables businesses to find these customers and turn them into brand ambassadors.

2. Gauge the Actual Consensus of Your Customers

Segmenting customers helps to better understand their needs and expectations. Businesses can gain more insight by dividing customers into segments based on factors such as purchase value or user type. This segmentation provides a more accurate view of customer feedback and product development and optimization preferences.

3. Build Ideal Customer Personas and Journeys

Creating customer personas helps businesses map the needs and issues of different customer segments. By understanding each segment's characteristics, businesses can design seamless experiences tailored to their specific requirements. This deep understanding allows for developing relevant measures to resolve customer problems effectively.

4. Create Tailored Experiences

Personalization is key to driving customer engagement and loyalty. By understanding customer habits and behavior, businesses can design personalized experiences that cater to individual preferences. This approach, exemplified by companies like Netflix or personalized email campaigns, helps build stronger customer connections.

5. Explore Upselling and Cross-Selling Opportunities

Segmenting customers based on their needs and requirements opens up opportunities for upselling and cross-selling. Businesses can improve the average order value by grouping customers and understanding their specific needs. This strategy allows companies to offer complementary products or services to increase the value of each customer transaction.

Maximizing Customer Journeys with Rengage's No-Code Solution

We provide a comprehensive solution for managing and enhancing customer journeys, delivering insights and measurable outcomes with no code. We accelerate your customer journey from onboarding, activation to conversion and churn. Enabling customers to unlock revenue from their existing user.

With Rengage, you can get insights into your segments, run campaigns with an intuitive journey manager, and get insights to measure how your journeys impact users conversion through our Journey Moments and Journey Builder features.

  • Journey Moments: insights into your micro-segments
  • Journey Builder: intuitive multi-channel marketing automation
  • Insights prediction and attribution.

Book a free demo to learn about how you can transform customer interactions into personalized experiences that drive loyalty and growth.

7 Types of Customer Segmentation Models

Working on Models of Customer Segmentation Analysis

1. Geographic Segmentation

Geographic segmentation helps us divide customers based on where they live or where businesses are located. Factors like location, timezone, climate, cultural preferences, language, and population characteristics can help with this. McDonald's sells beer in Europe and South Korea but not in the U.S. This segmentation is important for local businesses and companies with specific regional tastes.

2. Demographic Segmentation

Demographic customer segmentation groups people based on personal characteristics like age, gender, income, ethnicity, occupation, religion, household structure, and education. This method is often used for market research surveys and to understand customer preferences and identities.

3. Psychographic Segmentation

This method groups customers based on psychological characteristics like personality, attitudes, social status, and lifestyle. By learning more about their motivations and behaviors, we can understand what they really think about products and services. This can also help us create more tailored buyer personas.

4. Behavioral Segmentation

In this model, customers are grouped based on their actions and behaviors when interacting with a company or purchasing. This is done by analyzing purchasing behavior, the occasion and timing of the purchase, desired benefits, and loyalty.

5. Technographic Segmentation

Technographic segmentation involves using technology characteristics like apps and devices in customer segmentation. For example, knowing what devices customers use to purchase can help tailor marketing strategies. B2B businesses can also use this model, considering things like CRM software and marketing automation tools in their segmentation.

6. Needs-Based Segmentation

Needs-based segmentation refines customer segments by focusing on how consumers meet their emotional and practical needs. By understanding what customers value and what problems their needs solve, companies can create products and messages that resonate with specific customer segments.

7. Values-Based Segmentation

This model focuses on the value customers get for the money they pay for a product or service. By grouping customers with similar economic values, companies can understand price sensitivity and determine a product's potential profitability. Combining this model with others helps determine why people buy products, which needs are met, and what price they are willing to pay.

4 Methods to Gather Customer Segmentation Data

Methods to gather data for Customer Segmentation Analysis

1. Surveys: Understanding Customer Insights

Surveys and customer forms are among the best sources of zero-party data that can reveal valuable insights about customers. They help understand customer experience, problems, expectations, behavior, and lifestyle. Surveys are flexible and cost-effective, deployable on multiple platforms like websites, apps, and emails.

They allow for the collection of data sets related to demographics, psychographics, technographics, and other characteristics. Surveys enable you to target multiple segments using question branching to collect relevant data. Relevant responses are ensured through skip logic and screening questions.

2. Customer Management System or CRM: Valuable Customer Segmentation Data

Customer management systems such as Rengage provide valuable customer segmentation data. They help create value-based and behavioral segments with contact information, purchase history, interaction history, usage history, lifetime value, churn data, average value, and preferred communication channels.

3. Behavioral Data: Mapping User Flows

Behavioral tools like heatmaps and session recordings map user flows and on-page customer behavior. They help visualize customer steps to complete goals and identify areas of struggle. Behavioral data is valuable for understanding product experience among customers, such as new users, early adopters, and churned customers. Analyzing this data helps resolve issues and streamline product workflows for improved customer satisfaction.

4. Analytics Data: Understanding Customer Behavior and Journey

Analytical tools like Google Analytics provide insights into website or app customer behavior and journey. They gather data on interactions like the most visited pages, average cart value, traffic sources, and goal completion rate. Analyzing this data helps businesses better understand their customers and adapt their marketing and product strategies accordingly.

7 Key Steps for Effective Customer Segmentation Analysis

Key Steps for Customer Segmentation Analysis

Review Industry Data and Market Analysis

  • Keep up with industry trends and consumer behaviors over time.
  • Observe how larger brands in your industry segment their customers.
  • Apply industry and market research insights to current and future customer segmentation efforts.

Examine Your Current Customer Base

  • Collect data about your current customers or leads.
  • Identify key details like age, geographic location, and income for B2C customers.
  • For B2B customers, consider factors like company revenue and industry.

Choose a Customer Segmentation Model

  • Select a model based on common characteristics like demographics, geography, or behavior.
  • Examples include needs-based segmentation for product requirements and value-based segmentation for revenue generation.

Consider Customer Segmentation Software

  • Explore CRM tools like Rengage, Salesforce, Hubspot, and others for data management and audience segmentation.
  • CRM systems enable businesses to track insights, automate tasks, and enhance customer experiences.

Collect Customer Experience Data

  • Gather qualitative data by asking customers questions and using social listening tools.
  • Use quantitative data to monitor purchase history, social media engagement, and customer support interactions.

Analyze Customer Experience Data

  • Use collected data to segment customers based on trends.
  • Combine qualitative and quantitative findings to group customers effectively.

Refine Your Customer Segments

  • Continuously refine segments based on customer feedback, market trends, and technological innovations.
  • Identify new opportunities for product development, customer service enhancements, or marketing strategies.

4 Best Practices for Customer Segmentation Analysis

Working on Best Practices for Customer Segmentation Analysis

I always stress the importance of setting clear goals when segmenting your customers. This step is crucial because it helps you understand what you want to achieve from customer segmentation analysis. These goals should be SMART. This means they should be Specific, Measurable, Achievable, Relevant, and Time-Bound.

Once you have clear objectives, you can choose the right segmentation model and criteria. For instance, if your goal is to boost feature adoption, you can segment users based on their stage in the customer journey and divide them into groups based on their in-app behavior and usage patterns.

Data Collection for Effective Segmentation

The next step is to collect in-depth customer data relevant to your segmentation goals. Product analytics tools can provide detailed information on user behavior, preferences, pain points, and needs. Implementing in-app surveys and user interviews can give you a deeper insight into customer motivations and wants. This information is crucial for effective segmentation since it helps you understand your customers' needs and preferences.

Identifying Criteria and Creating Segments

After collecting relevant data, it's time to specify the attributes and traits that fit your chosen segmentation model. For example, you may need to segment users based on Net Promoter Score (NPS) scores to identify power users and maximize customer lifetime value. This will allow you to deliver targeted feature recommendations and guide users effectively. You can also use tools like Userpilot to segment users based on different parameters.

Analyzing Each Segment for Unique Needs

In the final step of customer segmentation analysis, it's time to dig deep into user data for each segment. Analyzing user behavior within each segment, you can better understand their needs, preferences, and behavior patterns. Analyzing individual user behavior can provide valuable insights that can drive your marketing and product development efforts. For example, if your product is a project management tool, you might segment users based on usage patterns and find that power users tend to use certain features more frequently. By analyzing this data, you can tailor your approach to meet the unique needs of each segment.

Create Personalized Experiences That Drive Loyalty and Growth with Rengage — Book A Free Demo Today

At Rengage, we take customer segmentation analysis to the next level. Our platform provides a comprehensive solution for managing and enhancing customer journeys. By leveraging our no-code solution, you can accelerate your customer journey from onboarding and activation to conversion and churn. With Rengage, you can unlock revenue from your existing user base through actionable insights that drive measurable outcomes.

Journey Moments: Dive Deep into Customer Segments

One of the key features of the Rengage platform is the Journey Moments tool. This feature provides insights into your micro-segments, allowing you to understand your customers at a granular level. By leveraging this tool, you can tailor your marketing efforts to specific customer groups, enhancing the overall customer experience and driving loyalty.

Journey Builder: Intuitive Multi-channel Marketing Automation

The Rengage Journey Builder feature is designed to streamline your marketing efforts by providing an intuitive multi-channel marketing automation tool. With Journey Builder, you can create personalized customer journeys that span multiple touchpoints, ensuring a cohesive and engaging customer experience. By leveraging this feature, you can drive conversions and enhance customer satisfaction.

Insights Prediction and Attribution: Measure the Impact of Your Efforts

Rengage also offers insights prediction and Attribute tools that allow you to measure the impact of your customer segmentation analysis efforts. You can optimize your marketing strategies and drive growth by gaining insights into how your customer journeys impact user conversion. With Rengage, you can make data-driven decisions that lead to tangible outcomes and increased revenue.

Book a Free Demo Today

Ready to transform your customer interactions into personalized experiences that drive loyalty and growth? Book a free demo with Rengage today and discover how our platform can help you unlock the full potential of your customer base. Let’s take your customer segmentation analysis to the next level!