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What is customer segmentation?

Customer segmentation groups together certain customers based on their shared similarities. Each segment might be bound together by buying behaviour, needs, demographics, tastes, or some other characteristics.

Below are a few examples of customer segmentation:

  • If you operate a swimming pool cleaning service, your customers might be grouped depending on the type of swimming pool. For example, you could service home pool owners, high schools with pools, apartment buildings with pools, and sports club pools. They’re all different customer segments.
  • If you're a DJ, weddings, nightclubs, and public events are different customer segments.
  • If you sell your own homegrown vegetables and plants, then landscapers and home gardeners are distinct customer segments.

The key for you as a business owner is to determine how you’re going to group your customers in a way that will have the biggest positive impact on your business.

Identifying your target customers

From your list of customer segments, identify your target customers – the type of customer your business focuses on – and their defining characteristics.

Ask yourself:

  • What's most important to these customers when buying a product or service like yours? Is it price, quality, convenience, or level of service?
  • How often do these customers buy? How do they prefer to make their purchases – by shopping in person, online, or over the phone?
  • How are these customers currently filling their needs for your product or service?
  • Why will your offerings convince potential customers to choose you over your competitors?

What to consider when deciding who to target

If you're targeting individual consumers, think in terms of defining characteristics like age, gender, income level, culture, and lifestyle. If you're targeting other businesses, think in terms of the size of those businesses and who’s making the buying decisions within them.

If you're just starting up, pay special attention to how you’re going to choose your target customer. For example, if your largest competitor's greatest strength is its lower prices, think twice before you go after customers whose purchase decisions are based primarily on price.

If you run an established business, be sure to ask your customers:

  • What's important to them
  • How they make decisions
  • Why they chose you over the competition

Also think about how your customer base has changed over time, and why. If, for instance, you've stopped attracting new customers or you've become overly dependent on one or two accounts, you may need to take action.

Consider your strengths and competitive advantage. Your target customers should be customers you can serve well.

Segmenting new customers

You may have your regular customers already segmented and providing your business with a solid platform to grow larger. But how will you go about identifying and segmenting new customers?

It’s important that you establish whether there’s a market for your products or services among a new group (or segment) of customers. If you’re branching out into a new area of people, you’ll need to clearly identify who you’re targeting.

Try to create an image of the individual that represents the type of person you’re aiming for. This new segment may have varying needs, wants, opinions, and values. Depending on the marketing method you use, they may respond quite differently.

For example, your new target segment might be older customers that:

  • Are retired and live in rural areas
  • Have time on their hands and plenty of disposable income

It’s essential to target messages accurately and to resist sending the same messages to your entire customer base.