Customer Segmentation: Definition, Examples + How to Do It

Written by Coursera Staff • Updated on

Discover what customer segmentation is, how it helps businesses succeed, and how to segment and reach your customers more effectively.

[Featured image] A marketing manager writes on a whiteboard where the words "customer segmentation" are written.

What is customer segmentation? 

Customer segmentation is the process of examining customer attributes and creating groups based on how they behave, who they are, and their specific characteristics. Customer segmentation allows businesses to use targeted messaging, rather than taking a one-size-fits-all approach, to drive business results. 

For example, a company that sells a music streaming service could segment its customer base according to the genres customers listen to, the times of day they typically listen, and the devices they use to stream music. The company could then use insights to attract more music lovers who match those characteristics. 

Benefits of customer segmentation

When businesses, sales teams, and marketing teams segment their customers and continually refine their segmentation strategies, they can:

  • Build nuanced and robust buyer personas.

  • Tailor marketing messages to each customer segment.

  • Deliver messaging via marketing channels where different customer segments are most likely to be reached.

  • Spend marketing budget more efficiently.

  • Test how different segments respond to different pricing options. 

  • Enhance products and customer experience based on segment feedback.

  • Convert prospective customers into loyal customers.

  • Build strong customer relationships and improve customer retention.

Grow your career with customer segmentation

Building skills in customer segmentation can lead to a rewarding career. You may find employment within an organization in such roles as customer segmentation strategist, customer success coordinator, email marketing specialist, CRM support specialist, Salesforce Administrator, or customer support manager.

You could also use your customer segmentation skills to enhance your own business and the experience your customers have with it.

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B2C vs B2B customer segmentation

The customer segmentation process may work differently when marketing and selling to consumers (B2C), as opposed to other businesses (B2B), even though both approaches to segmentation involve taking the needs, behaviors, and characteristics of specific customer segments into consideration. Let's take a look at some examples:

  • When segmenting customers based on their behaviors, a B2C marketer might look at consumers' browsing activity, their spending habits, or engagement with a brand, while a B2B marketer might look at how contacts within various organizations interact at sales meetings, trade shows, or across email.

  • In terms of identity, B2C marketers might segment customers based on demographic details like income, family or relationship status, and age group, while B2B marketers might segment customers based on industry, company size, revenue, and the roles and teams within.

Read more: B2B Marketing: Definition + Strategies

How to segment customers 

As your industry evolves and your business adapts, you will likely notice your customer base evolving as well. How might their behaviors change based on emerging needs and desires? What differences among customers might become apparent over time? 

Gather as many insights as possible throughout your business development journey to understand customers and deliver the highest level of service.  

Use the process below as a guide for developing a robust customer segmentation strategy.

1. Review industry data and market analysis.

While you may have already researched your industry and different markets within it, it’s always a good idea to collect more data on a regular basis, such as quarterly or annually, to account for new industry trends and consumer behaviors. 

Ask yourself:

  • How is my industry responding to consumers’ needs and desires?

  • Which brands are the big players in my industry? 

  • How are these brands segmenting their customers, as can be deduced from their marketing, content, and product descriptions?  

  • What insights can I take from industry and market research to apply to current and future customer segmentation? 

Read more: Market Analysis: What It Is and How to Conduct One

2. Examine your current customer base. 

Begin identifying possible segments with a thorough review of your current customer base. If you haven't yet acquired any customers, examine your leads. By examining your customer base and gathering data, you can strengthen your observation skills and gain a deeper understanding of the people you serve.

Identify details like age, geographical location, relationship status, and income for B2C customers. For B2B customers, identify details like company revenue, industry, products and services, and the technologies they use.

Customer segmentation tip

When setting up an intake form on your website or landing page, add data fields to gather more data about potential customers. Fields might include text areas to enter questions customers have or an option to select their time zone.

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3. Choose a customer segmentation model. 

A customer segmentation model is what you use to divide your customer base into groups based on their common characteristics. Explore the customer segmentation models below.

ModelSegmented according to
Demographic segmentationAge, income, and marital status
Geographic segmentationCountry, state, city, or neighborhood
Psychographic segmentationBeliefs, desires, challenges, and interests
Technographic segmentationUse of mobile and desktop devices, apps, and programs
Behavioral segmentationPurchase decisions, product use, and engagement with a brand
Needs-based segmentationProduct requirements of customer segments
Value-based segmentationRevenue customer segments generate

Draw inspiration from these three industry-specific examples of customer segmentation: 

  • Using a demographic segmentation model, a car manufacturing company could segment its customers into married and single car shoppers and then tailor marketing messaging to appeal to people purchasing a car with a spouse or on their own.

  • Using a technographic segmentation model, an e-commerce company could segment its customers into Chrome users and Safari users, and then design sales pages to display in specific ways on either browser to optimize conversion. 

  • Using a needs-based segmentation model, a software company could segment its customers into tech-savvy users and inexperienced users and then design the Help Desk experience and support documentation accordingly.  

Read more: What Is a Target Market? And How to Define Yours

4. Consider customer segmentation software.

Customer relationship management (CRM) systems house data, track insights and analytics, automate tasks, and allow businesses to segment audiences so they can deliver superior customer experiences. 

If your business has yet to adopt a CRM, here are four tools to consider: 

  • Salesforce’s CRM tools aim to unite sales, commerce, marketing, IT, and service teams around robust customer data so that you can optimize every phase of the customer journey. 

  • Hubspot’s CRM tools allow you to organize customer data and track website and email activity, schedule meetings with customers and prospects, integrate Facebook messenger, and more. 

  • Sprout Social‘s CRM tools allow you to keep track of conversation history, add nuanced customer information, and distribute data to everyone on your team. It also integrates with Hubspot. 

  • Mailchimp is a CRM and email marketing program that offers pre-built and customizable segmentation tags, behavioral targeting, and holistic reporting on growth, revenue, and engagement. 

5. Collect customer experience data.

Customer experience includes every interaction between a business and its customers that will affect how they respond—emotionally, intellectually, and behaviorally—to the business. Collecting customer experience data and keeping track of it in your CRM tool can enable you to segment your customers more effectively. 

Here are a few ways to gather qualitative data: 

  • Ask customers questions at the point of sale such as “What inspired you to make this purchase?” or “How do you see yourself using this product?”

  • Survey customers after they make a purchase to learn how they are experiencing a product.

Gather quantitative data to monitor significant, measurable trends, such as:

  • Customers’ purchase history and the revenue for a particular product

  • Changes in social media followers and which pieces of content get the most engagement

  • Actions customers take in response to email campaigns, landing page opt-ins, or digital ads 

  • The number of customer support tickets opened and resolved

Learn about techniques like customer surveys that business use to create relationships with their customers in this video from the Google Digital Marketing & E-commerce Professional Certificate.

6. Analyze customer experience data. 

Your next step is to use the data you collected to segment customers. First, take a look at your qualitative and quantitative findings and highlight the trends. These trends might include common reasons for purchasing a product, an increase in customers abandoning their carts, or social media posts that garner more attention and engagement. 

Then, reflect on these trends in the context of other factors, including geography, psychographics, and technographics, to group your customers into target segments you can market to effectively. 

Customer segmentation example

Here’s an example of a customer segment you could create: Customers who were inspired to purchase a product and happy about it at the point of sale but opened a customer support ticket and haven’t made a subsequent purchase.

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7. Refine your customer segments. 

As you acquire more customers and collect and analyze data, you’ll want to keep refining your customer segments so that you can serve them effectively, expand your business, develop desirable products and services, and increase your brand equity. Refine customer segments based on data like:

  • The feedback customers offer on their experience with products

  • The latest market trends, such as consumer social media usage or emerging omnichannel marketing strategies

  • New technological innovations, such as the use of AI chatbots at the first touchpoint of customer service to direct customers to the right support person

Refining customer segmentation

What new opportunities might arise with refined segmentation? For example, finding out that a large percentage of customer who bought a particular product had difficulty using it could lead you to discontinue that line of product, enhance its features, or develop "how to" tutorials.

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How to use customer segments

Once you’ve identified and refined your customer segments, the next step is to use segment data to optimize different areas of your business and offer better experiences to the people who invest in your products and services. 

These areas might include your marketing efforts, product development, customer experience, customer service, sales, and pricing.

Here are some examples of how customer segment data can inspire growth-minded business activity:

1. Using segment data to improve marketing

  • Tailor email campaigns to different segments, such as a nurture sequence for reluctant buyers and an upsell sequence for frequent buyers.

  • Build different versions of a sales page based on generational segments and their values, such as Gen-X, Millennials, or Gen-Z. 

  • Adapt marketing content to reach different segments on their favorite social media platforms.

2. Using segment data to develop products

  • Adapt existing products based on recurring feedback from customers who experience challenges or setbacks. 

  • Offer new products to keep enthusiastic customer segments engaged and attract new segments. 

Read more: Jobs To Be Done: Definition, Examples, and Framework for Your Business

3. Using segment data to improve customer experience

 

  • Clarify the value of a product on the checkout page and streamline the checkout process.

  • Develop clearer, more straightforward support documentation and train customer support specialists to troubleshoot issues faster.

Hone your marketing skills on Coursera

Taking an online course can be a great way to gain marketing, customer relations, and business skills. In the Google Digital Marketing & E-commerce Professional Certificate, you'll learn how to attract and engage customers and use tools like Mailchimp, Hubspot, and Shopify.

Take your customer segmentation skills to the next level by enrolling in the Google Business Intelligence Professional Certificate. In this program, you can learn how to analyze customer data effectively so that you can execute winning marketing strategies.

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