Customer Segmentation for Retailers: Examples, Types, Benefits

Suppose you and your friend go to a local store to buy a bedsheet. While you prefer 100% cotton bedsheets, your friend is looking for a better thread count. Both of you share your requirements with the salesperson and they show you bed sheets based on what you prefer. 

Just like that, every customer seeks a shopping experience based on what they like and prefer. They want brands to provide them with a personalized shopping experience where brands understand their shopping preferences and meet their increasing needs. 

Now to ensure all this customer segmentation is required. Retailers cannot apply the one-size-fits-all approach while interacting with customers. 

So here are all you need to know about Customer Segmentation:

What is Customer Segmentation? 

Customer segmentation is dividing your customer base into different groups or categories based on certain characteristics that they have in common. These groups could be based on the needs, habits, preferences, and shared qualities of the customers. 

Customer segmentation is beneficial in two ways:

  • Firstly, it helps you identify the most valuable customers so that you can provide them with a better shopping experience. In other words, you can enhance their customer journey. 
  • Secondly, it helps you provide a personalized shopping experience to your customers. When you know what a customer prefers, you can easily sell that to them. It also helps you discover the different ways you can interact and engage your customers. 

This takes us to the types of customer segmentation. You might be surprised to know that there are no rules when it comes to customer segmentation. You can categorize your customers the way you want. But to keep things simple, here are the top five customer segmentation examples. 

Demographic Segmentation: 

This is one of the most essential forms of customer segmentation as it gives you a lot of insights about your customers and helps you provide them with a better shopping experience. In demographic segmentation you divide customers based on any one or more of the given criteria: 

  • Gender
  • Age 
  • Education 
  • Ethnicity 
  • Religion 
  • Job position 
  • Annual income 
  • Marital status 
  • Family size and so on.

Behavioral Segmentation:

In this kind of segmentation, brands monitor the shopping behaviors of the customers and determine what kind of products they will prefer/like. Then, the brands use that information to attract customers. For instance, you can categorize customers based on the following: 

  • Whether the customer is a new customer, a loyal customer, or a dormant customer 
  • The devices/medium that a customer prefers
  • The purpose of shopping for instance new year, Christmas, etc. 
  • The personality of the customer
  • How frequently does the customer shop from your brand and so on. 

Geographic Segmentation

This is quite easy to get. By geographic segmentation, we mean dividing the customer based on their location. You may use this kind of segmentation based on your business. If your business is global, you might have to create different content for customers based in different countries. For instance, you will have to change the currencies and base your content based on the cultural preferences of a country. 

Some easy examples of geographic segmentation are based on:

  • Country
  • State
  • City 
  • County 
  • Neighborhood

Customer Journey Segmentation

A customer lifecycle or customer journey is divided into several phases: awareness, consideration, decision, and loyalty. Some retailers divide it into five stages, and some divide it into four stages, based on their preference. Now, based on the different phases of your customer lifecycle, you can divide your customer into groups and target each group with a different strategy. 

Here are a few examples of customer journeys: 

  • Customers who bought something from your brand 60 days ago 
  • Customers who bought something from your brand 90 days ago
  • Customers who only buy something when it is on sale or discount 
  • Customers who have some products in their cart but have not completed the purchase 

Psychographic Segmentation

As the name suggests, this type of customer segmentation focuses on how customers think and feel about themselves concerning the brand. 

For instance, lifestyle is one of the most common examples of physiographic segmentation. A student’s lifestyle will be different from that of a working professional. So, if you are targeting students, you will have to create content/product that fits their lifestyle. You cannot sell notebooks in bulk to a working professional as it does not matter how beautiful they are, they do not fit in their lifestyle. However, you can easily sell stationery items to students. 

Some other common examples of psychographic segmentation are:

  • Personality 
  • Lifestyle 
  • Attitude
  • Social Status 
  • Activities
  • Opinions 
  • Daily Habits

Benefits of Customer Segmentation 

Now, let us dive into some of the major benefits that customer segmentation can offer to your brand and your customers. 

#1 Get all the insights about your customers

Firstly, customer segmentation makes it possible for you, as a brand, to know more about your customers. For instance, you can understand their preferences, attitudes, lifestyle, interests, or activities that they mostly do, and then you can market your products accordingly. 

You can also understand where the customer stands in the customer lifecycle and carry out engagement activities accordingly. For instance, you will use a different strategy to reactivate dormant customers and a whole other strategy to engage your new customers. 

#2 Fine-tune your communication 

Whether you write a blog, create a social media post or send an email, if you are not delivering content that is relevant to your customers, you might not receive the response you desire. Customer segmentation can help you in this case and make it easier for you to create relevant messages for your customers. 

For instance, you might want to share your new range of products with a customer that shops frequently from you. But in the case of a customer that has abandoned your cart, you might want to send them a reminder to complete the purchase. 

#3 Increase your sales! 

Finally, let’s talk about the goal of every retailer: to have more and more sales! Customer segmentation can help you reach this goal. This is because you can provide a better, personalized shopping experience to your customers based on their preferences. When a customer will receive content based on what they want//need, chances are they will make a purchase. 

Do you know? 

  • 91% of consumers are more likely to shop with brands that recognize, remember, and provide relevant offers and recommendations. 
  • Companies that thrive at personalization earn 40% more money from these activities than the average competitor.

An AI-powered CRM platform can make customer segmentation easy for you

Implementing customer segmentation is an ongoing process. You will have to keep updating the segmentations based on the market requirements, customer feedback, and even based on the products that you launch. A powerful CRM like Xeno can help you stay on top by making it easier for you to understand your customer behavior and preferences. It will not only store the data from multiple marketing platforms but will also filter it out and organize it to give you a better view of your customer base so that you can run relevant digital campaigns. 

So, are you ready to make customer segmentation a part of your marketing strategy?

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