What is Customer Segmentation: Everything You Need to Know

Interested in discovering more information about customer segmentation? You have come to the right place! Read this article and discover everything you need to know!

In order to scale effectively and efficiently, the expansion stage companies should concentrate their efforts on a specific subset of users who are similar to their best current clients. A lot of companies concentrate their efforts on a broad group of potential customers which is a huge mistake. The key is to do all of this through customer segmentation, and in this article, we are going to explain what customer segmentation is and what you should know about customer segmentation.

What is Customer Segmentation and Why Customer Segmentation Matters?

Customer segmentation or market segmentation is the separation of potential customers in a specific market into smaller and more discrete groups. The separation is usually based on consumers having similar needs and buying characteristics.

  • Customer needs – one single product can satisfy them
  • Buying characteristic – the responses to marketing channels, messaging, sales channels and etc. Only one go-to-market approach or strategy can be utilized to sell to them economically and competitively.

Market Segmentation and Its 3 Main Approaches

There are 3 approaches to market segmentation:

  • A priori segmentation This is known as the simplest approach as it utilizes a classification scheme based on available characteristics such as company and industry size – to build distinct groups of consumers within the market. You should keep in mind that this approach may not always be valid and reliable. This is because there are businesses in the same industry that have very different needs.
  • Needs-based segmentation This approach is based on validated, differentiated, needs that consumers express for a product or service being provided. These needs are analyzed and verified through a market research and detailed analysis and segments are differentiated based on the various needs instead of characteristics such as company size or business industry.
  • Value-based segmentation This approach differentiates consumers by their economic value. The value-based segmentation approach will help you group the consumers with the same value level into several individual segments that can be targeted more precisely.

If the customer segmentation is done right, the benefits for your business are numerous. Some of the benefits are: improving your whole product, focusing your marketing message, getting higher quality revenues, allowing your sales department to pursue higher percentage business opportunities, and etc.

Suggested topics: