What is Customer Segmentation? Definition & How-To

Your customers increasingly expect a personalized buying experience. Both at work and in their personal lives, they receive highly targeted display ads, customized email campaigns, recommended products on social media, and more every day.

It raises the question — how are modern marketers doing this so well? What’s their secret?

The answer: excellent customer segmentation. That is, grouping customers and prospects based on similar characteristics and buying behaviors to target them with relevant messaging and offers. This strategy can help marketing and sales teams speak directly to ideal customers’ needs, motivations, and buying behaviors to build trust and rapid conversions.

In this guide, you’ll discover more about what customer segmentation entails, why it’s essential, and how to do it successfully.

What is customer segmentation?

Customer segmentation is the process of grouping customers based on similar traits and behaviors, enabling marketing and sales teams to engage with them more effectively.

Companies can also use customer segmentation groups to begin discussions about building buyer personas or ideal customer profiles (ICPs) — semi-fictional representations of their optimal purchaser. By firming up these personas, customer segmentation helps inform a brand’s messaging, product positioning, and how they sell at every stage of the buyer journey.

Types of customer segmentation

There are a variety of approaches to segmentation, but the most common division is between business-to-business (B2B) — selling to organizations — and business-to-consumer (B2C) — selling to individuals. Keep reading to learn more about the different approaches.

B2B customer segmentation strategies

Here’s a look at the different ways B2B companies segment their customers, otherwise known as “account segmentation.”

B2C customer segmentation strategies

As you might expect, B2C customer segmentation differs slightly from B2B segmentation, focusing primarily on individual characteristics and behaviors — although B2B still uses a version of these methods.

Here are a few examples of B2C customer segmentation approaches:

The bottom line of customer segmentation: it’s a crucial component of effective marketing, regardless of who you’re speaking to.

Why is customer segmentation important?

In a nutshell, customer segmentation enables organizations to sell and market more effectively. By knowing your customers acutely and grouping similar ones, you can customize your content to cultivate trust and motivate more prospects to convert.

But of course, not all your customers will maintain the same tech stack or live in the same place forever. Continuing to collect data and modify customer segments over time helps you stay ahead of the curve, develop new campaigns, and adapt or design products that grow customer loyalty and maximize your company’s revenue.

How to segment customers

Now that you know about the various types of customer segmentation and why they’re essential, it’s time to put all the pieces together. In four steps, you’ll be well on your way to catching the attention of valuable prospects. Additionally, you’ll also be able to use this step-by-step process to support initiating and closing cross-sell, upsell, and renewal opportunities.

1. Ensure your customer data is clean

The first step to segmenting your customers is to ensure you’re working with thoroughly cleansed data. A recent study found that a whopping 35% of marketers suffer from inaccurate targeting due to poor data quality — you don’t want to be part of that statistic! Clean data should be:

• Accurate

• Complete

• Timely

• Actionable

Relying on data that doesn’t have these characteristics can lead to improper segmentation, identifying the wrong buyer personas, and running campaigns that don’t yield desired results.

2. Examine your customer data

With clean data in hand, the next step to segment your customers is to examine this data and look for correlations within subsets of your customer and prospect population.

For a B2B company, this step might look like finding clusters of accounts around the same size that use the same software and are on track to IPO in a few years. If the B2B company sells an accounting platform, this customer segment would be a prime candidate for content that explains the importance of using financial close software for quarterly reporting. Educational campaigns could prime this segment for a purchase right before or as soon as they IPO.

Similarly, for a B2C company, segments may arise in your CRM or sales engagement platform when you filter by previous purchases or demographics like age and gender.

3. Determine your customer segmentation goals

After inspecting your clean CRM and sales engagement data, you’ll want to set goals to provide direction for segmenting customers.

For example, suppose you’re interested in boosting awareness about a particular feature of your product to software engineers. In that case, your KPIs may be entirely different than if you were trying to sell an entire DevOps platform to enterprise VPs.

So before you begin finalizing your groupings, nail down the campaign, content, loyalty, and conversion KPIs that will help inform your segmentation.

4. Create groups for each customer segment

Now it’s time to align your customer segments with your predetermined goals. Review the various types of customer segmentation explained above and determine which ones will push you towards your objectives.

Keep in mind that most customer segmentation types are not mutually exclusive. In fact, combining them can make for even more precise customer segmentation. If a B2B company wants to increase mid-market sales, the logical choice may be to segment accounts based on firmographics, but adding technographics and journey stage to the mix will help narrow their focus.

5. Target and reach your customer segments

Once you’ve determined customer segments for your campaign, you’re ready to inform your GTM teams and have them get to work.

On Marketing’s side, they can target each segment by orchestrating different channels, developing enticing copy, and timing relevant and convincing ads. For Sales, they can weave segment traits and behaviors into their communications and outreach efforts, highlighting features of your product that those segments care about most. And customer success can create resources that increase customer loyalty and lifetime value, making it easier to close future renewals and upsells.

Get smarter with customer segmentation

Customer segmentation empowers marketing and sales teams to tailor strategies to customers’ needs, wants, and behaviors. Aligning your GTM teams around the same segments can help you create more effective marketing campaigns that increase customer loyalty and boost conversion rates. But that all depends on segmenting your customers correctly. To do that, you need clean, comprehensive customer and prospect data.

The Demandbase ABX Cloud provides just that and more. By combining existing CRM data and intent signals with accurate market data, Demandbase allows marketers to see how their segments evolve and respond to those changes in real-time.

Not only that, Demandbase has built-in predictive analytics capabilities that help sales teams determine who their most valuable accounts are and when they are ripe for a conversation.

And since Demandbase measures how well these activities go, you can use that information to hone customer segments over time.