Customer segments allow businesses to offer individual customers personalized marketing, products and promotions. This is because the individuals in each segment are grouped around common traits. Grouping customers like this enables businesses to better fit their products and offers to the preferences and requirements of their customers.

Why segment your customer base?

Segments allow you to deliver personalized communications, products and promotions to your customers. This personalization increases the likelihood of conversions because it allows you to customize your offering with products and deals that you know your customers will like.

It becomes much easier to serve each customer’s individual needs when you separate them by characteristics like age, income, interests, etc..

The narrower your segments, the more specific your target audience will be.

Customer segments are closely connected to consumer behaviour because each consumer group has different habits and interests. Take Millennials and Baby Boomers for example. Both of these age groups have distinct characteristics that businesses use to tailor their marketing and branding efforts.

There are a few different approaches businesses take when creating customer segments. Popular characteristics used to categorize audiences include:

• Demographic segments: Demographic segmentation is perhaps the most common technique used to form customer segments. It splits customers down demographic lines, like age, marital status, gender, income, etc. These criteria act as a good baseline to account for differing interests and consumer behaviors.
• Value-based segments: This approach divides customers into separate groups depending on their value for your business. Metrics commonly used to measure this value include customer acquisition cost (CAC), customer lifetime value (CLV), average order value, etc.
• Geographic segments: Organizing customers into separate groups based upon geographic location allows you to tailor your marketing and promotional efforts for specific places. This helps take into account regional cultural variations that may be overlooked with a non-segmented approach.
• Psychographic segments: This approach separates customers into groups based upon psychographic traits. This includes characteristics like personality type, values, political beliefs, etc.