Importance of Customer Segmentation

Data Science & Insights - 30 March 2023

Data Science & Insights

Product Analytics & Data

In today's market, where the products are diverse, it should be said that our people are also diverse. Just as we separate and classify products according to their categories and other features, classifying customers according to their features has become a method that we use quite a lot in today's marketing sector.

We call this process customer segmentation, in which we classify customers according to their demographic, geographic, psychographic, and behavioral characteristics and determine their marketing strategies specifically for these classes. So why do we need customer segmentation? What benefits does it give us? What are the segmentation types and which segmentation type should be used for which analysis? Let's answer many questions such as understanding the importance of using segmentation together.

What is Customer Segmentation?

Customer segmentation is the practice of dividing a customer dataset into groups of similar individuals by age, gender, interests, and spending habits. Companies also try to understand what each segment finds most valuable to use their marketing materials more accurately according to that segment and develop marketing strategies accordingly.

Every company has billions or trillions of data. However, when the data is transformed into meaningful information with the help of statistical analysis, it is possible to take action. Recognizing the customer and knowing their needs of a business is a very important factor for more effective marketing. For this reason, data science plays a very important role in analyzing billions and even trillions of customer data and drawing meaningful results.

Customer segmentation is also a method used to understand who buys and will buy the services or products of the business from these billions of flowing data. 

Types of User Segmentation

• Geographic customer segmentation: Geography consumer segmentation separates audiences according to where they are located (country, state, city, or town). This segmentation technique is beneficial for local SEO and market expansion.
• Demographic customer segmentation: Grouping audiences based on attributes like age, gender, marital status, education level, and income is known as demographic customer segmentation. Given those variances in these parameters are potent predictors of purchasing patterns, this is one of the most useful segmentation kinds.
• Psychographic customer segmentation: Psychographic consumer segmentation focuses on traits like personality, attitude, hobbies, and values rather than more fundamental characteristics like age or gender. The psychological characteristics that influence users' purchasing behaviors are thoroughly examined in psychographic segmentation.
• Behavioral customer segmentation: When segmenting customers based on their behaviors, factors including product usage, inclinations, and shopping preferences (such as in-store or online) are taken into account.

Benefits of User Segmentation

By creating different customer segments, the ideal product for these segments can be easily selected and the distribution channels suitable for the business can be easily determined. Having a successful customer segmentation strategy allows the business to develop a deeper understanding of customers and develop marketing strategies for them.

Based on characteristics such as age, location, purchasing habits, and interests, it becomes easier to direct efforts to the most profitable customers, thus determining direct marketing strategies to attract the right audience.

How to Implement User Segmentation

One of the most difficult aspects of customer segmentation is choosing which data from a large set will constitute the most useful segments. Therefore, a strategic roadmap is needed for successful customer segmentation.

1. Determination of the market:
   This procedure will assist you in learning how to differentiate yourself from the competition and whether your items have the necessary qualities to satisfy consumer demand.
2. Selection of segmentation type:
   Choose the segmentation strategy that best serves the objectives of your firm. You must gather consumer data, segment stakeholders, and align on criteria to validate prospective segments to do this.
3. Understanding customers' needs and preferences:
   Asking the correct questions can help you thoroughly understand the interests, likes, and wants of your consumers so you can successfully cater to them.
4. Identifying the ideal customer segment for your business:
   To ensure that your customer segmentation efforts are successful, you need to think of a simple group that includes the majority of your customers and allows you to identify their needs and confirm your acceptance of your products.
5. Checking the efficiency of the segmentation:
   This step involves testing your established market segmentation strategies with the right customers to identify items that need to be adjusted.
6. Define target segments:
   Select the groups with the highest priority that are likely to bring maximum profit to the company.
7. Developing the product positioning strategy:
   Positioning is the marketing process that allows to define the competitive advantageous position of the company in the market. It helps to discover direct and indirect competitors. It allows a consumer to find answers to the following questions;
   - Who is this product for?
   - Which customer's needs can the product meet?
   - How does your company's product differ from competitors' products?
   - Why is it profitable for a consumer to buy your product?
   - When should a customer use your product?
8. Creating a marketing plan for each target segment:
   For each section, create a step-by-step strategy that will enable you to complete your company duties. The strategy must be realistic and account for probable difficulties.

Real-Life Implementations of the Technique

Targeting people based on factors like marital status, length of relationships, family size, and child age ranges is another excellent approach to segmenting your audience. Our purchasing habits depend on where we are in life. Parents buy things for their kids. Baby boomers who are caring for their aging parents make several purchases.

You can retarget customers with related or complementary products based on past purchasing information. Launch successful cross-selling and upselling campaigns to engage customers using this data. For instance, if you sell phone accessories, you could target different segments of your audience with offers based on the types of phones they use. If your product isn't used differently depending on the type of device, look at your data to see if there are any trends in how people shop using various devices.

Moreover, you can use it to target potential clients who share your interests in the luxury lifestyle and have demonstrated a propensity for making large-ticket purchases in the last 30, 60, or 90 days. These settings and target segments can be set depending on the platform you're using.

Result

You must accurately characterize your clients' demands and worries to address those needs and eventually win their contentment. The influence it may have on all aspects of your business, including sales, marketing, product development, customer service, etc., is significant if you manage the best customer segmentation strategy now in use. Your company will have a clearer understanding of the market and a better focus on the customer, enabling it to expand more predictably and effectively.

References

1. https://www.euromsgexpress.com/musteri-veri-segmentasyonu-nedir/?psafe_param=1&gclid=CjwKCAiAu5agBhBzEiwAdiR5tPFa3xg05HuyEqbckfrr1EcVp9sWw5MPNhxGUZ0EIcm5enHaczaYJRoCKZMQAvD_BwE
2. https://porsline.com/blog/tr/musteri-segmentasyonu-neden-ve-nasil-yapmaliyiz/
3. https://business.adobe.com/blog/basics/real-world-examples-of-customer-segmentation
4. https://www.tani.com.tr/blog/musteri-analitiginin-sihirli-kavrami-musteri-segmentasyonu
5. https://www.ticimax.com/blog/musteri-segmentasyonu-ile-hedef-kitlenizi-nasil-tanirsiniz
6. https://netuce.com/musteri-segmentasyonu-nedir-nasil-yapilir/
7. https://sendpulse.com/tr/knowledge-base/email-service/general/how-segment-customers
8. https://www.mayple.com/blog/customer-segmentation-examples#:~:text=If%20you%20sell%20phone%20accessories,trends%20based%20on%20different%20devices.
9. https://openviewpartners.com/blog/customer-segmentation/