Adapted from content excerpted from the American Express® OPEN Small Business Network
Customer segmentation is understanding your customers’ unique characteristics and behaviors so you can come up with a marketing message that communicates with them effectively. It also helps you to spend your marketing dollars wisely, using only those vehicles that can reach your identified segments.
Evaluate your customers against these five criteria to ensure that you have clearly segmented your audience.
1. Type of customer
Perhaps the most basic way to segment your audience is to decide whether you plan to target consumers or other businesses. Few small companies can successfully target both, and while there may be some overlap, you will more than likely need to create a firm distinction to hone your marketing message.
2. Geography
The geographic location of your customer base is crucial to determining the marketing methods your business will employ. Customers can be local, regional, national, or international. For some businesses, the target will be obvious – a dry cleaning store’s target audience may only be within a few miles of its location. In cases such as these, it may be a good idea to break down geographic location even further – by postal code or neighborhood, for example. Similarly, national or international sellers might want to track the cities or countries where the majority of their customers are located to help them sharpen their focus.
3. Demographics
Demographics are the basic “vital statistics” of your customer base. By segmenting on demographics, you can determine the specific statistical characteristics that set your customers apart.
If your business is targeting consumers, demographic segmentation might cover characteristics such as age, gender, level of education, job classification (blue vs. white collar), income, marital status, and ethnic or religious background. It may not be necessary to use all of these criteria; rather, you want to focus your research on those that are most appropriate to your product or service.
Business demographics, on the other hand, break down differently. Start by looking at what industry your target customers are in. You can also segment your targets by size of business based on number of employees or total sales. Finally, consider who makes the buying decision for a product or service such as yours – what is this person’s job title and what department does this person work in?
4. Psychographics
Psychographics refer to personality and emotional behavior that influences purchasing. In other words, what are the buying habits of your customers? For example, is the customer impulsive or risk averse? There are a broad range of variables you can consider and they often play against each other, but some of the most common psychographic components include:
The customer’s predisposition to purchasing a new product or service vs. another
- Influences on the customers’ purchasing habits (such as peer pressure or education)
- Attributes of a product or service that may be important to the customer
- Brand loyalty or reputation
- Buying decision criteria, such as whether the purchase will be based on price or value
5. Beliefs and lifestyle
These areas generally refer to ways that consumers look at themselves. Beliefs may include religious, political, nationalistic, or cultural values and attitudes. Lifestyle segments may relate to ways customers use their non-work time for things such as hobbies, recreation, entertainment and other pursuits. These segments may be important, since these variables can often be used to predict future purchasing behavior.
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