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Customer Segmentation: A Detailed Review

In continuation of the previous article on CS, let’s now look at different customer segmentation models, steps to implement it and factors affecting it.

Why companies are mad about segmentation?

Segmentation help company target specific market / customers, bring more focus in their campaigns, attract the right customer, create loyalty, improve product, do personalization, increase ROI, decrease customer dissatisfaction and help create the blue ocean for the product or service success in a demanding & highly competitive market.

Customer segmentation Vs Market Segmentation

Before we begin, let me differentiate between Customer and market segmentation. While the concept remains same for both of them, they differ in terms of their approach and positioning. While customer segmentation tries to identify similarly behaving consumer groups (read collective performance traits for individual personas), the market segmentation is tried to divide a consumer market in easily defined categories. While customer segmentation is working on finer micro segments vis-a-vis a large defined macro segments in case of market segmentation. One basically, start with market segmentation and then refine the process to find specific micro customer segments.

Common Customer segmentation approach:

Generally, both market & customer segmentations are done basis four major segmentation.

customer segmentation fintica
customer segmentation model
  • Demographic Segmentation: Demographic segmentation is the most widely used segmentation tool as it is also the easiest to identify with a given population. They are based on variables like Age, Gender, Income, Education, ethnicity, religion, family structure, occupation etc. Most of the customer and market segmentation revolve around these variables as rightly so as these are the variable which hugely affect the choice and purchase likelihood of any individual. For eg. You can’t sell a skinny ladies jeans to men and there are high chances of high octane products being popular among the young adults. It helps define the person who you are.

  • Geographic Segmentation: While the demographic segmentation works to identify the person, the geographic segmentation aims to create segments based on where a person lives and the impact of the surrounding to his pre & post purchase behaviour. A geographic segmentation will look into the person’s behaviour and attributes based on his locality, pincodes, city, country, impact of regional culture, urban/rural among others. The community influence on the person is very high and chances are that a person living in a rural Arizona will have a different behaviour than a person living in downtown Manhattan. When companies talk about localization, they are basically targeting you on geographic segmentation.

  • Behavioural Segmentation: While most companies relies on Demographic & Geographical segmentation, there is a very good chance of these not behaving as per expectation due to specific behavioural traits of the customer; i.e. how a customer interact with the brand, what are the benefits sought, does he has any loyalty or affinity towards the product/brand/company, what is the usage frequency for the customer, what is the engagement level, what is the complexity of the purchase, at what stage of purchase the customer is among others. Behavioural segmentation basically helps define the ‘What’ is the requirement of customer. The benefits of Behavioural segmentation is personalization, predicting customer propensity to purchase, performance & prioritization among others.

  • Psychographic Segmentation: Till this point, while we have discussed about consumers, Psychographic segmentation tries to identify customers as people; to understand why someone is not liking a product while buying something similar. Why are peoples’ Activities, Interest & Opinions (AIO) so different and possibility of creating specific segments based on their personality (Belongers, Achievers, Emulators, Saviours, Doomsayers, Integrators, Survivalist), attitude, values among others. How they behave as per their social class (Upper/Middle/Lower)? This segmentation basically tries to identify segments based on why are they doing something. One of the most important advantage here is that you get to know your customers and can create Hyperpersonalization programs.

Other Segmentation Models:

Segmentation Models are highly overlapping with each other. There many other Segmentation models which are being used to identify and create customer segments with micro markets. Few of the important segmentation models are depicted below:

different segmentation model fintica
Different segmentation model

Firmographic Segmentation: Firmographic segmentation tries to segment the companies as an individual and behaviour of employees based on Industry, Company Size & revenue, No of employees, Category etc. The chances are that a large company & it’s employees will have a differential requirements & expectations vs a smaller company; or an IT company (or it’s employee) will behave differently to a Govt. company.

Generational Segmentation: This is an extremely popular segmentation method wherein the customers are segmented based on GEN X,Y,Z & Alpha segments. (For details read here). These have been done with a view on technology driven behavioural shift and customers within these segments tends to have a very similar AIO variables.

Perception based Segmentation & Relationship Segmentation (PBA/PBMS): The consumers’ perception of a product, usage requirement and brand value helps create a segmentation for the brands to reach out to specific customer groups. For eg. A large MNC product might be perceived to be far superior by a set of customers while delivering similar value in current markets. The perceptions are either created through historical goodness, aspirational marketing, relationship value among others.

Persona Segmentation: This is a highly popular modern segmentation technique based on Post Hoc data wherein through qualitative details like personality traits, behaviours a group of collected MR population is segmented in finer Personas. Few of the sample Personas are Exploratory/Curious, Ready-to-go, Entrepreneurship, Corporate Honchos, User Personas, Buyer Personas etc.

Technographic Segmentation: Technographic segmentation create user groups based on customer usages of software, tech readiness, IT enablement, access to newer developments. For eg. customers having access to high speed wifi vs others, Customers using Microsoft Windows vs Mac, Apple vs Android, Laptop vs Tab vs Mobile etc.

Predictive Segmentation: Current MR and segmentation make use of this quantitative segmentation method heavily to identify the right customer groups. Herein a population sample is run on analytics to identify finer segments or groups called Archtypes. These archtypes are micro segments for the companies to target their product & services.

Need / Value Based Segmentation: The customer segmentation based on the needs of the customers or value of the purchase propensity of the customer. Value based segmentation also tried to create finer groups based on the value expected by the customer.

Hybrid Segmentation: While individual segmentations are good on their own, most of the times the segmentation is created with combination of two or more segmentation groups. Few of the more famous Hybrid Segmentation methods are Geo-demographic & Psycho-Behavioural Segmentations.

Step by Step process for creating Customer segmentation:

steps for customer segmentation fintica
steps for customer segmentation fintica
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