Customer Segmentation Overview
Dividing customers into distinct groups based on shared characteristics to enable targeted marketing strategies and personalised experiences.
Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, or behaviour patterns.
Benefits of Segmentation
- Improved targeting and personalisation
- Higher marketing ROI through relevant messaging
- Better customer retention and loyalty
- Efficient resource allocation
- Product development insights
| Type | Variables | Use Cases |
|---|---|---|
| Demographic | Age, gender, income, education, occupation | Product positioning, media planning |
| Geographic | Country, region, city, climate, urban/rural | Local marketing, distribution planning |
| Psychographic | Lifestyle, values, attitudes, interests | Brand messaging, content strategy |
| Behavioural | Purchase history, usage rate, loyalty, benefits sought | Retention campaigns, cross-sell/upsell |
| RFM | Recency, Frequency, Monetary value | Customer value tiers, lifecycle marketing |
| Technographic | Device usage, software, tech adoption | Product development, channel strategy |
Rule-Based Segmentation
Define segments using explicit business rules (e.g., customers who spent £1000+ in last 90 days). Simple to implement and explain.
RFM Analysis
Score customers on Recency, Frequency, and Monetary value to identify high-value segments and at-risk customers.
Cluster Analysis
Use algorithms (K-means, hierarchical) to discover natural groupings in customer data based on multiple variables.
Predictive Segmentation
Use machine learning to predict customer behaviour (churn, purchase propensity) and segment based on predictions.
1. Define Objectives
Clarify what business goals the segmentation should support (acquisition, retention, cross-sell, etc.).
2. Collect Data
Gather relevant customer data from CRM, transactions, website behaviour, surveys, and third-party sources.
3. Analyse and Segment
Apply segmentation methodology to identify distinct, meaningful customer groups.
4. Profile Segments
Develop detailed profiles including size, value, characteristics, and needs for each segment.
5. Activate and Measure
Deploy segments in marketing campaigns and measure performance by segment to refine over time.