Customer Segments: Grouping your ideal customer personas into categories for better targeting
When we were raising money (for all of my companies) one of the biggest questions we were asked was to explain and quantify our customer segments. Investors wanted to know who they were, what they were doing, how much they were worth, how we were going to target them and convert them to paying customers, how we would retain (and upsell) them, and how we were going to use our insights to produce more positive outcomes.
What is a customer segment?
A customer segment is a category of people who share one or more key characteristics. Each persona can fit under a customer segment, and some personas can be a part of several customer segments. You can use these customer segments to target, acquire, convert, upsell, and retain your customers.
There are many different ways you can segment your customers:
Demographic, e.g. gender, age, religion, nationality, etc.
Socioeconomic, e.g. income, level of education, occupation, etc.
Behavioral, e.g. purchasing behavior, time spent on social media, etc.
Geographic, i.e. location
Psychographic, e.g. personality traits such as attitude,
Value-based, e.g. values, aspirations, goals, etc.
Your customer segments can be broad or can be very granular depending on what makes sense to your business. For example, if you are selling memberships to a national gym chain, you may segment your customers by location, gender, age, preferred activity types, or health goals, and you may further segment them by any combination of those.
How can customer segmentation help you?
Customer segmentation is important throughout all the stages of your business. You can hypothesize and test your desired outcomes, and you can use historical data to predict future outcomes. The following are just a few examples of how customer segmentation can help your business:
Marketing: Customer segmentation can help you determine which customer acquisition channels to prioritize and what your messaging should be.
Product and Merchandising: Customer segmentation can help influence your product roadmap or decide how you package and price your offering.
Market strategy: Customer segmentation can help you determine the market value of your solution and can help guide your growth and expansion strategies.
Cohort strategy: Once a person has interacted with your solution, you can also segment your them into cohorts based on their behaviors. Based on this segmentation, you can choose to take additional actions. For example, ‘everyone who has purchased an item within the past month gets a targeted email’ or ‘everyone who has opened our app in the past week receives a push notification’.
Real-life application of customer segments
At Goodfair, a D2C e-commerce site for secondhand clothes, we had several customer segments. We knew GenZ loved us, and our GenZers shared different values like being sustainable, saving money, or participating in the thrift culture. We also had a very specific older customer segment who lived in rural America and an ageless customer segment who wore XXL+. We were able to use these different customer segments to test different marketing campaigns across different channels, source different types of merchandise, and offer different types of loyalty perks.
With limited resources and multiple segments, crafting a go-to-market or growth strategy may seem overwhelming. In the next post, we will discuss how you can prioritize your target customer segments using two different frameworks.
💡TLDR: A customer segment is a category of people who share one or more key characteristics. Grouping your customer personas into customer segments will make it easier to target, acquire, convert, upsell, and retain your customers.
📖 Exercise: Group your customer personas into customer segments. What are the shared characteristics of each segment?
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