Customer segmentation in marketing is the process of dividing your audience into smaller groups based on shared characteristics, behaviours, or needs. By doing this, businesses can target the right people with the right message – improving marketing efficiency and driving growth.

Instead of relying on basic demographics, a good segmentation also looks at behaviours, motivations, and mindsets to uncover what really drives customer decisions.

What is customer segmentation in marketing?

Customer segmentation is a technique that helps brands understand their audience at a deeper level. Instead of treating all customers the same, it groups them by similarities so campaigns, products, and experiences can be tailored to meet their different needs.

The benefits of customer segmentation include:

• Stronger engagement through relevant messaging
• Higher ROI from marketing campaigns
• Better customer retention and loyalty
• Smarter allocation of resources against the most valuable segments

Types of customer segmentation

There are several common types of segmentation:

• Demographic segmentation – age, gender, income, education, occupation
• Geographic segmentation – country, region, city, climate
• Behavioural segmentation – purchasing habits, brand loyalty, product usage
• Psychographic segmentation – values, attitudes, motivations, lifestyle
• Needs-based segmentation – pain points and problems customers are trying to solve

The most successful strategies use a combination of the above, not just one. At Clusters, we believe the strongest segmentations occur when you let the most meaningful variables reveal themselves naturally, based on what matters most in the category, rather than choosing them in advance.

In practice, this means no two projects look the same – each one of our segmentations is tailored to the specific structure of the market and the behaviours, needs, and priorities of its customers.

Why customer segmentation is important

When marketing decisions are based on the average of the entire market, businesses risk missing the mark. By trying to appeal to everyone, you can end up appealing to nobody. Instead, the segmentation process ensures that brands:

• Discover potential attractive untapped segments in the wider market
• Tailor products, services, and marketing campaigns to match customer needs
• Improve customer experience by showing relevance at every stage
• Uncover if margins on currently unprofitable segments can be improved
• Stay ahead of competitors by identifying untapped opportunities

How to do customer segmentation in 5 steps

1. Define your objective
   Be clear on what you want to achieve; e.g. launch a new product, grow loyalty, or enter a new market.
2. Collect customer data
   Ideally, use a mix of surveys, CRM records, and purchase data to build a well-rounded dataset.
3. Identify meaningful variables
   Go beyond demographics to include behaviours, needs, and motivations. Let the most important variable drop out naturally during the early analysis process.
4. Group customers into segments
   Use Cluster analysis or advanced tools (like our own HuPa platform) to reveal a set of distinct, reliable customer groups – these are now your customer segments. We recommend working with a market research agency here to ensure you get it right.
5. Profile and prioritise segments
   Describe each segment in detail, then prioritise the segments in terms of value to your business. You can then focus resources on those with the greatest growth potential.

This step-by-step customer segmentation process will give you a clear view on who to target, why they buy, and how to engage them effectively.

Examples of customer segmentation

Here are some examples of how different customer segments might show up in different categories:

• A retail brand identifies ‘price-sensitive deal hunters’ vs ‘loyal premium buyers’
• A B2B software firm separates ‘early adopters’ from ‘risk-averse late movers’
• A travel company distinguishes ‘family value seekers’ from ‘luxury escape seekers’

By dividing your target audience into robust segments, you can carry out more effective targeting and enjoy stronger results.

People also ask – Q&A

Q: What is customer segmentation in marketing?
A: Customer segmentation in marketing is the practice of dividing a broad customer base into groups with shared characteristics or behaviours, so businesses can target them more effectively.

Q: What are the main types of customer segmentation?
A: The main types are demographic segmentation, geographic segmentation, behavioural segmentation, psychographic segmentation, and needs-based segmentation.

Q: How do you do customer segmentation?
A: The process involves defining objectives, collecting data, identifying meaningful variables, grouping customers into segments, and then profiling and prioritising them.

Q: Why is customer segmentation important?
A: Customer segmentation is important because it helps businesses allocate resources efficiently, create targeted campaigns, and improve customer satisfaction and retention.

Q: What is an example of customer segmentation?
A: For example, a supermarket may segment customers into ‘weekly family shoppers’ and “’top-up convenience buyers,’ each needing different offers and messaging.

Want to unlock the full value of segmentation?

At Clusters, we use our own advanced methods and proprietary algorithms to uncover accurate, actionable customer segments that help brands grow faster.

If you’re interested in learning more about how this could work for your business, please get in touch using our form below: