Customer Segmentation: 7 Proven Ways to Sell More Effectively (with Examples)

Imagine you own a coffee-roasting business. You know from experience that people love your dark roast after they try it. But now that you’ve discovered your customer base, how do you expand your reach? You could go any number of ways, like selling to local cafés, opening an online store, or trying to get on the shelves at grocery stores. The trouble is, you don’t know where to start. That’s where customer segmentation can help illuminate the right selling strategy. Let’s dive in.

• What is customer segmentation?
• Benefits of customer segmentation
• Why is customer segmentation so important?
• The 7 most common ways to segment your customers
• How to segment your customers in 7 steps
• Common segmentation challenges
• How technology powers customer segmentation

Customer segmentation means splitting your customer base into groups so you can customise your sales strategies based on their specific needs, pain points, objections, and affinities. Instead of one campaign for everyone, you can create a more personalised touch that fits each audience. This ultimately leads to more effective selling, with relatable, relevant messaging and offers for each segment.

Segmentation is done within just your own potential customer base, helping refine your sales strategies. For example, there might be an entire market of computer buyers, but you make powerful laptops for playing video games. Within this ‘gamer’ audience of potential customers, you could segment them into casual players who just need a basic laptop, and enthusiasts who need the top-of-the-line hardware.

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Why should you consider segmenting your customers? This practice, when followed diligently, can give your business the following major benefits:

• Gain a better understanding of your customers: The process of segmenting your customers means analysing who they are, where they gather, and how they behave. By the time you’ve created segments, you will have gained insights to help you potentially change messaging, offers, and even fundamentals about your products and services. That translates to better acquisition, retention, and profits.
• Keep up with changing needs: With segments in place, you can also compare them. Some are stable, such as location. You might find women in the U.S. buy more of your products year over year, so you can investigate why. Some segments are fluid, like cart size, and you can track the movement of customers from one segment to another over time.
• Improve customer lifetime value (CLV) and loyalty: CLV is a measure of how much a customer can be predicted to spend with your company long-term. Since it’s always easier and cheaper to retain a customer than to acquire a new one, higher CLV is always a good goal. Segmentation helps you identify what groups tend to have higher CLV, and help your sales team engage them more.
• Better customer experience (CX) and sales: Not all customers are equal. Many businesses are based around a large number of free or low-revenue patrons and a handful of bigger spenders who pay for the whole business. It’s known as the 80/20 rule, where 80% of returns come from 20% of effort, or in this case, customers. If you can identify and segment these more profitable customers, you can create sales strategies that focus on getting them to spend more, versus getting tyre-kickers to spend for the first time. Strategies like these can help you optimise your sales budget.

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‘One size fits all’ isn’t a strategy for long-term success. In our State of the Connected Customer report, we found that 65% of customers expect companies to adapt to their changing needs and preferences, but 61% felt that most companies treated them as a number. Eighty-one per cent of customers expect faster, more tailored service as technology advances. As salespeople, we have to meet and exceed customer expectations to win business and build loyalty. Competitors can easily use superior service to steal our hard-won customers.

It’s not just theoretical. Personalised outreach and communication at scale have helped companies (like one geo-data and territory management platform) generate this kind of outreach 10 times faster, resulting in a 40% increase of traffic to their sites.

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Segmentation methods fall into several types that can be used alone or together to create broad or narrow customer groups. They each have their own purpose, and many require different methods of data collection. The types are:

Demographics are set traits based on who a person is, some of which are changeable and some of which aren’t. They include attributes such as gender, age, marital status, income, and occupation. You’d use these to find more customers who are similar in certain ways to market to, and notice basic trends and buying habits that correlate with these traits.

Example: Parents of children ages 5 to 10 who earn at least $80,000 per year.

Geographic traits are those based on things like preferred language, physical location, and transportation methods (which can be used for things like billboard or radio advertising). These are used for making sure your sales team targets people who can even feasibly buy a product, or catering to different regulations, shipping costs, and more. Plus, making sure the sales rep and the customer are actually speaking the same language.

Example: English speakers who live in urban centres along the east coast of the U.S.

These are traits based on what kinds of technology customers use and prefer. They include things like device type, web browser, and origin source (where a user came from to get to your website or landing page, such as social media, email, or text). These can be good for targeting some conversations to the preferred method of outreach for different customers.

Example: Smartphone users on the Chrome browser who were directed by an SMS campaign.

This type of segmentation is deeper and has to do with customers’ specific needs, such as product features, service needs, or even the delivery method you use to get products to them. To get to needs, you have to analyse common traits and behaviours. You would use them to target different products and services that are natural complements to those different needs.

Example: Customers who frequently visit two different product pages on your app and likely need an easier way to compare them through some kind of tool.

This segmentation strategy focuses on separating customers by economic value to the business. Measures include number of purchases, average purchase value, and customer satisfaction (CSAT) scores. You’d segment this way to maximise the return on investment for different levels of effort and sales team resources.

Example: Customers with low satisfaction and high shopping cart value.

Psychographics are less about inherent traits and more about interests, values, and overall personality. These can be inferred but often have to be learnt through surveys, focus groups, and one-on-one interviews. These segments can be combined with demographics to create personas, messaging, and playbooks that target deeper-than-basic needs.

Example: Fashion enthusiasts who follow any social media influencers and cite "shopping" as a hobby.

Behavioural segmentation groups customers by what they do, especially around your business. These might be actions such as interacting with customer service reps, leaving a review, returning items, visiting certain pages on your website, leaving a shopping cart with items in it, or frequently buying items. These segments can be used to create just-in-time sales messages, and also group for specific playbooks based on the ways customers behave.

Example: Customers who visited your pricing page more than once and previously downloaded your white paper.

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Whether you’re starting from scratch or creating additional segmentation, this guide can help you set things up correctly.

Before you can split an audience, you must know them. You need a well-defined set of buyer personas (representations of your core audiences), and to understand the basics of who they are and why they buy from you. If you have sales but don’t know where they come from, there’s no point in micro-targeting subsets of them. Instead, you’ll want to use basic analytics tools on your site and/or app to gather essential data such as demographics, geographies, technographics, behaviours, and value to the business. From there, you can conduct surveys and interviews with buyers, and read through their reviews and interactions on social media to help create psychographics and needs-based analysis. Use commonalities to construct the beginning audiences.

Segmentation of a broader audience usually starts with a hunch that turns into a hypothesis. "What if we contact everyone who used to be a customer six months ago to tell them about a new offer?" Begin with these questions and pose them to key stakeholders who might be impacted by their answers. From there, set the segmentation project goals, which are determined by essential business needs. Example goals are:

• Expanding your current business
• Breaking into a new vertical
• Increasing market awareness of your products
• Learning whether a segment is more likely to spend

Your goals dictate how you segment your customers, and also the appropriate resources to employ. The deliverables for such a project should be a defined segmentation strategy, the parameters in your sales tool to use it, and data collected on that segment versus other segments you’ve created or the audience as a whole. This might be a report like, “ROI in segment vs. general audience.” It’s important that the goal and data collection have an appropriate time frame, in months or even quarters, to make sure there’s enough data to prove whether the segmentation is effective.

Expand your group of stakeholders to include representative employees from each department and team the new segment will affect. Sales teams are a must, and sometimes existing customers and vendors are, too. They’ll help refine the goals and project needs, and assess them at each step. Involve them by:

• Gathering requirements for the segment, and context you might not have (for example, maybe a different territory already tried this segment).
• Soliciting feedback on the goal to ensure it’s relevant, timely, feasible, and measurable, using the collective knowledge of your stakeholders.
• Getting buy-in on the final plan to ensure everyone is still aligned much later when the data on the segmentation’s efficacy is collected.

Get data to back up or disprove your initial hypothesis. Try some of these methods:

• Surveys: You can send post-purchase questionnaires to gather information such as CSAT, and make sure to leave space for customers to leave their own answers.
• Analytics tools: Gather and group usage data from your website, apps, and social media platforms, organised in your CRM.
• Social listening: Use social listening tools to find public customer feedback and brand mentions to learn their real feelings.
• Customer reviews: Find common concerns and wishes to help you develop your products further.
• Conversations with frontline staff: Whether they’re in a storefront or behind a desk, the teams that interact directly with customers can share valuable insights.
• Customer support interactions: What better time to learn what troubles your customers than when they’re reaching out with their problems? This data should be recorded in a unified CRM that Support and Sales groups can both access.
• Interviews and focus groups: Talking to people directly is the best way to gather psychographic data and correlate it to demographics and other data sets.
• Purchase history: Dig through order history to associate certain products with others and predict what segments of shoppers are likely to buy next.
• Published research: Round out your research with findings from large research publications, especially those that focus on your industry.

Analyse the data you've collected and the goals you set to decide the right types of segmentation to use. Machine learning and artificial intelligence (AI) in sales tools can help you create connections and associations, and suggest segments to you. Ultimately, the segments created should help meet the goals you set.

For example, if you saw that half of qualified leads in a single industry raise a similar objection during the final stages of a deal, you can zero in on what other traits they share. Maybe it turns out that they all have declining revenues that can be attributed to one new player eating up market share, so they are hesitant about new major expenses. That segment can be separated out and targeted by a new playbook your sales team can use, which is all about overcoming that objection.

With your new segments in hand, you can build brand positioning, messaging, go-to-market (GTM) strategies, and more for your sales team to use in their outreach and prospecting. That way, they can reach the goals you set at the start of this exercise. Try these tactics:

• Create targeted playbooks, including the channels and offers you'll use to gain their interest.
• Collect data tied to your core goals throughout the trial period. Make sure this data is comparable 1:1 with other segments and your overall audience.
• Study quantitative reactions from the new audience. How do they respond to new messaging or a new approach? Do new objections get raised?

Collect feedback from customers experiencing your new outreach, and the teams you put together at the start. Compare your new segment’s performance with the business goals that led you to create it, and double-check that this target is being segmented accurately from your broader customer list. Also compare performance against other segments and your total audience, and be sure to correct for external factors such as different sales seasons that can impact a segment. Use what you learn to refine the segment, and possibly even create sub-segments based on what you learn. Bring the findings back to your group, and plan for the next segmentation project.

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Segmentation can go wrong very easily. There are a lot of moving parts and technologies at play, all at a massive scale to meet modern customer demands. Here are the common challenges of segmenting your customers (and how you can overcome them):

The biggest risk is choosing not to segment whatsoever. You’re losing out on easy wins, like not marketing swimsuits to Alaskans in the winter, and not targeting an intern with C-suite executive terminology. Without segmentation, you can’t send an email about an abandoned shopping cart, or send customers information about products that correlate with whether they’re shopping for, either for themselves or a loved one. Basic segmentation is a must for modern businesses.

Solution: The way to overcome this is to follow the implementation guide and work with your marketing team to establish the personas your business works with. Start conducting first-party research by whatever means are available to create a working strategy.

The next-biggest mistake is jumping into segmentation poorly. Putting a customer in the wrong segment, either manually or automatically, can have significant negative consequences. If tonnes of enterprise subscribers are getting flagged by automated processes as free users, they’ll get masses of "upgrade now" emails. You’ll look like you don’t know what you’re doing at best, and get cancellations from big customers at worst. Plus, you may misalign your resources.

Solution: The way to overcome this is with regular and thorough audits of your strategy and implementation, with sample customers running through the process to see where gaps or mistakes are made.

The final segmentation error lies in poor data sources. If the information going into your machine is bad, the strategies and results it provides will be bad too. You may get the wrong buying signals, pull in out-of-date decision-makers, or have an entirely incorrect organisational chart for your sales team to work with.

Solution: The only way to overcome this is through much more deliberate data collection using your CRM at the start, with higher-quality sources. It might take more time and cost more upfront investment, but the payoff is more than worth it.

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Most customer segmentation tactics are only possible thanks to features of modern software platforms. Here are a handful of features and capabilities that can scale up your strategy.

• Automated data preparation: Pull in data about what prospects and customers do from everywhere. What do they search for? What campaigns do they interact with? What types of products have they browsed, added to cart, or even bought? All dimensions of behavioural data should be aggregated into central profiles for each customer.
• Calculated insights: Take advantage of AI modelling features in a customer data platform to analyse and create important segments such as likely lifetime value, trends in spending, and more that can’t simply be observed from behaviour.
• Targeted prospecting: Divide leads lists by known attributes such as demographics and behaviour, and your historical data about messages that have appealed to these different segments. That way, things like introductory emails and calls can be done effectively at scale.
• Sales personalisation: Integrate your marketing and sales tools so you can talk to prospects more effectively. Pull in data from recent customer actions on your sites, apps, emails, and social accounts, and interactions with service, marketing, and sales reps. The more you know about customers’ journeys, the more effectively you can reach out to them.
• Customer journey orchestration: Build personalised journeys that work across channels, like email, SMS, chats, phone calls, and more. This spans the marketing team’s needs and feeds into the sales team as well. This relies on an engagement marketing platform that needs to be tied in to your segmentation tool so it can take advantage of the segments created manually and automatically.
• Email productivity tools: Help sales teams access all the segmentation data right within their CRM. These sales engagement tools help them see what stage in the buying journey customers are in, get segment data and lead score, and get guidance on the right email to send at the right time.

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Customer segmentation is the expectation of modern customers, whether B2B or B2C. They never want to receive irrelevant messages, offers they can’t use, or hear about products and services they never agreed to buy. When everyone’s attention is so divided, your efforts must be too. Show customers they’re special, and they’ll return the favour to your company.

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