case study on marketing segmentation

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Customer Segmentation: Types, Examples And Case Studies

Customer segmentation is a marketing method that divides the customers in sub-groups, that share similar characteristics. Thus, product, marketing and engineering teams can center the strategy from go-to-market to product development and communication around each sub-group. Customer segments can be broken down is several ways, such as demographics, geography, psychographics and more.

Table of Contents

Why customer segmentation matters

No matter how niche your brand may be, it is important to keep in mind that every customer is, in fact, an individual. What’s more, they deserve to be treated as such.

Of course, most businesses will not have the resources to cater to every customer on an individual basis.

They can, however, more broadly assess the needs of their customers according to certain metrics.

Customer segmentation in a nutshell

Customer segmentation is the process of separating your customers into groups according to certain traits (e.g. personality or interests) and factors (age or income level). 

So why should customers be segmented? There are several important reasons:

• It allows businesses to tailor marketing strategies and ad campaigns according to particular groups of people.
• It enables businesses to learn about their consumers on a deeper level. And with this increased understanding, to create better products that resonate with consumer needs.
• Enhanced customer support – since businesses with customer segments are better able to predict problems ahead of time.
• Conversely, segmentation may also identify groups of consumers previously unknown to the business – allowing marketing resources to be directed toward these untapped groups.

Now that we have a basic understanding of customer segmentation and why it should be implemented, let’s look at some common customer segment types.

Demographics 

Demographic data is relatively straightforward and includes information on age, gender, marital status, income, and education level.

It is perhaps the most well-known and well utilized of all customer segments because demographic data is easy to obtain through market research.

A simple example of demographic customer segmentation might involve the marketing of a high-end sports car.

The manufacturer may want to target consumers that are unmarried or divorced, have a high income, and be at or approaching retirement age.

While the above examples deal with business-to-consumer marketing , demographic segmentation can also be used in business-to-business marketing .

In this case, businesses may target the industry, job function, or company size as part of their marketing efforts.

Geographical segments detail such parameters as climate, zip code, land use (urban or rural), and the radius around a particular point of interest. But it also concerns the scope and extent of potential marketing efforts.

Smaller organizations, for example, may target consumers living in specific towns or cities. Larger organizations may target consumers according to their country or continent of residence.

If we return to the sports car example, let’s assume that the car is marketed primarily as a convertible.

As a result, the manufacturer may choose to target specific countries (or geographic areas) with sunny climates that are conducive to driving with the top down, so to speak. 

Public transport operators could also use geographic segments to target commuters living within 15 minutes of a train station.

They could use this information to develop a marketing campaign to convince commuters to leave the car at home and take the train instead.

Psychographics 

Psychographic segments include such things as socioeconomic class, lifestyle, and personality traits.

They also include factors that are big drivers of buying decisions, such as values, motivations, attitudes, and conscious or subconscious beliefs. 

However, psychographic data is more difficult to collect than demographic data. Why? Because it is more subjective and requires deeper research to unearth.

Psychographic segments and the information that comprises them are also more fluid because motivations, beliefs and values can change over time.

The luxury sports car manufacturer may target consumers whose values and motivations relate to status, freedom, and fine craftsmanship.

But if, for example, the consumer who bought a 2-seater convertible suddenly welcomed grandchildren into his life, he may then prioritize safety and reliability over status and freedom.

Of course, marketing departments cannot plan for every contingency. But they must be aware that psychographic customer segmentation is fluid and has the potential to shift over time.

Behavioural 

Behavioral segments include a consumer’s direct interactions with a business.

In other words, behavior dictates how they act according to their demographic and psychographic attributes. 

The behavioral segment encompasses spending habits, product/service usage, and the perceived or actual benefits of such usage.

Behavioral segments are derived from internal data that is collected by the business itself.

It may include data on how consumers use a product and the frequency with which they do so.

Furthermore, information may also include the specific benefits that the consumer is after, such as a time or money saving or loyalty status. 

Perhaps most importantly, behavioral segments clarify a consumer’s willingness to purchase.

If a typical sports-car driver likes to upgrade to the new model every three years, then it is the marketing team’s priority to understand this cycle and market to this segment accordingly.

Similar predictive behavioral learning is also utilized by Netflix, who segment their users according to their content preferences and then recommend content in similar genres.

Technographic 

Technographic segmentation is segmentation according to a consumer’s preferred choice of technology.

Think smartphones, software, operating systems, desktops, and apps.

As technology becomes increasingly prevalent in the lives of consumers, technographic segmentation has never been more important to marketing departments. 

Business-to-consumer marketing can also use technographic segmentation to target consumers according to their social media use.

In their Harvard Business School published book Groundswell , authors Li and Bernoff suggest that marketing teams further divide their technographic segments according to social media use.

Each “sub-division” requires a different marketing strategy . Some of the more common sub-divisions include:

• Creators – who maintain a blog or website or upload music or videos.
• Critics – who post reviews of products or services or who like to contribute to forums or blog posts.
• Joiners – who maintain active social media accounts.
• Spectators – who read blogs, listen to podcasts, or watch video content without contributing or participating. 

Business to business (B2B) also stands to benefit by technographic segmentation. Specific parameters in the B2B sphere include network and storage capabilities, cloud utilization, and big data technologies.

All B2B interactions should segment businesses according to the prevalence of their technological capabilities before the marketing strategy is developed.

Target market examples

To recap, a target market is a segment of customers most likely to purchase a company’s products or services.

While the two terms have some overlap, it’s important to first make the distinction between a target market and a target audience.

The target market is the end consumer who will use the product.

The target audience, on the other hand, is the focus of the brand’s promotional efforts. 

To illustrate this difference, consider the McDonald’s Happy Meal. The product itself is obviously consumed by children, but it is the parents who control the finances and what the child eats.

As a result, McDonald’s may promote the Happy Meal’s nutritional value or low cost – factors that appeal to the parents but which the child cares very little about.

To solidify the concept of a target market further, read through the following examples.

Nike started out marketing to professional athletes and then expanded its business model to incorporate “everyday” athletes and sports enthusiasts.

As part of its rebranding effort, the company analyzed the benefits of owning its apparel, shoes, equipment, and accessories.

From this, Nike defined a target market of mostly younger consumers who were interested in fitness and possessed the disposal income to invest in equipment and achieve their goals.

Today, most of Nike’s promotional efforts focus on aspiring athletes and runners in a way that is motivational and inclusive.

Vans is an American shoe manufacturer founded in 1966 that made the bold decision to champion alternative subcultures such as skateboarding and bicycle motocross (BMX).

The brand appealed to so-called “misfits and rebels” who saw these sports as not only a hobby or passion but a lifestyle choice.

Vans is now taking advantage of the athleisure trend target market and has a much broader appeal, but the company’s stores continue their retro, skateboarding vibe.

In a Manhattan store, for example, vintage posters of skateboarders adorn the walls with industry slogans and skateboards from popular brands.

Next to skateboard accessories such as wheels and trucks is apparel more reminiscent of earlier decades with muted colors and oversized logos.

Dior is a French luxury fashion house founded by Christian Dior in 1946.

The company primarily targets the so-called “Chardonnay Girls” target market which consists of confident, optimistic, fashion-conscious women in the 18-32 age bracket.

Perhaps unsurprisingly, this target market tends to live in world cities such as Moscow, New York, and Milan with above-average salaries and career prospects.

They have also a propensity to shop offline, but having said that, Chardonnay Girls are consumers that are more likely to become advocates for a brand and share their experiences with friends.

Thus, reducing marketing costs through efficient, customer-focused communication.

Customer segmentation examples

In this section, we’ll delve into some additional customer segmentation examples.

Region and culture

With more than 36,000 restaurants in over 119 countries , McDonald’s uses a subset of geographic customer segmentation to promote menu items to users from various cultures.

In India, for example, ads show McSpicy Paneer alongside Green Chili Naan-Aloo. 

Another region and culture-specific advertisement promotes the Maharaja Mac – better known as the Big Mac – which is “ made with handpicked ingredients from across India” and features the #TrulyIndianBurger hashtag. 

Customer segmentation based on the forecast weather conditions enables the company to predict the moods, needs, and purchase behavior of its customers.

This is usually achieved via the integration of real-time weather data into an existing personalization platform.

Segmentation based on the weather is especially important for retail brands whose products are highly seasonal.

A clothing brand based in the United States, for example, can segment its users based on location and direct those living in the colder northern states to a page promoting scarves, jackets, and gloves.

An undisclosed football club – but one of the largest in England – used weather targeting to recommend merchandise to fans based on their location which is positioned on a Google Maps image in the background.

Some airlines are also using the approach to promote destinations with warmer or sunnier weather than the customer’s home conditions.

Home Chef is a food delivery company that segments its customers based on their profession.

In one email campaign aimed at the healthcare and education industries, the company referenced the upcoming National Teachers and Nurses Day and took the opportunity to thank these individuals for their service.

For those that could verify their teaching or nursing credentials, Home Chef offered 50% off the cost of their first box of food.

Cart abandonment

Almost 70% of desktop users and 86% of those on mobile abandon their cart before finalizing the purchase.

This represents a major source of lost income that can at least be partly recovered with laser-focused customer segmentation.

To encourage users to complete their purchases, companies can create a series of drip campaigns or emails based on metrics such as product type or customer activity level.

Google’s approach for abandoned items in its Google Store is to send users an email with personalization, excellent copywriting, and a clear call to action.

This is normally accompanied by a message that creates urgency such as “ Our popular items sell fast ” and “ Going, going, (almost) gone ”.

Politics is a divisive issue that can easily result in negative publicity for a brand. But rather than shy away from the topic, some brave companies use it as a tool for advanced and highly targeted customer segmentation.

Ben & Jerry’s is one brand that uses political segmentation to sell different flavors of ice cream across the United States.

In the democratic state of Vermont, for example, it released an “Empower Mint” ice cream with a slogan that read “ Democracy is in your hands” .

Key takeaways

Customer segmentation is a crucial part of any marketing strategy , but some businesses may be daunted by the initial investment of time and money. 

However, customer segmentation concerns serving customers and serving them well. Those who do not invest in segmentation run the risk of losing their customers to a competitor.

Accurate and detailed segmentation allows businesses to understand their customers on a deeper level and increases the probability of retaining them.

For the business, this increases conversion rates and drives down costs.

• In essence, a target market is a segment of customers most likely to purchase a company’s products or services. A target market should not be confused with a target audience, which is the focus of the brand’s promotional efforts.
• Nike’s target market consists of younger consumers who are interested in fitness and possess the disposable income to invest in equipment and achieve their goals. 
• Vans once appealed to smaller alternative subcultures such as skateboarding and BMX. Today, the company’s target market has broadened to include athleisure wearers.

Key Highlights:

• Customer Segmentation Overview: Customer segmentation is a marketing technique that divides customers into sub-groups based on similar characteristics. This allows businesses to tailor their strategies to specific groups and understand customer needs better.
• Importance of Customer Segmentation: Market segmentation helps businesses understand customer preferences, locations, and communication preferences. Treating each customer as an individual is essential, even if catering to every customer individually isn’t feasible.
• Demographics: Segmenting by age, gender, income, education, etc., allows businesses to target specific customer groups effectively.
• Geography: Targeting customers based on location, climate, and proximity to certain points of interest.
• Psychographics: Segmenting based on lifestyle, values, motivations, attitudes, and beliefs.
• Behavioral: Segmenting by customer behavior, including spending habits, product usage, and benefits sought.
• Technographic: Segmenting based on preferred technology, such as devices, software, and social media usage.
• Target Market vs. Target Audience: A target market is the end consumer of a product, while the target audience is the focus of promotional efforts. For example, McDonald’s targets parents as the target audience for Happy Meals, even though children consume the product.
• Nike: Initially targeting professional athletes, expanded to include everyday athletes with a focus on fitness enthusiasts.
• Vans: Initially targeted skateboarding and BMX subcultures, now appealing to athleisure wearers.
• Dior: Targets confident, fashion-conscious women aged 18-32 with above-average salaries.
• Region and Culture: McDonald’s tailors ads and menu items based on cultural preferences in different countries.
• Weather: Brands use real-time weather data to personalize offers based on weather conditions.
• Profession: Home Chef offers discounts to customers in specific professions, like teachers and nurses.
• Cart Abandonment: Brands send targeted emails to customers who abandon their shopping carts.
• Politics: Ben & Jerry’s uses political segmentation to offer ice cream flavors tied to political messages.
• Key Benefits: Customer segmentation leads to better understanding, tailored marketing, improved product development, enhanced customer support, cost efficiency, and increased conversion rates.
• Risk of Not Segmenting: Businesses that don’t invest in customer segmentation risk losing customers to competitors and missing out on opportunities to connect on a deeper level.
• Bottom Line: Accurate customer segmentation leads to higher retention rates, improved conversion rates, reduced costs, and overall business success. It’s a crucial part of any effective marketing strategy .

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MetLife: A Case Study in Customer Segmentation

In 2015, MetLife began a year-long brand discovery process that centered around using data and machine learning to develop a more refined view of their customer segments and enable a more nuanced go to market strategy. By better understanding their customers' needs, attitudes, and behaviors, MetLife hoped to gain a competitive advantage in targeting and better serving an increasingly demanding set of customers.

In 2015, MetLife began a year-long brand discovery process that resulted in what they would later call “the most significant change to their brand in over 30 years”. [i]  At the core of this strategic refresh, was a fundamentally data driven approach, enabled by advances in machine learning, that revealed to MetLife that the insurance landscape around them was changing: Technological innovations such as the proliferation of internet connections and increased penetration of mobile devices changed the way business was done. [ii] Disruptive newcomers, such as Lemonade, were redefining the market place with their simplified approaches to underwriting. And despite that, customer and shareholder expectations were higher than ever. [iii] In the months that followed, MetLife interviewed and surveyed more than 50,000 customers and with the help of big data clustering techniques used the information to better understand and segment their customers and subsequently redesign their go to market approach. [iii] As an employee of Bain and Company, working with the MetLife team, I had the privilege to see the beginnings of the transformation firsthand.

Rethinking customer segmentation

Traditionally, insurance organizations tried to glean directional insights about their customers’ needs, attitudes, and behaviors through demographics. [iv] In the case of retail customers, age tended to be an important demographic that proxied attainment of certain life stages and thus the sophistication of the individual customer. In the case of corporate customers, the number of employees tended to be an important demographic that proxied sophistication of the organization. Armed with these types of rudimentary insights, insurers would use their best judgement in deciding the bundle of products to offer customers. However, using only demographics, insurers had at best only a rough outline of who their customers were let alone what they wanted or how to target them.

To better understand their customers, MetLife strove to “move from basic demographics and life stages to a view based on mindsets and attitudes.” [v] They collected data on their customers through in-depth surveys designed to extract a combination of demographic, firmographic, attitudinal, and need-type information. Using advanced segmentation tools, survey respondents were clustered into distinct groups based on their individual survey responses resulting in, for the first time in the company’s history, a refined picture of who their customers were. These groups (or segments) provided a new way to think about allocating resources against the pursuit of the “right” customers. Publicly available results of one such clustering (dates back to 2013 corresponding to some earlier work with segmentation), and the strategic targeting implications, are shown in the images below. [vi]

Pathways to Just Digital Future

The path forward

As part of their brand refresh, MetLife committed to a data-driven approach “focused on identifying the right customers and creating truly differentiated customer value propositions.” [iii] They committed to an $800 million net annual savings target which they expect to be at full run rate by 2020. [iii] MetLife management stated that realizing the savings would require an estimated $1 billion in investments, a significant portion of which was in technology aimed at getting better data to fuel their increasingly robust data analytics capabilities. [iii]

Further, a core aspect of the customer segmentation work that MetLife engaged in was predicated on the idea that ideal customer segments needed to be “strategic and tactical in nature.” [vii] As part of the of the customer segmentation work, members of the sales force were made aware of the customer segments and given tools to help them effectively engage with target customers.

MetLife took its segmentation practices one step further and began educating its corporate customers, encouraging them to think about their employees through a combination of demographic and psychographic data. [v] MetLife’s business offerings now include “helping HR leaders select their benefits and adjust current programs to suit their diverse employees.” [v]

In many ways, MetLife’s data-driven strategic refresh was significant moment for the company and the broader insurance industry. It applied machine learning towards sales generation when most traditional insurance companies were focused on applying machine learning solely from a risk and improved underwriting perspective.

Going forward, MetLife should continue to embed machine learning deeper within their organization. A 2017 McKinsey article outlined four broad areas where machine learning could create value for an organization: projecting (forecasting), producing (operations), promoting (sales and marketing) and providing (enhanced user experiences). [viii]

MetLife’s efforts in this strategic refresh focused on promoting. Going forward, management should be cognizant not to neglect other areas in which machine learning can add value to the organization.

Ultimately, are sequential improvements in the way MetLife uses machine learning enough to give them a competitive advantage over disruptive newcomers, or is some form of transformational improvement necessary for them to remain relevant?

(768 words)

[i] Stout, Craig. 2016. “The Power Of A Customer Centered Approach – The Metlife Rebrand”.  Brand And Marketing Consultancy | Prophet . https://www.prophet.com/2016/10/power-customer-centered-approach-metlife-rebrand/ .

[ii] OECD (2017), Technology and innovation in the insurance sector, accessed November 2018

[iii] Metlife inc corporate investor day – final. (2016, Nov 10). Fair Disclosure Wire Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/1842918111?accountid=11311

[iv] Carr, Mark, and Amy Modini. 2012. “A New Approach To Segmentation For The Changing Insurance Industry”.  Cmbinfo.Com . https://www.cmbinfo.com/cmb-cms/wp-content/uploads/2012/03/HealthDoc_FINAL.pdf .

[v] “Building Stronger Engagement Through Employee Segmentation | Workforce”. 2018.  Metlife.Com . https://www.metlife.com/workforce/stronger-engagement-segmentation/ .

[vi] Mehra, Sanjay, and Leah van Zelm. 2013. “Segmentation. Customer Strategy Done Right – PDF”.  Docplayer.Net . https://docplayer.net/13983641-Segmentation-customer-strategy-done-right.html .

[vii] Barlyn, Suzanne. 2017. “Metlife To Invest $1 Billion In Tech To Reach Cost-Savings Goals”.  U.S. . https://www.reuters.com/article/us-metlife-investment-technology-idUSKBN17T2R6 .

[viii] Bughin, Jacques, Eric Hazan, James Manyika, and Jonathan Woetzel. 2017. “Artificial Intelligence The Next Digital Frontier”.  Mckinsey Global Institute , 5.

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Segmentation, Targeting, and Product Positioning

Leading provider of teaching materials for management education

The materials in the module show students how to segment markets, how to select the most attractive target markets, and how to craft a compelling product position.

5 Topics in This Module

Introduction.

Together, the two readings Segmentation and Targeting and  Brand Positioning provide students with a foundation in the key elements of a marketing strategy. The first reading covers different ways to segment a market and how to target the specific customer groups that best match the firm’s offering. The second reading shows how firms develop a product’s unique position to appeal to the customers it has targeted. 

Market Segmentation

This topic focuses on the basics of market segmentation and both cases require students to use data to identify market segments. The main case,  The Fashion Channel: Market Segmentation , explores a cable TV network that methodically determines how to segment its potential audience. Students are asked to complete a quantitative assignment: calculating the bottom-line impact of various segmentation schemes. In the alternative case, TiVo Segmentation Analytics , students are given the information needed to generate segmentation data that the business can use in its marketing strategy. “Rediscovering Market Segmentation” is a popular  Harvard Business Review  article that distinguishes between demographic segmentation, non-demographic segmentation, and what the authors call a “smart segmentation strategy.” While the first two may be effective in identifying which markets a company should enter and which goods it should make, only the third type of segmentation strengthens brand identity.  

Target Market Selection

The cases in this topic build on students’ understanding of market segmentation to explore target market selection.  Chase Sapphire: Creating a Millennial Cult Brand  shows how Chase carefully designed an offering targeting Millennial consumers, a hitherto elusive segment. Students analyze the profitability of different customer segments to identify the target segments that would most benefit from the product and add value to the firm. In the alternative case,  AnswerDash , the founders of a startup have to revise their marketing strategy when their product fails to take off despite its groundbreaking technology. The case demonstrates how understanding economic value for the customer is critical in targeting the right markets.

Positioning Challenges

Positioning is the attempt to identify a unique value proposition for a product. In the main case,  Crescent Pure , students are asked to choose among three possible product positioning options for an organic drink by analyzing segmentation data and evaluating perceptual maps. The alternative choice is a short simulation,  The Positioning Game . Students identify customer segments and use perceptual maps to find a product’s ideal positioning in a market. The supplementary article, “A Better Way to Map Brand Strategy,” shows managers how to link a product’s positioning with its market performance and gain insights on how best to position a product. 

Comprehensive Materials

The materials in this topic provide a comprehensive view of segmentation, targeting, and positioning. They illustrate how decisions about segmentation, targeting, and positioning are interrelated and build on each other. Instructors can use these materials as capstone exercises. In the simulation,  Managing Customers and Segments , students develop and execute a B2B marketing strategy for a motion sensor company, deciding which segments to target and refining the product position. The case study,  Planters Nuts , requires students to use market research to make segmentation, targeting, and positioning decisions that will successful reinvigorate the brand. 

About this module

A successful marketing strategy is based on identifying market segments, targeting the right markets and creating a unique product position. The module focuses on each of these key elements in turn and also provides comprehensive materials that show students how they work together.  Students explore the approaches and tools marketers use to identify market segments, make decisions about which segments to target, and decide how to position a product.

Learning Objectives

Understand how segmentation, targeting, and positioning are essential elements in a marketing strategy

Learn different ways to segment a market

Learn how to quantify the profitability of various segments and select attractive target markets

Explore how to create a compelling product position 

Related Modules

Designing and Managing Channels

This module explains the importance of channel strategies and how firms make decisions about distribution channels. Students explore firms’ initial channel strategies, why those strategies can change, and current issues of multichannel and omnichannel strategies.

Brand Storytelling

This module explores how brand meaning is created, what makes a good brand story, and how managers can best position brands to create maximum value.

Negotiating Consumer-Brand Relationships

This module explores the roles brands play as relational partners, and looks at how consumer-brand relationships form and evolve over time.

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Case study: how customer segmentation helped a company increase profitability.

November 18, 2023 | Jimit Mehta

Have you ever received a marketing email or seen an advertisement that just didn't resonate with you at all? Maybe it was promoting a product or service that you had no interest in, or maybe it just seemed completely irrelevant to your life. If so, you're not alone - many of us have had the experience of feeling like we're not quite the target audience for a particular campaign.

This is where customer segmentation comes in. By dividing a company's customer base into distinct groups based on shared characteristics like demographics, interests, or purchasing behaviors, companies can tailor their marketing efforts to each group's specific needs and preferences. This not only helps to improve the customer experience, but it can also lead to increased profitability for the company.

In this article, we'll explore a case study of a company that successfully used customer segmentation to boost their bottom line. We'll take a closer look at their approach to segmentation, the specific strategies they used to target each segment, and the results they achieved. Whether you're a marketer looking to improve your own segmentation efforts or simply curious about how this technique can impact a company's profitability, this case study is sure to provide some valuable insights. So let's dive in!

What is customer segmentation and why is it important?

Customer segmentation is a technique used by businesses to divide their customer base into smaller groups of individuals who share similar characteristics, needs, or behaviors. The idea is to create more targeted marketing campaigns and strategies that speak directly to the unique interests and preferences of each group, rather than taking a one-size-fits-all approach.

Segmentation can be based on a variety of factors, such as age, gender, location, income level, buying history, or lifestyle. By analyzing this data, businesses can gain a deeper understanding of who their customers are, what motivates them to make purchases, and how they prefer to interact with the company.

The benefits of customer segmentation are numerous. By tailoring marketing efforts to specific segments, companies can increase their chances of reaching the right customers with the right message at the right time. This can lead to higher conversion rates, increased customer loyalty, and ultimately, increased profitability.

Moreover, segmentation can help businesses identify new opportunities for growth, such as new markets or untapped customer needs. By analyzing the needs and behaviors of different segments, businesses can develop new products or services that cater to those needs and differentiate themselves from competitors.

In today's crowded and competitive marketplace, customer segmentation has become a crucial tool for businesses of all sizes. By taking a more personalized and targeted approach to marketing, companies can build stronger relationships with customers, improve their bottom line, and stay ahead of the competition.

Background on the company and the challenges they faced

Before implementing customer segmentation, the company in question faced a number of challenges in their marketing efforts. These challenges might have included a lack of engagement from customers, low conversion rates, or difficulty standing out in a crowded market.

The company's background is also important in understanding their approach to segmentation. For example, a startup might have different challenges and priorities than an established company with a large customer base.

Other factors, such as the company's industry, size, and target market, can also play a role in shaping their marketing challenges. A B2B company, for instance, might struggle with reaching decision-makers at other businesses, while a B2C company might face challenges in building brand awareness among a broader audience.

By understanding the context in which the company operates and the specific challenges they faced, we can better appreciate the impact that customer segmentation had on their success. This information also helps us to contextualize the strategies and tactics used to implement segmentation and to assess the relevance of the case study for our own businesses.

How the company approached customer segmentation

The company in our case study approached customer segmentation in a deliberate and data-driven way. They likely started by analyzing customer data, such as demographics, purchasing behavior, and online engagement metrics, to identify patterns and trends.

Based on this analysis, they would have grouped customers into different segments based on shared characteristics or behaviors. The specific criteria used to create these segments would have depended on the company's goals and the insights they wanted to gain.

For instance, a company might segment customers based on their stage in the buyer's journey, such as leads, prospects, and customers. Alternatively, they might segment based on customer demographics, such as age, income, or location. Behavioral segmentation, such as grouping customers based on purchase history, can also be effective.

Once the company had identified its customer segments, they would have developed targeted marketing campaigns and strategies for each segment. This could have included personalized email campaigns, customized landing pages, and tailored product recommendations.

The key to the company's approach to customer segmentation is that it was driven by data and insights. By taking a data-driven approach, the company was able to identify the most relevant segments for their business and create marketing strategies that truly resonated with each group.

Overview of the different customer segments identified

After analyzing customer data, the company in our case study would have identified different customer segments based on shared characteristics or behaviors. Here's an example of what some of these segments might have looked like:

High-Value Customers: These are customers who make frequent or high-value purchases, and may be particularly loyal to the brand. The company may have developed a strategy to nurture these customers through personalized communication and exclusive offers to retain their business.

Occasional Buyers: These are customers who make infrequent purchases, or whose purchase history is more sporadic. The company might have developed a strategy to increase their engagement through targeted messaging or incentives to drive more frequent purchases.

New Customers: These are customers who have recently made their first purchase with the company. The company may have developed a strategy to nurture this group through a series of welcome messages or promotions to encourage repeat business.

Abandoned Carts: These are customers who have added items to their online cart but did not complete the purchase. The company may have developed a strategy to follow up with these customers through targeted email campaigns or retargeting ads to encourage them to complete the purchase.

These are just a few examples of the different customer segments that a company might identify through customer segmentation. By creating distinct groups based on customer behavior or demographics, the company can develop targeted marketing campaigns that are more likely to resonate with each group, and drive increased engagement and revenue.

Strategies used to target each segment

Once the company had identified their different customer segments, they would have developed specific strategies to target each group effectively. Here are some examples of the strategies that might have been used for each segment:

High-Value Customers: For this segment, the company may have created a VIP program that offered exclusive perks and benefits , such as free shipping, early access to sales, or personalized recommendations. The company may have also implemented a loyalty program that rewarded high-value customers for their continued business.

Occasional Buyers: To target this segment, the company may have developed promotions or incentives to encourage more frequent purchases. This could include personalized recommendations based on their purchase history, targeted discounts, or a rewards program that incentivizes repeat purchases.

New Customers: To target new customers, the company may have developed a series of welcome messages that introduce the brand and its products or services. They may have also offered new customer discounts or promotions to incentivize their first purchase and encourage future engagement.

Abandoned Carts: To target customers who abandoned their online carts, the company may have implemented a retargeting campaign that shows ads or sends emails featuring the abandoned items. The company may have also offered discounts or incentives to encourage customers to complete their purchase.

These are just a few examples of the strategies that a company might use to target each customer segment effectively. By creating tailored messaging and incentives for each group, the company can improve engagement, drive more revenue, and build stronger customer relationships.

Results achieved through customer segmentation

By implementing a customer segmentation strategy, the company in our case study was able to achieve impressive results across a range of metrics. Here are a few examples:

Increased Revenue: By targeting different customer segments more effectively, the company was able to drive increased revenue across the board. High-value customers were incentivized to make even more frequent and higher-value purchases, while occasional buyers were encouraged to make more purchases more frequently. New customers were also more likely to become repeat customers, leading to a boost in overall revenue.

Improved Customer Retention: By creating personalized experiences for each customer segment, the company was able to build stronger relationships with their customers and improve retention rates. High-value customers felt more valued and appreciated, while occasional buyers were more likely to stick around due to the targeted messaging and incentives. Even abandoned cart customers were more likely to return and complete their purchases thanks to the retargeting campaigns.

Increased Customer Lifetime Value: By nurturing each customer segment effectively, the company was able to increase the overall lifetime value of each customer. High-value customers became even more valuable, while occasional buyers and new customers were converted into more loyal, higher-value customers over time.

Overall, customer segmentation allowed the company to drive more revenue, improve customer relationships, and increase the value of each customer over time. By taking a data-driven approach to customer segmentation, the company was able to identify the most relevant segments for their business and create targeted marketing strategies that truly resonated with each group.

Lessons learned and key takeaways for other businesses

The case study we've been exploring demonstrates the powerful impact that customer segmentation can have on a business. Here are some key takeaways and lessons learned that other businesses can apply to their own strategies:

Use data to inform your segmentation: Customer segmentation should be based on data and insights, rather than assumptions or guesswork. By analyzing customer behavior and demographic data, you can identify meaningful segments that will be most relevant to your business.

Tailor your messaging and incentives: Once you've identified your customer segments, it's important to create messaging and incentives that will resonate with each group. This could include personalized recommendations, targeted discounts, exclusive offers, or other incentives that align with each group's interests and preferences.

Prioritize high-value customers: Your most valuable customers are the ones who will have the greatest impact on your bottom line, so it's important to prioritize their needs and preferences. By developing VIP programs, loyalty rewards, and other strategies to retain these customers, you can drive significant revenue and build long-term relationships.

Be proactive in addressing customer pain points: Through customer segmentation, you may also identify common pain points or areas of dissatisfaction among different segments. By proactively addressing these pain points, you can improve the customer experience and increase customer loyalty.

Overall, customer segmentation can be a powerful tool for businesses looking to drive revenue, improve customer relationships, and build long-term loyalty. By understanding the unique needs and preferences of each customer segment, you can create tailored strategies that will have a meaningful impact on your business.

Future plans for customer segmentation and continued growth

In order to maintain their momentum and continue driving growth, the company in our case study has developed a number of future plans related to customer segmentation. Here are a few key initiatives they are pursuing:

Continued refinement of customer segments: Customer behavior and preferences are constantly evolving, so it's important to regularly reassess and refine customer segments based on new data and insights. By staying on top of these changes, the company can continue to tailor their strategies to the most relevant segments.

Expansion into new markets: While the company has seen impressive results within their existing customer base, they are also exploring opportunities to expand into new markets. This may involve identifying new customer segments or developing strategies to reach customers in different geographic regions.

Investment in technology and automation: As the company's customer base grows, it will become increasingly difficult to manually manage customer segmentation and personalized marketing strategies. To address this challenge, the company is investing in technology and automation solutions that can help streamline these processes and scale their efforts more efficiently.

Partnerships and collaborations: In order to reach new audiences and expand their customer base, the company is also exploring partnerships and collaborations with other businesses and organizations. By working together, they can leverage each other's strengths and reach new customer segments more effectively.

Overall, the company recognizes that customer segmentation will continue to be a key driver of their growth and success in the future. By staying ahead of the curve and investing in new strategies and technologies, they are well-positioned to continue delivering value to their customers and achieving their business objectives.

Conclusion and final thoughts

In conclusion, the case study we've explored highlights the significant impact that customer segmentation can have on a business's bottom line. By identifying and targeting the most relevant customer segments, the company was able to drive significant revenue growth, improve customer relationships, and position themselves for continued success in the future.

At its core, customer segmentation is about understanding and meeting the unique needs and preferences of each customer group. By tailoring your messaging, incentives, and strategies to these groups, you can create a more personalized and engaging customer experience that drives loyalty and revenue growth.

Of course, customer segmentation is not a one-time effort - it requires ongoing refinement, adaptation, and investment to remain effective. However, for businesses willing to put in the work, the benefits can be substantial. By developing a deep understanding of your customers and prioritizing their needs, you can build a business that is both profitable and sustainable over the long term.

So whether you're just getting started with customer segmentation or looking to take your existing strategies to the next level, we encourage you to keep these lessons in mind and stay focused on delivering value to your customers. With the right approach and a commitment to continuous improvement, we believe that any business can achieve success through customer segmentation.

In this article, we explored a case study that demonstrates the significant impact that customer segmentation can have on a business's profitability. We learned about a company that faced challenges in understanding their customer base and tailoring their strategies to meet their needs. To address these challenges, the company embarked on a customer segmentation initiative that allowed them to identify and target specific customer groups with personalized messaging and incentives.

Through this initiative, the company achieved impressive results, including a significant increase in revenue, improved customer relationships, and a better understanding of their customers' needs and preferences. We also learned about the specific customer segments identified and the strategies used to target each group, as well as the lessons learned and future plans for continued growth.

Overall, this case study serves as a powerful reminder of the importance of customer segmentation in driving business success. By understanding your customers' unique needs and preferences and tailoring your strategies to meet them, you can create a more engaging and personalized customer experience that drives revenue growth and customer loyalty. Whether you're just getting started with customer segmentation or looking to take your existing strategies to the next level, there are many valuable lessons and best practices to learn from this case study.

Want show different customer segments more relevant content using personalization?  Try Markettailor for free.

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Market Segmentation: One Method, Four Examples

Presented by TRC Insights

Effective market segmentation requires an understanding of the market and the skilled art of finding the appropriate segments. TRC gives four examples of this method's application with results.

Introduction

Companies segment their markets to improve their competitiveness and profitability in fundamental ways:

• By focusing product development, marketing, and service resources on segments with the most potential, companies literally can multiply their marketing and service efficiency.
• By developing products, services, and marketing messages that address those segments’ specific needs, they can greatly improve their share of the most desirable business. At the same time, by focusing on the needs of the most desirable customers, companies can improve retention of those customers.

Very often, companies shape their market segmentation using the results of market research and analysis. Market segmentation research is not designed to shape the market. Rather, it reveals underlying divisions in the market and characteristics of the market segments that can be used for effective and profitable marketing.

At the very least, segmentation research places the steps companies take on a firm factual foundation. Often, it also uncovers characteristics of the market that are not obvious and identifies ways of dividing and approaching the market that will be particularly effective. If these ways are not evident to competitors, the marketing impact of segmentation research can be even more beneficial.

At a more tactical level, market segmentation can make the choices a company faces in developing products, services, and marketing messages easier. Often, market segmentation shows that many conceivable combinations of interest in product features, combinations of service needs, or combinations of attitudes are actually very rare in the marketplace. As a result, there is no need for the company to be prepared to deal with these combinations.

Effective Segmentation

What makes a segmentation analysis valuable? Market segmentation research includes more “art” (although no less "science") than other types of market research. This is the case because analysis often turns up two or more different sets of segments, that is two or more different ways of dividing the market. For example, one analysis might subdivide a segment; another might not recognize that division.

In these circumstances, what counts is a segmentation scheme that the firm can implement to create real marketing advantages. Which scheme is best depends not just on which provides the best description of the market, but also on the company’s strengths and marketing goals:

• For example, a company that is relatively large in its market might view a segment constituting 10% of the market as too small to serve as the foundation for a marketing strategy, no matter how desirable that segment is. A smaller firm in the same market, however, might see pursuit of the same segment as an exceptionally fruitful strategy.

Thus, the best segmentation analysis is the one that is most useful.

Deciding what Data Inputs to Use: Prior to carrying out a segmentation study, a firm should carefully consider what data inputs to use to ensure that the different segments identified can be targeted for actual marketing. If segments cannot be targeted, the most descriptive segmentation scheme may not be very useful.

SOM: In our segmentation projects, we have used a neural network based method that allows a computer to “learn” the structure of the market. The specific type of network used is called a "Self-Organizing Map" or SOM. SOMs have important advantages over other more traditional segmentation techniques:

• SOMs show how many segments naturally exist in the market and how they are related to one another, rather than requiring the analyst to make assumptions about how many segments there are.
• In our experience, the segments SOMs identify often are more distinct than those identified by cluster analysis, the most common type of segmentation analysis. We have seen this difference in studies where we used both techniques to analyze the same data.

The following brief case studies illustrate some uses our clients have made of market segmentation research using SOMs. Of course, findings are disguised where necessary to protect the proprietary interests of our clients.

Case 1: Personal Auto Insurance Buyers

Background: Our client, a national property/casualty insurer, distributes its personal and small commercial products through independent agents. This study was part of a reevaluation of its strategies, designed to determine:

• Whether its market share might be increased by direct marketing to some households.
• Whether doing so would conflict with agent activities.
• Marketing themes and product features that could be used to differentiate it in different market segments.
• The potential profitability of different segments.

Attitudinal, behavioral, and demographic data were gathered using a mail panel survey of 2000 U.S. households that own auto insurance. Geodemographic and credit information supplemented the survey responses.

Segments Identified: The study identified five segments, each making up 17% to 22% of the market.

• "Non-Traditionals" were most interested in using the Internet and/or buying insurance at work.
• Direct Buyers were more interested than others were in buying via direct mail or telephone.
• "Budget Conscious" consumers were differentiated, primarily, by their interest in minimal coverage and their determination to find the best deal.
• "Agent Loyals" expressed strong loyalty to their agents and interest in high levels of personal service.
• "Hassle-Free" consumers were similar to "Agent Loyals," except that they were much less interested in high levels of faceto-face service.

Thus, attitudes toward distribution and service needs were key factors differentiating the segments. The segments also differed in other attitudes and in their potential profitability, as measured by total auto insurance premiums, other insurance products owned, and loyalty to their insurers.

Marketing Outcomes: The study showed which segments the client should target for distribution without agents. It also showed how to define the segments in actual target marketing. As it turned out, the analysis showed strong relationships between segment membership and information available in the databases insurers use in underwriting and direct marketing targeting

The study also provided guidance on which marketing messages to use with each segment.

Thus, this research provided a major input into our client’s decision about how to proceed with this potential new venture.

Case 2: Large Corporations as a Market for Risk Management

Background: Like other commercial insurers, our client for this study faced global consolidation of insurance carriers, a buyer’s market that was keeping prices and profitability down, inefficient distribution that hindered innovation, and wide variations in profitability from customer to customer.

In this context, our client wanted to accomplish three goals:

• Identify segments interested in buying more value-added services from our client.
• Identify segments that were interested in modified distribution in which the carrier would play a more active role rather than just waiting for brokers to bring business to them.
• Identify segments that had the greatest profit potential, because they were likely to be loyal and interested in a broad range of services.

For this study, risk managers at about 400 of the 1500 largest U.S. corporations were interviewed. Their answers were supplemented by Dun & Bradstreet data and data on our clients’ relationships with them. (About 40% of the companies were our clients’ customers, to one extent or another.)

Segments Identified: The Self-Organizing Map technique identified four segments:

• "Innovators," 37% of the market, were most interested in broader services, displayed high loyalty to their carriers, and had higher than average insurance expenditures.
• "Rejecters" (26% of the firms) were characterized, mainly, by disliking current distribution arrangements. They displayed higher than average expenditures and medium loyalty to carriers.
• "Limited Service" (20% of the market) firms had almost no interest in one of the core sets of insurance services, displayed low loyalty, and spent little on insurance and other risk management, relative to their size.
• "Traditionalists" (17% of the market) liked traditional roles for carriers and the distribution system. They were very risk averse and displayed medium loyalty to their carriers.

Comparing these segment characteristics to our client's experiences with respondents' firms that fell into the different segments, we found that "innovators" were most likely to buy a broad range of service and did show strong customer retention. Firms in other segments also tended to act as the segmentation suggested they would. Thus, our client’s actual experience confirmed the segmentation findings.

Marketing Outcomes: These results contributed to new product/service packages our client developed.

Targeting these companies was relatively easy, because like other commercial insurers our client was in touch with risk managers at virtually all of these large corporations. Given this situation, our client asked us to develop a series of questions that could be asked to assign firms to the segments.

This article was written by Rajan Sambandam of TRC, a full-service market research provider located in Fort Washington, PA.

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Market Segmentation

What is market segmentation?

The benefits of market segmentation, the basics of segmentation in marketing, types of market segmentation, how to get started with segmentation, market segmentation strategy, market segmentation use case examples, ensuring effective segments, common segmentation errors, qualtrics solutions for market segmentation, see how qualtrics strategic brand works, market segmentation: definition, types, benefits, & best practices.

21 min read Market segmentation helps you send the right message, every time, by efficiently targeting specific groups of consumers. Here’s how it works.

By understanding your market segments, you can leverage this targeting in product, sales, and marketing strategies . Market segments can power your product development cycles by informing how you create product offerings for different segments like men vs. women or high income vs. low income.

Read on to understand why segmentation is important for growth and the types of market segmentation to use to maximize the benefits for your business.

Free eBook: How to drive profits with customer segmentation

Companies who properly segment their market enjoy significant advantages. According to a study by Bain & Company , 81% of executives found that segmentation was crucial for growing profits. Bain also found that organizations with great market segmentation strategies enjoyed a 10% higher profit than companies whose segmentation wasn’t as effective over a 5-year period.

Other benefits include:

• Stronger marketing messages : You no longer have to be generic and vague – you can speak directly to a specific group of people in ways they can relate to, because you understand their characteristics, wants, and needs.
• Targeted digital advertising : Market segmentation helps you understand and define your audience’s characteristics, so you can direct your online marketing efforts to specific ages, locations, buying habits, interests etc.
• Developing effective marketing strategies : Knowing your target audience gives you a head start about what methods, tactics and solutions they will be most responsive to.
• Better response rates and lower acquisition costs : will result from creating your marketing communications both in ad messaging and advanced targeting on digital platforms like Facebook and Google using your segmentation.
• Attracting the right customers : targeted, clear, and direct messaging attracts the people you want to buy from you.
• Increasing brand loyalty : when customers feel understood, uniquely well served, and trusting, they are more likely to stick with your brand .
• Differentiating your brand from the competition : More specific, personal messaging makes your brand stand out .
• Identifying niche markets : segmentation can uncover not only underserved markets, but also new ways of serving existing markets – opportunities which can be used to grow your brand.
• Staying on message : As segmentation is so linear, it’s easy to stay on track with your marketing strategies, and not get distracted into less effective areas.
• Driving growth : You can encourage customers to buy from you again , or trade up from a lower-priced product or service.
• Enhanced profits : Different customers have different disposable incomes; prices can be set according to how much they are willing to spend . Knowing this can ensure you don’t oversell (or undersell) yourself.
• Product development : You’ll be able to design new products and services with the needs of your customers top of mind, and develop different products that cater to your different customer base areas.

Companies like American Express , Mercedes Benz , and Best Buy have all used segmentation strategies to increase sales, build better products, and engage better with their prospects and customers.

Understanding segmentation starts with learning about the various ways you can segment your market as well as different types of market segmentation. There are four primary categories of segmentation, illustrated below.

With segmentation and targeting, you want to understand how your market will respond in a given situation, like what causes people to purchase your products. In many cases, a predictive model may be incorporated into the study so that you can group individuals within identified segments based on specific answers to survey questions .

Demographic segmentation

Demographic segmentation sorts a market by elements such as age, education, household income, marital status, family size, race, gender, occupation, and nationality. The demographic approach is one of the simplest and most commonly used types of market segmentation because the products and services we buy, how we use those products, and how much we are willing to spend on them is most often based on demographic factors. It’s also seen as a simple method of predicting future behavior, because target audiences with similar characteristics often behave in similar ways.

How to start demographic segmentation

Demographic segmentation is often the easiest because the information is the most readily available. You can send surveys directly to customers to determine their demographic data, or use readily available third party data such as government census data to gather further information.

Geographic segmentation

Geographic segmentation can be a subset of demographic segmentation, although it can also be a unique type of market segmentation in its own right. As its name suggests, it creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand your business.

How to start geographic segmentation

Geographic segmentation data again can be solicited from customers through surveys or available third party market research data, or can be sourced from operational data such as IP addresses for website visitors.

Firmographic segmentation

Firmographic segmentation is similar to demographic segmentation, except that demographics look at individuals while firmographics look at organizations. Firmographic segmentation would consider things like company size, number of employees and would illustrate how addressing a small business would differ from addressing an enterprise corporation.

How to start firmographic segmentation

Firmographic segmentation data can be found in public listings for companies and information that the business makes available, as well as trade publications. Again, surveying existing and potential customers can help to build out this data.

Behavioral segmentation

Behavioral Segmentation divides markets by behaviors and decision-making patterns such as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase bottled body wash, while older consumer groups may lean towards soap bars. Segmenting markets based on purchase behaviors enables marketers to develop a more targeted approach, because you can focus on what you know they are looking for, and are therefore more likely to buy.

How to start behavioral segmentation

Of all the types of market segmentation, behavioral segmentation is likely best started with the information you have on an existing customer base. Though it can be bolstered by third party market research data, the information you already have on customer purchase and usage behavior will be the best predictor of future behavior.

Psychographic segmentation

Psychographic segmentation considers the psychological aspects of consumer behavior by dividing markets according to lifestyle, personality traits, values, opinions, and interests of consumers. Large markets like the fitness market use psychographic segmentation when they sort their customers into categories of people who care about healthy living and exercise.

How to start psychographic segmentation

Pychographic segmentation relies on data provided by the consumers themselves. Though market research might provide insights on what particular segments are most likely to believe or prefer, psychographic segmentation is best completed with information direct from the source. You can use survey questions with a qualitative focus to help draw out insights in the customers’ own voice.

On-demand webinar: How to drive product design and profits with customer segmentation

There are five primary steps to all marketing segmentation strategies:

• Define your target market : Is there a need for your products and services? Is the market large or small? Where does your brand sit in the current marketplace compared to your competitors?
• Segment your market : Decide which of the five criteria you want to use to segment your market: demographic, firmographic, psychographic, geographic, or behavioral. You don’t need to stick to just one – in fact, most brands use a combination – so experiment with each one to figure out which combination works best for your needs.
• Understand your market : You do this by conducting preliminary research surveys, focus groups, polls , etc. Ask questions that relate to the segments you have chosen, and use a combination of quantitative (tickable/selectable boxes) and qualitative (open-ended for open text responses) questions.
• Create your customer segments : Analyze the responses from your research to highlight which customer segments are most relevant to your brand.
• Test your marketing strategy : Once you have interpreted your responses, test your findings by creating targeted marketing, advertising campaigns and more for your target market, using conversion tracking to see how effective it is. And keep testing. If uptake is disappointing, relook at your segments or your research methods and make appropriate changes.

Why should market segmentation be considered a strategy? A strategy is a considered plan that takes you from point A to point B in an effective and useful way. The market segmentation process is similar, as there will be times you need to revisit your market segments, such as:

In times of rapid change: A great example is how the Covid-19 pandemic forced a lot of businesses to rethink how they sell to customers. Businesses with physical stores looked at online ordering, while restaurant owners considered using food delivery services.

If your customers change, your market segmentation should as well, so you can understand clearly what your new customers need and want from you.

On a yearly basis: Market segments can change year over year as customers are affected by external factors that could alter their behavior and responses.

For example, natural disasters caused by global warming may impact whether a family chooses to stay living in an area prone to more of these events. On a larger scale, if your target customer segment moves away from one of your sales regions, you may want to consider re-focussing your sales activities in more populated areas.

At periodic times during the year: If you’ve explored your market and created market segments at one time of the year, the same market segments may have different characteristics in a different season. Seasonal segmentation may be necessary for better targeting.

For example, winter has several holidays, with Christmas being a huge influence on families. This holiday impacts your market segments’ buying habits, how they’ll behave (spending more than normal at this time than any other) and where they will travel (back home for the holidays). Knowing this information can help you predict and prepare for this period.

When considering updating your market segmentation strategy, consider these three areas:

• Acknowledge what has changed: Find out what has happened between one time period and another, and what have been the driving forces for that change. By understanding the reasons why your market is different, you can make key decisions on whether you want to change your approach or stay the course.
• Don’t wait to start planning: Businesses are always adapting to long-te r m trends , so refreshing market segmentation research puts you in a proactive place to tackle these changes head-on. Once you have your market segments, a good idea is to consider the long-term complications or risks associated with each segment, and forward-plan some time to discuss problem-solving if those issues arise.
• Go from “what” to “why” : Why did those driving forces come about? Why are there risks with your target market? At Qualtrics, we partner with companies to understand the different aspects of target markets that drive or slow success. You’ll have the internal data to understand what’s happening; we help unleash insight into why with advanced modeling techniques. This helps you get smart market segmentation that is predictive and actionable, making it easier for future research and long-term segment reporting.

Where can you use market segmentation in your business? We’ve collected some use case scenarios to help you see how market segmentation can be built out across several departments and activities:

Market and opportunity assessments

When your business wants to enter into a new market or look for growth opportunities, market segmentation can help you understand the sales potential. It can assist in breaking down your research, by aligning your findings to your target audience groups.

For example, When you’ve identified the threats and opportunities within a new market, you can apply your customer segment knowledge to the information to understand how target customers might respond to new ideas, products, or services.

Segmentation and targeting

If you have your entire market separated into different customer segments,  then you have defined them by set criteria, like demographics, needs, priorities, common interests, or behavioral preferences .

With this information, you can target your products and services toward these market segments, making marketing messages and collateral that will resonate with that particular segment’s criteria.

Customer needs research

When you know a lot about your customers, you can understand where your business is connecting well with them and where there can be improvements.

Market segmentation can help with customer needs research (also known as habits and practices research) to deliver information about customer needs, preferences, and product or service usage. This helps you identify and understand gaps in your offerings that can be scheduled for development or follow-up.

Product development

If the product or service you’ve developed doesn’t solve a stated problem of your target audience or isn’t useful, then that product will have difficulty selling. When you know what each of your market segments cares about an/d how they live their lives, it’s easier to know what products will enrich or enhance their day-to-day activities.

Use market segmentation to understand your customers clearly , so that you can save time and money developing products and services that your customers will want to purchase.

Campaign optimization

Marketing and content teams will value having detailed information for each customer segment, as this allows them to personalize their campaigns and strategies at scale. This may lead to variations in messaging that they know will connect better with specific audiences, making their campaign results more effective.

When their marketing campaigns are combined with strong calls to action targeted to the specific segment, they will be a powerful tool that drives your target market segments towards your sales channels.

After you determine your segments, you want to ensure they’ll be useful. A good segmentation analysis should pass the following tests:

• Measurable : Measurable means that your segmentation variables are directly related to purchasing a product. You should be able to calculate or estimate how much your segment will spend on your product. For example, one of your segments may be made up of people who are more likely to shop during a promotion or sale.
• Accessible : Understanding your customers and being able to reach them are two different things. Your segments’ characteristics and behaviors should help you identify the best way to meet them. For example, you may find that a key segment is resistant to technology and relies on newspaper or radio ads to hear about store promotions, while another segment is best reached on your mobile app. One of your segments might be a male retiree who is less likely to use a mobile app or read email, but responds well to printed ads.
• Substantial : The market segment must have the ability to purchase. For example, if you are a high-end retailer, your store visitors may want to purchase your goods but realistically can’t afford them. Make sure an identified segment is not just interested in you, but can be expected to purchase from you. In this instance, your market might include environmental enthusiasts who are willing to pay a premium for eco-friendly products, leisurely retirees who can afford your goods, and successful entrepreneurs who want to show off their wealth.
• Actionable : The market segment must produce the differential response when exposed to the market offering. This means that each of your segments must be different and unique from each other. Let’s say that your segmentation reveals that people who love their pets and people who care about the environment have the same purchasing habits. Rather than having two separate segments, you should consider grouping both together in a single segment.

Market segmentation is not an exact science. As you go through the process, you may realize that segmenting based on behaviors doesn’t give you actionable segments, but behavioral segmentation does. You’ll want to iterate on your findings to ensure you’ve found the best fit for the needs of your marketing, sales and product organizations.

We’ve outlined the do’s , so here are some of the dont’s :

• Avoid making your segments too small or specialized : Small segments may not be quantifiable or accurate, and can be distracting rather than insightful
• Don’t just focus on the segment rather than the money : Your strategy may have identified a large segment, but unless it has the buying power and wants or needs your product, it won’t deliver a return on investment
• Don’t be inflexible : Customers and circumstances change, so don’t let your segments become too entrenched – be prepared to let them evolve.

Market segmentation doesn’t need to be complicated to be effective. We would advise, though, to  get automated from the beginning . Forget spreadsheets – choose  market segmentation software  to measure and streamline your marketing strategy; as you grow, the technology will scale with you.

Innovative features such as XM Directory allow you to build your own customer segments and start personalizing experiences at scale based on the rich insights into your critical customer groups.

If you want to get a feel for your market segmentation upfront, before taking a step towards a streamlined and integrated system, trust us to take you through the research with our Market Segmentation Research service .

Related resources

Market fragmentation 9 min read, behavioral segmentation 20 min read, psychographic segmentation 11 min read, geographic segmentation 14 min read, demographic segmentation 14 min read.

Brand Perception

Brand Sentiment 18 min read

Brand intelligence 12 min read, request demo.

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August 27, 2021

Customer segmentation in retail: 6 powerful client case studies, are you still talking to all of your customers the same way in today’s hyper-competitive retail environment, that just won’t cut it. you need to use customer segmentation to send each customer unique communications and offers. here are 6 case studies demonstrating the value of customer segmentation..

Customer insights and segmentation can help you unlock a new competitive advantage, identify opportunities to grow customer lifetime value, and optimize campaign performance.

By employing data-driven customer segmentation, you can improve your performance across every sales channel and customer touchpoint. Customer data platforms (CDPs) like Lexer can help you manage your data effectively, create valuable customer segments, and automatically update audiences across other retail systems.

In fact, Lexer is the CDP of choice for leading brands like Quiksilver, Igloo, Nine West, Rip Curl, Supergoop!, and more. Here are 6 case studies from brands and retailers who have used Lexer's customer segmentation tools to implement data-driven retail strategies and drive results.

Customer segmentation case studies for acquisition

Black diamond.

An excellent customer segmentation example as it pertains to customer acquisition in the retail space is the case of Black Diamond. The business aimed at growing its direct-to-consumer business to improve personalization, acquisition, and retention. This is with a backdrop of a healthy wholesale business and a small DTC team without a dedicated IT team that could provide actionable customer insight.

Black Diamond enlisted the help of the Lexer team to overcome these challenges. The team was in charge of providing customer data and gathering insights into their behaviors. The insights helped the brand develop an agile strategy for customer acquisition and retention campaigns across all its channels.

Using the Lexer CDP, Black Diamond was able to cut their cost-per-acquisition (CPA) in half and double their return on ad spend (ROAS) . Additionally, there was a 1,101% increase in the revenue per email when targeting lapsed customers. All of this was achieved using a 5-phased process which included collecting and analyzing historical data, targeted lead generation, and using Lexer's high-value lookalike audiences to improve customer acquisition.

Brand Collective

With the advent of Covid-19, Brand Collective was looking for a way to drive online sales as the performance of their traditional brick-and-mortar stores had significantly been affected. The brand wanted data on their customer base as they looked for new ways to engage these new customers who were increasingly digital-first shoppers.

Using the Lexer CDP, Brand Collective was able to gain holistic customer data in real-time. The easy-to-use Lexer platform built targeted segments across all marketing channels, including their email, mobile, and search. These yielded an action plan that helped the brand take on new opportunities and avoid the risks of the ever-evolving marketplace.

The Lexer team enabled Brand Collective to customize their digital campaigns and messages sent to their segmented audiences. This drove a 220% increase in return-on-ad-spend, a 2x increase in new customer acquisition, and a 5x increase in revenue from paid channels.

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Customer segmentation case studies for lifetime value growth.

The global surfing brand Rip Curl needed intelligent segmentation to help them identify high-level customers. Additionally, the team wanted to see an increase in impact while still minimizing its digital marketing campaign budget.

The brand decided on Lexer’s CDP to help it gain insights, perform advanced segmentation, and target customers. Additionally, Lexer helped them orchestrate omnichannel campaigns.

By working with the Lexer team, Rip Curl achieved an in-depth understanding of its customer, which would give the brand the insights it needed for high-value customer acquisition. Additionally, due to the advanced audience segmentation and automation, the business could now benefit from customer lifetime value growth.

Specific results included the achievement of 93% more revenue per segmented campaign in August and 15x higher income than the benchmark for Lexer segments.

PAS Group wanted to significantly reduce ad wastage, re-engage lapsed customers, and create unique customer experiences . Additionally, the group wanted its brands to stand out and grow revenue within the highly competitive fashion and apparel industry. All of these would be made possible by linking all customer data to help with data-centric decision-making.

Using Lexer's CDP, the brand was able to segment its customer audiences and deliver targeted campaigns to recent and lapsed customers on paid social and email. This resulted in a 4x return on their advertisement spending and an 18x overall return on investment. These were achieved through the unification of all online and offline purchase data with loyalty and engagement data, all of which provided a holistic view of PAS Group customer data.

Customer segmentation case studies for retention

Wondercide wanted to rely on the traditional direct mail in conjunction with digital campaigns to help with re-engaging high-value customers. By measuring key customer retention metrics and understanding the factors driving retention in their business, they were able to improve retention rates significantly.

Using the Lexer CDP, Wondercide sent out personalized direct mail postcards that drove an ROI of 600%. The direct mail reengagement campaign targeted lapsed and opted-out customers whose last order was within the previous year. It also targeted inactive customers who hadn’t interacted with the business within two years and lapsed customers whose previous orders had been more than two years past. As a result, the business experienced a 310% ROI for the opted-out segment, 203% ROI for the inactive segment, and 155% for the lapsed segment.

Mountain Khakis

In a bid to increase its holiday seasons sales, Mountain Khakis used the real-time insights provided by Lexer's CDP to activate segmented campaigns. Specifically, the brand was able to retarget its female gift-buyers with a "treat yourself” campaign that saw a 7.1x increase in sales 2-3 weeks post the campaign.

Additionally, the campaign resulted in a 5x return on ad spend from female customers. This translated to a 49% boost in sales just in time for Christmas and a 47% boost in total customers.

Effective customer segmentation begins with mastering your data

As a business, you need to lean on customer intelligence to orchestrate specific high-value customer segmentation.

Lexer’s customer data and experience platform provides you with customer insights tools , data enrichment tools , segmentation tools, and predictive analytics tools that helps your business identify and target the right audience. As the only CDP built for retail with native tools to support every customer touchpoint, we are well equipped to help you drive incremental sales from improved customer engagement.

Book a demo today to see how Lexer's powerful segmentation and personalization tools can help you drive incremental sales growth.

Speak with our retail experts.

8 Companies Mastering Customer Segmentation [+ Examples]

Updated: October 02, 2023

Published: November 22, 2022

In a product-abundant world, creating a personalized experience can help your company stand out. In fact, 80% of buyers say they prefer to purchase from brands that offer tailored experiences.

However, before you start personalizing your products or services, you need to first segment your customers.

In this piece, you'll learn about customer segmentation and see examples that can inspire you.

Table of Contents

Creating Customer Segments

Companies mastering customer segmentation, getting customer segmentation right.

Customer segmentation is the process of splitting your entire customer base into smaller segments based on shared characteristics. These can include demographics, behavioral, geographical, or psychographic data. When done correctly, customer segmentation helps you better understand users' needs and adjust your offering to satisfy them.

Type of segmentation: Demographic (date of birth)

One of the easiest and most common ways to segment your customers is by their date of birth. It gives you a great opportunity — and an excuse — to send them a personalized email without appearing pushy.

H&M is one of the brands that use this segmentation criterion. They offer birthday discounts, which are valid for a fixed time period. The 25% off is quite generous, and it would be a shame to let it go to waste.

Image source

Pro tip: You can go above and beyond by adding the customer's name to your birthday promotions. This makes your marketing seem more friendly and personal.

Type of segmentation : Demographic (income)

Understanding how much a customer is willing to spend is crucial for any business. This information is particularly useful if you offer both affordable and expensive options. If you assess your clients' income correctly, you're able to present the right offers to the right group.

A great example of this is the retail chain Argos. They offer a wide range of products, from appliances and furniture to clothing and jewelry. By looking at their customers' past purchases, they're able to estimate their budget and age.

Below is an example of a coupon Argos emailed its middle-class clients around payday.

Notice how the message acknowledges their clients' hard work and encourages them to "treat themselves." This can mean getting their kids a new toy, buying a new pair of jeans, or some new piece of home decor.

Pro tip: Creating an income-focused segment helps you show empathy. It also allows you to assess what each group will consider an attractive price. By doing so, you can increase your chances of making a sale.

Type of segmentation: Behavioral

If you're a traveler, there's a high chance you're a member of a frequent flyer program, like Flying Blue by KLM. This customer loyalty program allows you to earn miles and then spend them on tickets, extra checked luggage, shopping, or charity donations.

You can earn miles in numerous ways, including:

Flying with KLM or one of their partners.

Booking a hotel.

Renting a car.

Shopping with one of KLM's partners.

The number of miles customers get is based on the ticket price and their elite status level. Flying Blue has four status levels. The higher the level, the more points customers get.

What we love: Introducing a customer loyalty program is a great tactic to keep customers engaged and prevent them from switching to another airline. Segmenting customers by points allows the airline to reward those who fly more frequently.

Type of segmentation: Psychographic/demographic

Did you know that college students in the US have $574 billion in spending power? It's an attractive demographic. For this reason, Comcast created a special offer targeted at students specifically.

The company partnered with Amazon Music and HBO to give students access to thousands of free shows, movies, and live sports. The deal was gated, and students had to verify their eligibility before subscribing, which made the offer even more exclusive.

The deal was a huge success, and within a week Comcast saw a massive increase in web traffic and a boost in conversions.

What we love: This program segmented customers by demographic (age and education level) as well as behaviorally. College students are less likely to pay for cable but still want ways to watch their favorite shows and movies.

5. Coca-Cola

Type of segmentation: Geographical

Another customer segmentation example is splitting buyers into groups based on their location. That's the approach Coca-Cola follows. They sell their products globally. While many drinks like Coca-Cola are available in over 200 countries, some like Ciel bottled water are only sold in Mexico, Morocco, and Angola.

The brand tailors its offering to local tastes. For example, they acknowledge that consumers in Asia prefer sweeter flavors than those in the US or Europe. They modify their drink formula to satisfy different preferences.

What we love: Segmenting buyers based on geography allows the brand to better recognize cultural and climate differences, which drive customers' buying preferences. Tailoring their offer accordingly helps companies reach a wider audience and maintain a high market share.

Type of segmentation: Psychographic (state of urgency)

Nalu is a boutique women's clothing brand. Each collection features a limited number of items, which are added to the online store throughout the season in "product drops." Like many small businesses, Nalu has a relatively modest, but loyal client base. There's one customer segment that's particularly enthusiastic about new products, i.e., newsletter subscribers.

Nalu knows how to make this group feel appreciated, all the while creating a sense of urgency. Newsletter subscribers receive an exclusive link, which unlocks new items 24 hours ahead of their launch in the store. This way, clients can buy clothing in their size before it runs out of stock. They use the same approach for their archive collection sales.

What we love: Nalu is a great example of how you can use customer segmentation to strengthen the bond with your high-value clients. Not to mention, this tactic offers a great way to boost revenue from clearing older items.

7. Duolingo

Customer segmentation : Behavioral

For the language app Duolingo, retaining users comes down to keeping them motivated as they memorize new words and phrases. They realize that most language learners eventually lose their initial drive and need a pick-me-up to continue studying. That's why Duolingo has decided to create user segments based on in-app behavior and milestone achievements.

Those who complete lessons receive badges and rewards. These can be exchanged for extra assignments. Meanwhile, those who've skipped a lesson (or two, or ten) start receiving motivational reminders.

Pro tip: Tailoring your in-app notifications and email sequences for each customer segment is a great way of preventing app abandonment. Active users feel appreciated, while those who lose motivation are brought back on track.

Customer segmentation type : Demographic/psychographic

L'Oreal is one of the most recognizable beauty brands in the world. Many of their clients have been loyal to the brand for decades. Perhaps unsurprisingly, they are very popular among older clients.

The average L'Oreal customer is around 50 years old in the Netherlands. That being said, the company noticed that they can't resonate with younger clients well. They've failed to do so by simply breaking down their customer base into age segments.

To tackle this, L'Oreal joined forces with Google and McCann. They wanted to learn how they can create more accurate segmentation criteria. The brand broke down Gen-Z's and Millennials into not just age, but also behavior-focused batches.

By using Google's audience segments, they created twelve ad variations. Each is for a different group of potential buyers. One of the video ads they've created targeted young music lovers. It featured a product for acne-prone skin, and a tagline "99 problems, and your skin is one?" The ad references one of the most famous pieces in hip-hop history that will be familiar to Millennials.

What we love: Digging deep into behavioral data helps L'Oreal restore (and maintain) relevance among all customer groups. It's also a great example of how you can supplement demographics with more sophisticated user contexts.

Customer segmentation is a powerful tool. One that puts personalization and unique client needs front and center. As you've seen in the customer segmentation examples above, there are plenty of criteria you can use to strengthen your bond with clients.

Be it age, location, budget, personal beliefs, or on-site behavior — the choice is yours. Good luck!

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Behavioural Segmentation: 3 Case Studies

Segmentation is a marketer’s best friend. Did you know that campaigns that are segmented based on users’ behaviour have a unique open rate that’s 12.23% higher than unsegmented campaigns?

Long gone are the days where brands and marketers would have to guess the needs of consumers. Big data has changed that. Now we are able to gather consumer data in huge volumes and analyse it to build bespoke, valuable, engaging content that sees brands connect with consumers on a more personal level.

Before we go any further, let’s rewind and clarify...

What is market segmentation?

Market segmentation is essentially the process of dividing and creating subsets or groups of users based on commonalities and identifying characteristics. There are (generally) four different types of market segmentation, such as...

Demographic Segmentation

Geographic Segmentation

Psychographic Segmentation

Behavioural Segmentation

In this blog, we’re going to look at behavioural segmentation with a couple of examples from the big dogs in branding.

But first, what is behavioural segmentation?

Well, as the name states, behavioural segmentation entails dividing and grouping consumers based on their behaviour. Behaviour counts for both online and offline actions, but in this blog, we will mostly focus on digital behaviour, so let’s take a look.

Did you know that organisations that use customer behaviour data to generate behavioural insights outperform peers by 85% in sales growth and more than 25% in gross margin? You can’t ignore those statistics!

A (very) brief history of segmentation

Segmentation in marketing has been around for decades. Market segmentation became a part of marketing practice around the 1950s , in the form of demographics, and has continued to grow in use, popularity, and relevance ever since. The 60s and 70s mostly focused on census data , the 80s favoured segmentation based on financial data, and the 1990s embraced psychographic data to the fullest. But it wasn’t until 2000 that marketers’ focus really became dominated by behavioural segmentation.

How did we get so much data and how do we analyse it, though?

The boom in data is a direct result of the internet boom of 1995-2000. This boom saw a massive increase in internet-based companies and startups and including the birth of social media .

However, data-driven segmentation has only been possible on such a large scale since the inclusion of Artificial Intelligence (AI) in marketing . Thanks to AI, marketers are able to deliver more relevant, personalised content that aims to be different for each targeted segment of consumers.

Marketers today are spoilt for choice when it comes to deciding on which segmentation type(s) to use in their strategy. And that’s all thanks to the huge pool of data currently available which, compared to years ago, is unparalleled.

So now that we know what behavioural segmentation is, how it came about and why we use it in the business world, let’s take a look at these 3 case studies: Coca-Cola, Airbnb, and Netflix.

First up is Coca-Cola

So how does Coke do it? Coca-Cola centre their segmentation strategy on consumer behaviour, both online and offline. The carbonated-conglomerate focus on a number of different aspects when segmenting their customers:

Website analytics and social media data analysis

Loyalty status - how strong or weak consumers’ loyalty is to Coca-Cola (which tends to be analysed using social data and data gathered from the activity on Coke’s website).

Occasions  - The most popular occasion for consumers to drink coke - this could refer to seasons, events, or simply meal times.

Benefits sought - what consumers are looking for when they purchase the product. This could be the refreshing taste, product uniqueness, the 'vibe' of the brand or its promotional benefits.

Basically, Coke can be seen as an unrivalled market leader. They have truly loyal customers that are likely to never switch to another brand due to their unparalleled love of Coca-Cola. This loyalty is undoubtedly a result of Coke’s impressive marketing strategies. Their utilisation of consumer data allows Coke to behaviourally segment their users. From here they tailor their products, content and messages so accurately, that they now have the luxury of being one of the world’s most recognised brands .

Next, we’re looking at Airbnb

Airbnb is the world’s largest accommodation-sharing site . The concept of paying to stay in a complete stranger's house could be considered odd by some but, nevertheless, Airbnb can proudly say that they’ve made it. They’re super successful. Some of their success can definitely be attributed to innovation, diverse pricing and experiences offered. But business success rarely comes without intelligent marketing strategies, and that’s where Airbnb’s clever segmentation and targeting comes in.

Airbnb uses machine learning to generate insights from user reviews, which are then displayed at the top of their webpage. These insights will likely be one of the first things prospective users see or click on when visiting the site, which will encourage users to book as well as encouraging dwell time on Airbnb’s page.

That makes sense, right? But how do they actually do it? Airbnb achieves this ‘perfect match’ with its specialised search algorithm . The algorithm takes and analyses data from both Airbnb hosts and guests and offers matches based on their similarities. Along with matching via their algorithm, Airbnb use split testing to discover how website changes may affect consumer behaviour. Airbnb goes even further by using cookies, and other tracking-tech , to hold information from previous searches and booking decisions. Then, with this new information, they are able to adjust and personalise the content that users see when browsing the website. That’s not bad for a company that’s only around 10 years old !

And last, but not least, we have Netflix.

Netflix is the world’s leading entertainment streaming service and is arguably the most proficient brand when it comes to behavioural segmentation.

Netflix has got it all sorted: the personalisation efforts begin as soon as a user creates an account with Netflix and streams even just one TV show or movie. Once they do this, Netflix’s behavioural segmentation efforts are clear (and usually welcomed).

So how do they do it? Netflix uses an algorithm that allows them to consistently and accurately A/B test and experiment with viewer preferences. Netflix’s algorithm dictates everything - the homepage layout, the recommended content, and even the visuals, or landing cards, for each piece of cinema. No, I’m not making this up. Netflix actually personalise the image you see based on the actors, actresses or genres that it thinks you like. And it works!

The effort that Netflix has gone to in order to behaviourally segment their subscribers shows how dedicated they are to personalising experiences. Did you know that Netflix's recommendation system saves them a massive $1Billion per year ? It’s clear to see, then, how segmentation has helped Netflix succeed so quickly, and why behavioural segmentation is a central part of their marketing strategy.

It’s Netflix’s combination of big data , algorithmic personalisation, and huge content investment that are likely to keep us glued to the screen for the foreseeable future.

So, we’ve covered a couple of brands that use behavioural segmentation, and use it brilliantly. Brands such as Amazon also use behavioural segmentation to recommend your products; Spotify analyses users’ behaviour to bring you your ‘Recommended Daily Mix’, and that’s just to name a few.

Behavioural segmentation is a perfect way to ensure that you stay relevant to your customers. And market segmentation is an essential tool in today’s data-driven business landscape. In order for brands and businesses to truly understand their user’s different and specific requirements, they must rely on valuable data analysis and segmentation . Especially if they want to keep up with the competition. And with constant advancements in technology, it’s now possible to gain real, actionable insights from that data that will help you better understand your customers and, in turn, provide them with engaging content and unparalleled experiences.

Do you have any thoughts on behavioural segmentation, or is there anything we’ve left out? Feel free to comment below!

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6 customer segmentation case studies show big results

Customer Segmentation

Customer segmentation is the practice of putting customers into groups that are similar in specific ways. The goal is to tailor marketing to best meet individual needs. As a result, it improves customer satisfaction with customer satisfaction surveys , revenue, and profitability.

There are four types of customer segmentation: Demographic, Psychographic Geographic, and Behavioral. With the rise of machine learning , artificial in t elligence , personalization , and split testing , changes in customer segmentation can occur quicker with a significant impact.

Here are 6 customer segmentation case studies that show big results.

Airbnb uses  machine learning  to gain insights from user reviews. Then, they use this behavioral data and preference to pair hosts and guests. With A/B testing, they discover how website changes affect consumer behavior. They are able to adjust and personalize the content that users see when browsing the website. 

BabyCenter (Johnson & Johnson)

For BabyCenter , Johnson & Johnson uses a Facebook Messenger App to suggest personalized advice. Through a series of questions and answers, they make targeted recommendations based on the input it receives from the user,

They look at the data to see what drove the highest levels of traffic to the website – a chatbot, email marketing, or the app. What they find is the messenger app has a read rate of 84% and a click-through rate (CTR) of 53%. The app’s overall engagement rate is 1,428% higher than email. Because it offers the greatest personalization.

DavidsTea customer segmentation

DavidsTea uses email marketing to recognize customer loyalty. When a customer reaches a specific anniversary with the company, they receive a “look back” email. It contains data on their first purchase, their most purchased teas, and how much they bought.

Therefore, by receiving this email, the customer feels unique and valued throughout their customer journey and is inclined to continue purchasing.

The Lego Group faces the challenge of marketing Lego Bricks on social media. The company identifies six distinct personas based on purchase and usage:

• Lead Users—people LEGO actively engages with on product design
• 1:1 Community—people whose names and addresses they know
• Connected Community—people who have bought LEGO and have also been to either a LEGO shop or a LEGO park
• Active Households—people who have bought LEGO in the last 12 months
• Covered Households—people who have bought LEGO once
• All Households—those who have never bought LEGO

The first three personas represent the most fertile ground. Because they share a deeper involvement with the brand. From there, Lego builds online communities on the social networks these segments use most often.

Lego takes advantage of their most valuable asset, their fans, who post pictures, videos, and provide new product ideas. This effort helps them to increase to the world’s fourth-largest toy manufacturer.

Netflix uses personalization that begins as soon as a user creates an account with Netflix and streams even just one TV show or movie. They use an  algorithm  that allows them to consistently and accurately A/B test and experiment with viewer preferences. Netflix’s algorithm dictates everything – the homepage layout, the recommended content, and even the visuals, or landing cards, for each piece of cinema. What’s more, Netflix personalizes the image  you see based on the actors, actresses, or genres that it thinks you like.  Netflix’s recommendation system saves them a massive  $1Billion per year .

Olay customer segmentation

Olay creates Skin Advisor. The  artificial intelligence beauty tool  collects data from customers by asking them five to seven quick questions about their skin. The advisor then reveals the true age of the customer’s skin, and recommend products.

The data shows many customers are seeking Retinol based products. However, the subsequent lack of Retinol products in its range is contributing to the brand losing customers. Therefore, Olay releases Retinol 24 which has gone on to be one of the brand’s best selling products and has helped transform their sales. 

Do these case studies help you see the impact of effective customer segmentation? And the tools you can apply, today ?

Rob Petersen

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Case study: Building a customer-centric B2B organization

Customer experience (CX) is an increasingly important strategic topic in the boardrooms of B2B companies in China and throughout the world. Despite the rapid development of the previous decades, the “growth first” principle of Chinese enterprises sometimes implies customer experience can be sacrificed. But CX leaders, globally and within China, drive higher growth, lower cost, and superior customer satisfaction. In times of crisis, they achieve three-times-higher shareholder returns 1 Total return to shareholders tracked for publicly traded companies in the top 10 or bottom 10 of Forrester’s Customer Experience Performance Index in 2007–09. than laggards.

Start with a vision

A successful transformation starts from the top. Cases within and outside China confirm that the CEO must be in charge to continuously push and unify the organization.

The Chinese steel industry has taken an upturn amid the country’s overcapacity-reduction program, and companies have been enjoying robust price and volume increases. In this article, we consider one Chinese steel manufacturer whose CEO set a clear vision to build a customer-centric organization in order to gain a competitive edge and to keep the organization healthy through future downturns. The company took a series of steps to systematically and holistically shift the entire organization toward customer-centricity.

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Identify the challenges.

Comprehensive diagnostics revealed that the company faced a series of challenges. In fact, interviews with some customers were alarming: the customer voice, though central to the CEO’s vision, had no conduit within the organization and was never heard by decision makers. One key account was lost well before corporate management heard its complaints. Analysis of the research revealed several serious shortfalls in customer-centricity:

Limited understanding of customers.

The company had not systemically mapped the diverse stakeholders behind each customer, relying instead in most cases on buy-side procurement managers and their associates as the only source of customer feedback. Company representatives rarely knew or approached other customer-decision influencers or the users behind procurement, thereby losing many potential customer insights. The company also lacked access to end customers further down the value chain.

Few channels for customer feedback.

As is true at many B2B organizations, sales was the major channel through which the company gathered customer feedback. But manual relays of messages could take a long time to reach managers, assuming they were not forgotten along the way. To make matters worse, sales representatives sometimes neglected to report feedback, fearing they would be punished if headquarters learned that their customers were unhappy.

Limited analysis of feedback for insights.

What customer feedback and CX data existed within the organization was not centrally managed and synthesized into easy-to-access reports to give top management the full picture. Other stakeholders also found it challenging to access the aggregated customer feedback related to their own roles.

Customer problems not addressed.

Many customers complained that issues they had reported many times had not been dealt with, and the same problems continued to persist.

Transform to a CX-centric organization through a holistic ‘diagnose, design, deliver’ process

A holistic transformation was crafted to move the company toward the CEO’s vision, knowing that no single silver bullet could address all challenges at the same time. The transformation plan consisted of multiple modules based on a “diagnose, design, deliver” process, which takes two to three years to implement fully (Exhibit 1).

The company proceeded through the process in three phases:

Phase 1: Diagnose

The first step was to map the customers and identify stakeholders beyond buy-side procurement. To achieve this, customers were divided into segments based on similar stakeholder dynamics and customer journeys. Then the segments were prioritized based on their value and strategic importance.

Phase 2: Design

After the journey diagnostics, the company built a structured “question library” based on the journey breakdown, with customized questionnaires and feedback forms for different stakeholders. This enabled the company to collect feedback and experience data, and perform a consistent longitudinal analysis across feedback channels. Using these designs, the company was able to systematically analyze experience data, dig into root causes, and identify improvement areas.

Phase 3: Deliver

An IT backbone had to be built to implement all the designs discussed in the previous paragraphs. To achieve this, the company broke down the system design into several modules and assessed how each one should be tackled. Among the three possible development options, “customized third-party solution, locally deployed” was chosen as the best option based on five evaluation criteria: feasibility, customization, data security, timeline, and price.

Survey: Chinese B2B decision maker response to COVID-19 crisis

Key learnings: prioritize segments, and collect feedback on multiple channels.

The company eventually prioritized three segments: (1) section-steel and steel-sheet-piling dealers, (2) section-steel manufacturers, and (3) steel-sheet-piling leasing companies, with the biggest customer in each category selected for deeper analysis. In analyzing the different customers, the company discovered a pattern: three journeys—scheduling inquiry, transport and delivery, and quality discrepancy—were deemed crucial by all customers.

A new, multichannel system was designed to address the company’s various challenges in collecting customer feedback. While customers can still share feedback directly with sales reps, the system incorporates new channels, including periodic on-site interviews and feedback sessions conducted by marketing personnel or the CX team, surveys on mobile devices, and a WeChat portal where customers can submit feedback whenever they want.

This system also allows the company to reach out to previously inaccessible or remote customers, who can simply scan product QR codes to submit feedback on features and quality, or even solicit technical support. A dashboard was designed to create CX transparency across the organization, allowing different stakeholders to analyze the data and generate insights. The multichannel-backed (PC and mobile) dashboard can make customer feedback and experience data visible for stakeholders from different divisions, so they can easily analyze data and generate insights.

Manage the change to maintain success

McKinsey research indicates that 70 percent of change programs fail, mostly because of human factors. Design-phase initiatives don’t stick without procedures for proper change management. McKinsey has a useful framework for change management (Exhibit 2), from which the steel manufacturer adopted key elements.

Real impact to the bottom line

To date, the company has already generated an estimated 4 percent increase in gross profit, or an 8 percent increase in pre-interest and pretax profit—a number matching the CEO’s initial expectations of the project. Moreover, the company believes that its transformation will have a lasting impact, producing better products, more satisfied and loyal customers, and a healthier, more efficient organization overall.

All in all, customer experience is an effective tool that Chinese B2B players can utilize to create long-term competitive advantages. A company should first define its priorities, lay out an implementation path based on its current reality, and use it to work toward a superior customer experience and, ultimately, excellence.

Hai Ye and Will Enger are partners in McKinsey’s Hong Kong office.

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What Is Market Segmentation?

• How It Works
• Determining Your Market Segment
• Limitations
• Market Segmentation FAQs

The Bottom Line

• Marketing Essentials

Market Segmentation: Definition, Example, Types, Benefits

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Market segmentation is a way of aggregating prospective buyers into groups or segments, based on demographics, geography, behavior, or psychographic factors in order to better understand and market to them.

Key Takeaways

• Market segmentation seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group.
• Markets can be segmented in several ways such as geographically, demographically, or behaviorally.
• Market segmentation helps companies minimize risk by figuring out which products are the most likely to earn a share of a target market and the best ways to market and deliver those products to the market.
• With risk minimized and clarity about the marketing and delivery of a product heightened, a company can then focus its resources on efforts likely to be the most profitable.
• Market segmentation can also increase a company's demographic reach and may help the company discover products or services they hadn't previously considered.

Investopedia / Matthew Collins

Understanding Market Segmentation

Companies can generally use three criteria to identify different market segments:

• Homogeneity , or common needs within a segment
• Distinction , or being unique from other groups
• Reaction , or a similar response to the market

For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements. Understanding these different market segments enables the athletic footwear company to market its branding appropriately.

Market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market  and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).

Market segmentation allows a company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).

Types of Market Segmentation

There are four primary types of market segmentation. However, one type can usually be split into an individual segment and an organization segment. Therefore, below are five common types of market segmentation.

Demographic Segmentation

Demographic segmentation is one of the simple, common methods of market segmentation. It involves breaking the market into customer demographics as age, income, gender, race, education, or occupation. This market segmentation strategy assumes that individuals with similar demographics will have similar needs.

Example: The market segmentation strategy for a new video game console may reveal that most users are young males with disposable income.

Firmographic Segmentation

Firmographic segmentation is the same concept as demographic segmentation. However, instead of analyzing individuals, this strategy looks at organizations and looks at a company's number of employees, number of customers, number of offices, or annual revenue .

Example: A corporate software provider may approach a multinational firm with a more diverse, customizable suite while approaching smaller companies with a fixed fee, more simple product.

Geographic Segmentation

Geographic segmentation is technically a subset of demographic segmentation. This approach groups customers by physical location, assuming that people within a given geographical area may have similar needs. This strategy is more useful for larger companies seeking to expand into different branches, offices, or locations.

Example: A clothing retailer may display more raingear in their Pacific Northwest locations compared to their Southwest locations.

Behavioral Segmentation

Behavioral segmentation relies heavily on market data, consumer actions, and decision-making patterns of customers. This approach groups consumers based on how they have previously interacted with markets and products. This approach assumes that consumers prior spending habits are an indicator of what they may buy in the future, though spending habits may change over time or in response to global events.

Example: Millennial consumers traditionally buy more craft beer, while older generations are traditionally more likely to buy national brands.

Psychographic Segmentation

Often the most difficult market segmentation approach, psychographic segmentation strives to classify consumers based on their lifestyle, personality, opinions, and interests. This may be more difficult to achieve, as these traits (1) may change easily and (2) may not have readily available objective data. However, this approach may yield strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points.

Example: A fitness apparel company may target individuals based on their interest in playing or watching a variety of sports.

Other less notable examples of types of segmentation include volume (i.e. how much a consumer spends), use-related (i.e. how loyal a customer is), or other customer traits (i.e. how innovative or risk-favorable a customer is).

How to Determine Your Market Segment

There's no single universally accepted way to perform market segmentation. To determine your market segments, it's common for companies to ask themselves the following questions along their market segmentation journey.

Phase I: Setting Expectations/Objectives

• What is the purpose or goal of performing market segmentation?
• What does the company hope to find out by performing marketing segmentation?
• Does the company have any expectations on what market segments may exist?

Phase 2: Identify Customer Segments

• What segments are the company's competitors selling to?
• What publicly available information (i.e. U.S. Census Bureau data) is relevant and available to our market?
• What data do we want to collect, and how can we collect it?
• Which of the five types of market segments do we want to segment by?

Phase 3: Evaluate Potential Segments

• What risks are there that our data is not representative of the true market segments?
• Why should we choose to cater to one type of customer over another?
• What is the long-term repercussion of choosing one market segment over another?
• What is the company's ideal customer profile, and which segments best overlap with this "perfect customer"?

Phase 4: Develop Segment Strategy

• How can the company test its assumptions on a sample test market?
• What defines a successful marketing segment strategy?
• How can the company measure whether the strategy is working?

Phase 5: Launch and Monitor

• Who are key stakeholders that can provide feedback after the market segmentation strategy has been unveiled?
• What barriers to execution exist, and how can they can be overcome?
• How should the launch of the marketing campaign be communicated internally?

Benefits of Market Segmentation

Marketing segmentation takes effort and resources to implement. However, successful marketing segmentation campaigns can increase the long-term profitability and health of a company. Several benefits of market segmentation include;

• Increased resource efficiency. Marketing segmentation allows management to focus on certain demographics or customers. Instead of trying to promote products to the entire market, marketing segmentation allows a focused, precise approach that often costs less compared to a broad reach approach.
• Stronger brand image. Marketing segment forces management to consider how it wants to be perceived by a specific group of people. Once the market segment is identified, management must then consider what message to craft. Because this message is directed at a target audience, a company's branding and messaging is more likely to be very intentional. This may also have an indirect effect of causing better customer experiences with the company.
• Greater potential for brand loyalty. Marketing segmentation increases the opportunity for consumers to build long-term relationships with a company. More direct, personal marketing approaches may resonate with customers and foster a sense of inclusion, community, and a sense of belonging. In addition, market segmentation increases the probability that you land the right client that fits your product line and demographic.
• Stronger market differentiation. Market segmentation gives a company the opportunity to pinpoint the exact message they way to convey to the market and to competitors. This can also help create product differentiation by communicating specifically how a company is different from its competitors. Instead of a broad approach to marketing, management crafts a specific image that is more likely to be memorable and specific.
• Better targeted digital advertising. Marketing segmentation enables a company to perform better targeted advertising strategies. This includes marketing plans that direct effort towards specific ages, locations, or habits via social media.

Market segmentation exists outside of business. There has been extensive research using market segmentation strategies to promote overcoming COVID-19 vaccination hesitancy and other health initiatives.

Limitations of Market Segmentation

The benefits above can't be achieved with some potential downsides. Here are some disadvantages to consider when considering implementing market segmentation strategies.

• Higher upfront marketing expenses. Marketing segmentation has the long-term goal of being efficient. However, to capture this efficiency, companies must often spend resources upfront to gain the insight, data, and research into their customer base and the broad markets.
• Increased product line complexity. Marketing segmentation takes a large market and attempts to break it into more specific, manageable pieces. This has the downside risk of creating an overly complex, fractionalized product line that focuses too deeply on catering to specific market segments. Instead of a company having a cohesive product line, a company's marketing mix may become too confusing and inconsistently communicate its overall brand.
• Greater risk of misassumptions. Market segmentation is rooted in the assumption that similar demographics will share common needs. This may not always be the case. By grouping a population together with the belief that they share common traits, a company may risk misidentifying the needs, values, or motivations within individuals of a given population.
• Higher reliance on reliable data. Market segmentation is only as strong as the underlying data that support the claims that are made. This means being mindful of what sources are used to pull in data. This also means being conscious of changing trends and when market segments may have shifted from prior studies.

Examples of Market Segmentation

Market segmentation is evident in the products, marketing, and advertising that people use every day. Auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments.

Cereal producers market actively to three or four market segments at a time, pushing traditional brands that appeal to older consumers and healthy brands to health-conscious consumers, while building brand loyalty among the youngest consumers by tying their products to, say, popular children's movie themes.

A sports-shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious women, and middle-aged men who want quality and comfort in their shoes. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses.

Market segmentation is a marketing strategy in which select groups of consumers are identified so that certain products or product lines can be presented to them in a way that appeals to their interests.

Why Is Market Segmentation Important?

Market segmentation realizes that not all customers have the same interests, purchasing power, or consumer needs. Instead of catering to all prospective clients broadly, market segmentation is important because it strives to make a company's marketing endeavors more strategic and refined. By developing specific plans for specific products with target audiences in mind, a company can increase its chances of generating sales and being more efficient with resources.

What Are the Types of Market Segmentation?

Types of segmentation include homogeneity, which looks at a segment's common needs, distinction, which looks at how the particular group stands apart from others, and reaction, or how certain groups respond to the market.

What Are Some Market Segmentation Strategies?

Strategies include targeting a group by location, by demographics—such as age or gender—by social class or lifestyle, or behaviorally—such as by use or response.

What Is an Example of Market Segmentation?

Upon analysis of its target audience and desired brand image, Crypto.com entered into an agreement with Matt Damon to promote their platform and cryptocurrency investing. With backdrops of space exploration and historical feats of innovation, Crypto.com's market segmentation targeted younger, bolder, more risk-accepting individuals.

Market segmentation is a process companies use to break their potential customers into different sections. This allows the company to allocate the appropriate resource to each individual segment which allows for more accurate targeting across a variety of marketing campaigns.

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New zealand’s top 20 highest spending advertisers of 2023 revealed in latest nielsen ad intel report, 2 minute read | march 2024.

Auckland, New Zealand – March 27, 2024 – Data released today by Nielsen Ad Intel , New Zealand’s most comprehensive ad spend monitoring service, has revealed which brands invested the most in advertising across the nation in 2023.

Nielsen’s list of New Zealand’s Top 20 highest spending advertisers is the result of detailed analysis, which delivers an accurate view of advertising trends and spending between January and December last year.

Retail giant Harvey Norman topped the list, cementing its place as the nation’s biggest advertiser, followed by Foodstuffs NZ, and Woolworths, respectively.

ANZ topped the list of financial institutions, coming in at number 4, while Spark was the top telco ad spender, placing 5th on the list.

In a bid for dominance over New Zealand’s lucrative hardware and garden market, Mitre 10 (13th) outspent Bunnings (18th), while KFC was the highest spending fast food advertiser, coming in at number 6 – three places ahead of rival McDonald’s.

Nielsen New Zealand’s Ad Intel Commercial Lead, Nick Whitehead, said: “Nielsen’s NZ Ad Intel spend data for 2023 clearly demonstrates that marketers aren’t just advertising because they feel they have to – they’re its biggest champions. They know it’s still the best, most economical way of creating lasting connections between NZ consumers and brands. Top-tier data, like that provided by Nielsen Ad Intel, is crucial if you want to get the edge on your competition in a market as crowded as New Zealand.”

About Nielsen Ad Intel

Ad Intel provides the most complete source of cross-platform advertising intelligence available today. With intuitive software, review-and-compare ad activity across media, company, category or brand, plus historical data.

Note: Nielsen monitors gross advertising expenditure in major media at published rate card values. While discounts are made available from some media owners, rates are not openly available. Please also note that the category and brand/product groupings figures are grouped at Nielsen’s discretion.

About Nielsen

Nielsen shapes the world’s media and content as a global leader in audience measurement, data and analytics. Through our understanding of people and their behaviours across all channels and platforms, we empower our clients with independent and actionable intelligence so they can connect and engage with their audiences – now and into the future. Nielsen operates around the world in more than 55 countries.

Learn more at www.nielsen.com and connect with us on social media (Twitter, LinkedIn, Facebook and Instagram).

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