Customer segmentation models: Nine types and how to use them

Have you ever felt like you're shouting into a void with your marketing campaigns? Generic messaging might reach a broad audience, but it rarely resonates. This is where customer segmentation comes in – a powerful tool that allows you to tailor your approach to resonate with distinct customer groups.

In this article, we will discuss nine types of customer segmentation models and how they can help you improve your marketing efforts. We will also share actionable tips on how to use them effectively.

• Customer segmentation divides your target audience into different customer segments based on shared characteristics such as demographics or behaviors, enabling targeted marketing strategies and product offerings that resonate with specific groups. 

• A customer segmentation model is a framework for grouping customers based on specific criteria, helping businesses customize their marketing strategies effectively.

• The key benefits of using customer segmentation models include increased marketing ROI through targeted messages, enhanced customer engagement with personalized communication, improved customer experiences, and informed product development based on customer insights.

• The nine types of customer segmentation models are demographic, geographic, psychographic, behavioral, technographic, needs-based, value-based, and firmographic segmentation. Each model targets specific aspects like age, location, lifestyle, behaviors, technology usage, customer needs, financial contribution, and business characteristics, respectively.

• Selecting appropriate models involves understanding business goals, leveraging available data, avoiding over-segmentation, combining models for comprehensive insights, and regularly refining strategies based on effectiveness.

• Gelato enhances customer segmentation by localizing product offerings and fulfillment, reducing delivery times and shipping costs, and improving the overall customer experience. This makes it easier for businesses to cater to geographically diverse customer needs.

Customer segmentation is the art of dividing your customer base into smaller groups based on shared characteristics. These characteristics can be anything from demographics (age, income) to behavior (purchase history, browsing habits). 

By understanding these segments, you can create targeted marketing campaigns, product offerings, and even entire brand experiences that resonate deeply with each group.

What is a customer segmentation model?

A customer segmentation model, often enhanced by machine learning, is a framework used to group customers based on specific criteria. These models utilize data-driven insights to define segments accurately. Understanding these models can significantly refine your marketing strategies, allowing for highly customized approaches tailored to distinct customer groups.

The benefits of customer segmentation are far-reaching. Here are just a few key advantages:

• Increased marketing ROI: Targeting specific customer segments with relevant messages can significantly increase the effectiveness of your marketing campaigns.

• Enhanced customer engagement: Personalized communication that speaks directly to customer needs fosters deeper connections and higher engagement.

• Improved customer experience: Tailored product recommendations and offerings create a more satisfying customer experience.

• Informed product development: Customer insights gathered from segmentation-based marketing can help you develop products that meet the changing needs of your customers.

Now, let's examine the nine most common customer segmentation models and explore how they can refine your marketing strategy.

1. Demographic segmentation

This model categorizes customers based on basic demographics like age, gender, income, and family size. While it's a simple approach, it can be valuable for targeting broad audiences with specific product offerings. For instance, an ecommerce store selling sports equipment might use demographic segmentation to target young adults with athletic apparel while offering fitness equipment to a segment of middle-aged adults.

Actionable tip: Use demographic data to tailor your messaging and product offerings. For example, target a younger audience with trendy designs while offering more classic styles for an older demographic.

2. Geographic segmentation

This model segments customers based on their location. This can be particularly useful for businesses with a global reach. For example, Gelato's expansive production network allows ecommerce businesses to leverage geographic segmentation by catering to regional preferences. Imagine a company selling custom phone cases – Gelato's localized production capabilities could enable them to offer location-specific designs or cater to faster delivery times in specific regions.

Actionable tip: Personalize your marketing campaigns based on geographic trends. For instance, during winter in colder regions, promote your line of cozy sweaters and cold-weather gear. Conversely, for warmer regions, highlight your selection of breathable clothing and refreshing beverages.

3. Psychographic segmentation

This model goes beyond demographics to understand customer lifestyles, values, interests, and personalities. Psychographic segmentation allows you to connect with customers on an emotional level. For instance, an outdoor apparel company might target a segment of customers who identify as environmentally conscious with eco-conscious materials and sustainable practices highlighted in their marketing messages.

Actionable tip: Craft marketing campaigns that speak directly to your audience's aspirations and values. For example, target the environmentally conscious segment with your sustainable product line. Highlight the use of recycled materials, eco-friendly manufacturing processes, and your commitment to environmental causes.

4. Behavioral segmentation

This model focuses on how customers interact with your brand. It considers factors like purchase history, website activity, product usage, and customer service interactions. Behavioral segmentation is incredibly valuable for crafting targeted marketing campaigns. For example, an online bookstore might segment customers who have purchased romance novels in the past and send them targeted emails promoting new releases in the genre.

Actionable tip: Offer loyalty programs to repeat buyers to offer exclusive benefits like points programs, early access to sales, frequent deals, or personalized product recommendations based on their purchase history. Design win-back campaigns to re-engage those at risk of churning. Identify customers who haven't purchased in a while and send them targeted emails with special offers. 

5. Technographic segmentation

This model categorizes customers based on the devices they use and how they interact with technology. This is particularly relevant in today's digital landscape. For example, a company selling fitness trackers might segment customers who primarily use smartphones to access their fitness data and tailor their marketing campaigns to mobile apps and wearables.

Actionable tip: Optimize your website and marketing campaigns for different devices and platforms frequented by your target segments.

6. Needs-based segmentation

This model groups customers based on the specific needs they are trying to fulfill with your product or service. Understanding customer needs allows you to position your offerings in a way that directly addresses their pain points. For instance, an online language learning platform could segment customers based on their learning goals (conversational fluency vs. test preparation) and tailor their marketing messages and course recommendations accordingly.

Actionable tip: Develop targeted content and marketing materials that resonate with the specific needs of a segment. For instance, for the travel-focused segment, highlight features like conversational practice modules and interactive exercises that build practical communication skills, and for the test prep segment, emphasize your structured learning paths, practice tests mirroring the actual exam format, and personalized feedback features.

7. Value-based segmentation

Value-based segmentation categorizes customers based on the financial benefit they bring to your company. This takes into account factors like customer lifetime value (CLTV), which measures the total revenue a customer is expected to generate throughout their relationship with your brand. It also considers purchase frequency, average order value, and customer retention.

Actionable tip:  Implement a tiered loyalty program with exclusive benefits for high-value customers. This could include early access to new products, personalized discounts, or even dedicated customer support channels. Additionally, consider offering premium experiences like product bundles or unique customization options for this valuable segment. 

8. Firmographic segmentation

This model is tailored specifically for businesses that operate in the business-to-business (B2B) space. It delves into the characteristics of the companies you sell to rather than individual consumers. Key factors considered in firmographic segmentation include:

• Company size: Segmenting by company size (number of employees, annual revenue) helps you tailor your offerings. For example, a large enterprise might require a more robust solution with extensive customization options, while a smaller startup might prioritize affordability and ease of use. 

• Industry: Understanding the specific needs and challenges of different industries allows you to craft targeted messaging that resonates with each segment. You can highlight relevant case studies and success stories from most companies that build trust based on value proposition.

• Budget: Firmographic segmentation helps you create flexible pricing models that cater to varying budgets. Consider offering tiered pricing plans with different feature sets or explore subscription models that provide predictable costs.

Actionable tip: Tailor your product demonstrations and pricing models to cater to different company sizes and industries. Highlight features that address specific industry pain points and showcase the return on investment (ROI) your product delivers for businesses of varying sizes.

9. Parental status

The parental status segmentation model categorizes consumers based on whether they are parents. This distinction helps businesses tailor marketing strategies and product offerings to meet the unique needs and preferences of parents versus non-parents.

Actionable Tip: Utilize demographic data to identify parental status. Craft targeted promotions and content that resonate with parent-specific challenges and interests. Adjust product recommendations to align with family-oriented needs.

Now that you've explored the nine customer segmentation models, let's understand how to choose the right ones for your brand. Here are some key considerations to guide your decision:

1. Understand your business goals

The first step is to clearly define your marketing goals. Are you aiming to increase brand awareness, drive sales, or boost customer engagement? Different goals might require different segmentation approaches.

• Brand awareness: Focus on models like demographics and psychographics to understand your target audience on a broad level.

• Sales: Behavioral segmentation is key here. Analyze purchase history and browsing patterns to identify high-value segments and potential churn risks.

• Customer engagement: Leverage a combination of models like demographics, psychographics, and behavioral segmentation to create targeted content and personalized experiences that resonate with each segment.

2. Leverage available data

The effectiveness of your segmentation strategy hinges on the data you have access to. Consider what customer data you currently collect (purchase history, demographics) and explore ways to gather more if needed.

• Website analytics: Use tools like Google Analytics to track user behavior on your website to understand browsing patterns and identify potential customer segments.

• Social media engagement: Analyze your social media audience demographics and engagement to tailor your messaging accordingly.

• Customer surveys: Conduct surveys to gather valuable insights into customer needs, preferences, and pain points.

3. Don't over-segment

While segmentation allows for deeper understanding, avoid creating too many micro-segments. This can lead to logistical challenges and dilute the effectiveness of your marketing efforts. Focus on creating a manageable number of segments with clear distinctions.

4. Combine models for a holistic view

Don't be afraid to combine different segmentation models for a more comprehensive understanding of your customer base. This allows you to create multi-layered profiles that paint a richer picture of your target audience.

For example, you might segment by demographics (age) and then further segment by psychographics (interests) within that age group. This allows you to tailor your marketing message to resonate with specific sub-segments within your broader audience.

5. Regularly track and refine

Remember, customer segmentation is an ongoing process. Continuously monitor the effectiveness of your chosen models by tracking key metrics like website traffic, conversion rates, and customer engagement. Be prepared to refine your segmentation strategy over time as your business evolves and customer behavior changes.

Now that you're equipped with this powerful customer segmentation toolkit, it's time to unlock its full potential and cater to your diverse customer needs across geographic boundaries. Here's where Gelato steps in as your strategic partner.

Gelato's global printing network powers localized fulfillment

With a robust global production network spanning numerous locations, Gelato empowers you to localize your product offerings and fulfillment processes. Imagine being able to produce and ship merchandise closer to your geographically segmented customer groups. This translates to several key benefits:

• Faster delivery times: Reduce your customers' wait time by delivering their custom-printed orders for personalized apparel, mugs, phone cases, tote bags, etc., quickly, enhancing their overall satisfaction and loyalty.

• Reduced shipping costs: Leveraging local production facilities can significantly lower shipping costs, especially for international orders. This translates to increased profitability.

• Improved customer experience: Localized production ensures faster turnaround times and potentially eliminates customs delays, leading to happier and more engaged customers.

Gelato understands that ecommerce businesses have diverse needs. That's why we offer different subscription plans to cater to your specific production volume and marketing budget. 

So, why wait? Sign up for Gelato and watch your brand flourish as you build deeper connections with each customer segment, one targeted message and localized product at a time!