# Customer segmentation: Definition, benefits, & methods ## Table of contents 1. [What is customer segmentation?](https://www.simon.ai/blog-posts/customer-segmentation-definition-benefits-methods#what-is-customer-segmentation) 2. [How does customer segmentation work?](https://www.simon.ai/blog-posts/customer-segmentation-definition-benefits-methods#how-does-customer-segmentation-work) 3. [Benefits of customer segmentation](https://www.simon.ai/blog-posts/customer-segmentation-definition-benefits-methods#benefits-of-customer-segmentation) 4. [Four types of customer segmentation](https://www.simon.ai/blog-posts/customer-segmentation-definition-benefits-methods#four-types-of-customer-segmentation) 5. [Customer segmentation examples](https://www.simon.ai/blog-posts/customer-segmentation-definition-benefits-methods#customer-segmentation-examples) 6. [Considering data and privacy laws when it comes to customer segmentation](https://www.simon.ai/blog-posts/customer-segmentation-definition-benefits-methods#considering-data-and-privacy-laws-when-it-comes-to-customer-segmentation) 7. [Customer segmentation with a Customer Data Platform (CDP)](https://www.simon.ai/blog-posts/customer-segmentation-definition-benefits-methods#customer-segmentation-with-a-customer-data-platform-cdp) 8. [Using AI-powered customer segmentation within a CDP](https://www.simon.ai/blog-posts/customer-segmentation-definition-benefits-methods#using-ai-powered-customer-segmentation-within-a-cdp) ## **What is customer segmentation?** Every customer journey is unique, and a one-size-fits-all approach won’t work for everyone. Today, consumers demand a 1:1 personalized customer experience from brands, and this is where customer segmentation is key to a marketing team’s success. Customer segmentation is the organization of customers into specific groups based on common characteristics such as demographics and behaviors to deliver more relevant customer experiences. This segmentation process allows businesses to align their marketing strategies with customer interactions to better understand how to market more effectively to each group of customers. ## **How does customer segmentation work?** In a customer segmentation strategy, marketers create groups of customers according to how and why they purchase. Using segmentation, businesses gain a deeper understanding of the needs and buying behaviors of their customer base and discover what is important to each segment. Customer segmentation uses key differentiating factors to divide customers into different groups — the most common of which are customer demographics, geographical location, psychographic information, personality characteristics, and behavioral information. These smaller, more specific segments are then targeted with relevant messaging. Tailored marketing efforts improve campaign effectiveness with messaging that is more likely to lead to conversion. ## **Benefits of customer segmentation** A well-implemented customer segmentation strategy holds many benefits for businesses. ### Fine-tuning your messaging Messaging that directly relates to your customer base will grab their attention and cause them to engage with your brand more, increasing the chances of conversion. Customer segmentation helps you identify how to communicate with your customers in the most effective ways using the most effective means. ### Improving the customer experience Customer segmentation allows businesses to create new products and services that customers want and give them the experiences they are looking for. Personalized content and messaging matched to a particular customer segment can make those customers feel appreciated and understood. ### Increasing your ROI Segmenting customers allows you to create content and messaging that speaks directly to specific segments — helping you better understand how to turn prospects into customers and increase the purchasing frequency of existing customers. It can also highlight who your most valuable customers are. ## **Four types of customer segmentation** The four most common types of customer segmentation models are demographic, psychographic, geographic, and behavioral. ### Demographic segmentation Demographic segmentation involves categorizing your target audience into segments based on information such as age, gender, income, and job title. Examples of demographic information include: - Age - Gender - Income - Job title ### Psychographic segmentation Psychographic segmentation creates different customer groups based on psychological characteristics such as personality, lifestyle, social status, and interests. Psychographic information can include: - Personality - Lifestyle - Attitudes ### Geographic segmentation Geographic segmentation divides customers based on the locations where they live or shop. Examples of the information used for geographic segmentation: - Location - Climate - Language ### Behavioral segmentation Behavioral segmentation divides customers into segments based on their behavioral patterns as they interact with your company. Behavioral data may be related to the customer lifecycle or previous interactions with your business. ## **Customer segmentation examples** Here are some examples of customer segmentation in action. ### Using customer income to highlight products based on price point A demographic segmentation strategy that targets potential customers based on income can help focus on customers who can afford your product. ### Recommending new items based on customer personality Using psychographic segmentation, a store might discover that many of its customers who buy running shoes are environmentally conscious. ### Showing different products depending on where the customer is based Geographic segmentation can display different products to customers based on where they live. ### Distinguishing between first-time visitors, returning visitors, and existing customers A behavioral segmentation process can help you tell the difference between first-time visitors to your website and actual customers. ## **Considering data and privacy laws when it comes to customer segmentation** To keep in line with government laws regarding customer data usage, consider using a cloud data platform or warehouse in your MarTech stack. ## **Customer segmentation with a Customer Data Platform (CDP)** A customer data platform (CDP) ingests data and creates a unified database and comprehensive customer profiles for all your company’s data sources to give you a 360-degree view of your customers. ### Using AI-powered customer segmentation within a CDP AI-powered customer segmentation is revolutionizing the way marketers understand their audiences. Marketers can use their CPD to understand the exact product features that resonate with a specific group, significantly increasing the chances of engagement and conversion.