What is customer segmentation in retail?

Through customer segmentation you can understand and adapt to your customer’s needs—and when deployed effectively, you can drive revenue and customer engagement for your business.

Retail has dramatically changed in recent years, and with it, so have customer expectations. These days customers consider more than just products when shopping with retailers. Instead, they value businesses that cater to their increasing expectations and identify with their specific needs. The businesses that win in this new environment are ones that prioritize the customer experience.

To achieve this, marketers need to do away with the traditional one-size-fits-all approach and adopt customer segmentation.

What is customer segmentation?

Customer segmentation is defined as the process of dividing your customers into subsets with similar characteristics so that you can market to those groups effectively and appropriately.

These customer segmentation subsets are vital in creating a marketing persona because customer segmentation typically informs brand messaging and positioning. It's not unusual for brands to create different personas for different customer segments so as to better appeal to customer needs.

What are the benefits of customer segmentation in retail?

Segmentation in retail enables marketers to customize their marketing efforts to different audience groups. Those marketing efforts can relate to both product development and communications. Here's how segmentation will help your brand-customer interactions:

1. Better serve a customer's wants and needs

Defining your segments will enable your brand to satisfy varying customer needs by creating different marketing and incentives that specifically address these needs. For example, if you identified a segment of your customers as mothers who predominantly shop for children’s clothing, you can target that segment with a promotion that provides a discount on children's clothing purchases.

2. Greater brand focus

When identifying specific market targets, it helps to focus on each target's needs with specific products and campaigns. Instead of wasting your marketing efforts on customers who won’t convert, you can target those who will find greater value in what you have to share. When your brand focuses on specific segments, it ensures that you're targeting the right group with the right product, and you'll see those efforts translate into a better ROI.

3. Market expansion

Geographic segmentation will allow you to expand your market instantly. When you are familiar with your segments and how to market to a segment in a specific location, you can immediately extend your operations to that location. If you've segmented based on demographics, then you can expand to that demography with similar products that said group will find the most value in.

4. Targeted communication

You need to target your segments with specific communication even when the features and benefits of a product are the same. For example, new mothers may respond better to a gym ad that focuses on losing baby weight, but a fitness enthusiast may respond better to information about peak performance. Understanding these key value differences will go a long way in the success of your marketing campaigns. Additionally, the platforms used to communicate your marketing may vary depending on the specific customer segment.

5. Market competitiveness

Effective customer segmentation can grant your business a significant competitive edge. When you understand your customers better you can get their attention better. Through more deliberate and focused marketing you can ensure a higher ROI for your outreach efforts. Focusing on a specific customer segment helps you learn everything about it and simplifies the process of marketing your products to them.

What are the types of customer segmentation?

Demographic Segmentation

Demographic segmentation is the most straightforward form of segmentation. This form of segmentation involves dividing target customers based on personal information such as age, gender, income, and education.

A lot of marketers use this method because it is easy to gather the information needed for segmentation, and it won't cost you too much to obtain it.

For example, a common product segmented based on demographics is deodorant. You'll find deodorant for women and deodorant for men, and both of these segments are fairly consistent across the board.

Behavioral Segmentation

Some marketers rely on segmentation that separates customers based on the way they behave. When you divide your target market on the basis of their behavior, it allows you to customize messages that will cater to those behaviors.

Behaviors include:

• Their loyalty to your business.
• The need they are trying to satisfy.
• How often do they use your product.
• The kinds of products they purchase

This information is crucial because it directly targets how a customer will relate to your products. Therefore, segmenting your customers based on behaviors can be one of the most effective forms of segmentation. That being said, understanding these behaviors can be a challenge without the right customer data tools.

Geographic Segmentation

Geographic segmentation involves splitting up your customers based on their location. When you know where a customer is located, you can better understand their needs and target them with location-specific ads.

When targeting geographic segments, you need to take into consideration factors such as language. Language and slang will change depending on the region, and speaking the local dialect can only enhance the effectiveness of your marketing efforts.

Psychographic Segmentation

This type of segmentation bears a lot of similarities to demographic segmentation. But unlike demographic segmentation, it deals with the mental, emotional, and attitudinal attributes of the customers.

Psychographic segmentation divides customers into groups based on their values, ideas on the world, personality, and attitude. This form of segmentation will give you important insights into the preferences, motives, and needs of your customers.

What are the most popular ways of segmenting customers In retail?

Gender: Different genders have different shopping needs and patterns. Sorting customers by gender will allow you to examine these patterns and devise effective marketing tactics.

Location: Segmenting customers by location enables you to look into regional shopping trends.

Age: Retailers can make a lot of predictions about your customers based on their age. For example, baby boomers might be more loyal to a specific brand, while millennials are more open to digital marketing.

First purchase: Marketers analyze the first purchase of a customer to help predict their future purchases.

Acquisition: This segment groups together individuals based on how they first became customers. This information will help you sharpen your onboarding strategy and overall customer journey.

How can Lexer help you achieve improved customer segmentation?

Customer segmentation is important in retail because it enables you to tailor your marketing efforts to different markets. CDPs make customer segmentation easier because they arm you with the data needed to segment your customers.

Lexer’s Customer Data Platform (CDP) is built to help brands better understand their customers so they can improve segmentation and target their needs more effectively. Our platform comes with an in-built integration that enables you to combine, enrich, and transform your data into a single customer view. Once you have the data, Lexer's retail expert can help you decipher it and recommend strategies that can help you improve your customer experiences.

Schedule a meeting with one of our experts to learn how to use Lexer's CDP to segment your customers and drive overall satisfaction.