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Customer segmentation: Definition, types, and approaches

Customer segmentation Definition, types, and approaches

In today’s economy, there has been a clear shift in the spending power of various demographic groups. New-generation consumers can now freely explore the market on their own using technology.

That’s why companies should not just focus on automating their processes but also start improving their brand targeted to the right audience.

Identifying your audience through customer segmentation enables you to target marketing efforts and resources to the right consumer groups.

What is customer segmentation?

Customer segmentation refers to the technique of breaking a customer base into segments of individuals that share particular marketing-relevant characteristics, such as:

  • Age
  • Gender
  • Hobbies
  • Purchasing patterns

Companies adopting customer segmentation operate under the premise that every customer is unique.

Marketers use this approach to target smaller groups with a brand message relevant to specific customers.

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To make customer segmentation effective, CEO of Origo BPO, Yassin Shaar, says, “You want to select the people who have the level of high urgency.” Shaar joined Derek Gallimore in the 418th episode of the Outsource Accelerator podcast. 

In connection, if segments have a high urgency to buy the product, “they have a hair on fire problem. If their hair is not on fire, you may not want to approach that segment just yet.” Yassin advised.

Through customer segmentation, companies can learn more about their customers’ preferences and ensure they deliver the right product and services. 

When customers get something made just for them, they are more likely to buy from your business because “you got to sell them what they want and then give them what they need.” Yassin added.

Types of customer segmentation

As you begin to develop segmentation efforts, you should consider these various types of customer segmentation.

Note that this is not a one-size-fits-all solution, so you should do what is best for your business.

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Demographic segmentation

In terms of customer segmentation, demographic segmentation is one of the most widely-used and easy-to-understand approaches. 

This segmentation examines age and gender, and other socioeconomic indicators such as:

  • Family income
  • Marital status
  • Employment 
  • Educational attainment

Geographic segmentation

This type of customer segmentation groups and reaches audiences based on geography or location – typically at the national or city level.

Yassin also noted a perfect example of this segmentation:  A scenario where “multi-location healthcare companies, mid-market companies are adding new locations every year.”

Behavioral segmentation

As its name suggests, behavioral segmentation segments audiences based on their behaviors and habits.

This customer segmentation covers consumer purchasing patterns and online behavior in different platforms, technology, and online activity hours.

Psychographic segmentation

This type of customer segmentation is what makes your audience click. It is similar to behavioral segmentation as it also aims to understand an audience on a deeper level.

But psychographic segmentation focuses more on the following:

  • Personality
  • Beliefs
  • Interests

Social media segmentation

Social media segmentation divides your various audiences into platforms. This is prevalent since there are now several emerging social media applications.

To add, Yassin noted that there are people “who are professionals, but [they] know how to leverage social media” and “influencers who are leveraging TikTok.” 

So this type of customer segmentation allows you to see where the target audience is most active.

Types of customer segmentation

Two approaches to B2B segmentation

Here are two approaches to B2B segmentation.

Vertical segmentation

In vertical segmentation, corporations choose specific sectors or job titles that are likely to find their products appealing. 

Marketers then concentrate their marketing efforts on those segments they believe are the most likely to make a purchase. 

The advantage of vertical segmentation is that organizations may tailor their offerings to specific sectors like customer support services. To support this statement, Yassin acknowledged that “the vertical segmentation” is the “job to be done” because “every industry needs right customer support.”

Horizontal segmentation

On the other hand, horizontal segmentation focuses on a single job title across various sectors and organizations. 

The advantage of horizontal segmentation is a greater emphasis on the requirements of specific job titles or work responsibilities.

But despite the differences between the two approaches, Yassin mentioned, “when we look at segmentation, we look at vertical segmentation and horizontal segmentation, and that becomes our positioning.”

Target the right audience through customer segmentation

Targeting your market is essential. You need to be sure you’re offering something that will benefit your prospects and make their lives easier.

Understanding your consumers’ behavior is vital because it will allow you to build trust and create a better experience for them.

But before you can do that, you should know that different customer segments need different customer experiences

The core objectives of customer segmentation are determining which groups are most valuable and catering to their needs with the right offerings.

When you focus on customer segmentation, you will better understand your target market and can leverage that knowledge in your marketing campaigns.

If you want to learn more about segmentation, do the best way and connect with Yassin Shaar.

Visit Origo BPO’s official website and listen to episode 418 of the OA podcast here.

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About OA

Outsource Accelerator is the trusted source of independent information, advisory and expert implementation of Business Process Outsourcing (BPO).

The #1 outsourcing authority

Outsource Accelerator offers the world’s leading aggregator marketplace for outsourcing. It specifically provides the conduit between world-leading outsourcing suppliers and the businesses – clients – across the globe.

The Outsource Accelerator website has over 5,000 articles, 350+ podcast episodes, and a comprehensive directory with 3,000+ BPO companies… all designed to make it easier for clients to learn about – and engage with – outsourcing.

About Derek Gallimore

Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.