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What is customer segmentation and how does it improve CX (with types, tips and examples)
When you’re building, marketing or optimizing a product, there’s no ‘one size fits all’. No two customers have the same exact needs—so how do you address them?
The answer is to put your product users into useful categories—otherwise known as customer segmentation.
By dividing your customers into groups with similar attributes—from who they are to how they use your website or product—you find ways to address each segment’s needs, preferences and pain points.
This guide covers everything you need to understand your user base and deliver a customer experience (CX) every one of your customers loves, seeks and deserves.
What is customer segmentation?
Customer segmentation is the process of sorting customers into different groups based on their shared characteristics—like preferences, behavior or demographics. This helps you understand your customers better and serve them in a way that feels more personal and tailored to their needs.
Basically, segmentation is like sorting through your customer base to find out what they have in common—what they do, what they need and what they like. Then, with the results from your customer segmentation analysis, you can tailor marketing efforts and campaigns, sales outreach and product messaging to each of these different customer groups.
This simple act of spotting similarities or patterns is a game-changer for your company, boosting empathy, retention and loyalty, while giving your customers exactly what they want.
Customer segmentation vs. user segmentation
Terms like ‘customer’ and ‘user’ may sound similar, but they differ in context: customers make purchases, while users engage with products or services.
For segmentation, both methods involve grouping individuals by their traits or actions, with each applied differently in marketing and product development:
- Customer segmentation
is focused on buyers and their purchasing habits. For example, you could segment customers into groups like ‘frequent buyers’ or ‘high-income customers.’ - User segmentation
is focused on understanding and improving the experience of individuals who interact with a specific product or service, regardless of whether they’ve made a purchase. To do that, you might segment users into groups such as ‘casual users’ or ‘power users.’
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What are the different types of customer segmentation?
Different ways or models of segmenting customers let you understand, empathize with and meet the needs of various groups of individuals who share similar characteristics.
Here are nine different customer segmentation types and how to use each one to build more meaningful, relevant experiences:
- Behavioral segmentation
groups customers based on the actions they take on your site or product. It includes behavior-related patterns like pages visited, shopping carts abandoned, email and ad click-throughs and frustration indicators (like rage clicks). - Demographic segmentation
groups customers based on shared characteristics, including factors like age, gender, location, language and education. - Firmographic segmentation
groups companies (not individuals), like B2B customers, based on shared organizational attributes. They cover industry, monthly revenue, business model, employee count and business location and age. - Geographic segmentation: groups customers based on their physical location. Location-based segments include continent, country, state, city and town.
- Psychographic segmentation
groups customers based on their psychological traits. This includes personality, lifestyle, goals, interests, beliefs, attitudes, values and affiliations. - Technographic segmentation
groups customers based on the technology they use to access your site or product. These segments relate to tech-based factors like hardware, internet browsers, software products and integrations. - Customer account data segmentation
groups customers based on their client profile details. These can include software plan type, average purchase value, sign-up date, log-in frequency and features used. - Needs-based segmentation
groups customers based on their shared demands like preferences, pain points, problems and motivations - Values-based segmentation
groups customers according to economic qualities like ethical consumption and sustainability commitments
Exploring segmentation modelsThis is by no means an exhaustive list of segmentation models. There are a number of other different types for you to explore. For example, here’s how Ellie Wheeler, Senior Product Analyst at Hotjar, part of the Contentsquare group, uses recency, frequency, and monetary value (RFM) segmentation to evaluate customer behavior:
“RFM segmentation can provide valuable insights into customer behavior and their engagement. We use it to tailor the product experience to the specific needs and lifecycle points of customers.
“This method is especially helpful in segmenting customers to identify the highest performing across the three metrics (Recency, Frequency, Monetary) and understanding the steps these users took. We use those insights to increase product adoption and engagement by guiding customers to be more like these top performers.”
Who uses customer segmentation?
Customer segmentation isn’t just a tool for analysts—it benefits everyone from product managers to marketers. Take a look at how each team leverages their own customer segmentation strategy and the results it leads them to:
- Product uses segmentation to prioritize product features and enhancements that resonate most with each segment 👉 achieving more targeted, effective product development
- eCommerce customizes website content, product recommendations and promotional offers to better meet the needs of each segment 👉 gaining higher conversion rates and growth
- Customer service tailor their support channels, response times and solutions to address specific challenges across segments 👉 improving customer satisfaction and loyalty
- Sales identifies high-value customer segments and allocates resources more effectively to focus their efforts on the most promising potential customers 👉 driving more sales and revenue
- Marketing understands the unique characteristics and behaviors of each segment to create more relevant and personalized marketing strategies 👉 increasing customer engagement, conversions and retention
3 benefits of customer segmentation
To get a sense of how this simple sorting process can be used to fine-tune your CX approach, check out these three customer segmentation benefits. Don’t forget to tune into our dedicated chapter to learn how to perform customer segmentation and see more use cases.
1. Create, understand and refine buyer personas
Segmentation is great for developing an accurate picture of your ideal customers, AKA buyer personas. Building buyer personas reveals the different ways people search for, buy and use your site or product—helping you focus and prioritize your efforts, design better marketing messages and improve retention.
Start by talking to customers to create personas based on your existing user base:
- Launch a user persona survey to really get to know your buyers; who they are, why they use your site or product and what challenges they’re facing in achieving their goals
- Conduct interviews to get deeper insights by talking directly to your target audience
Then, divide these personas further into segments to improve your understanding:
- Use digital experience platforms like Contentsquare (that’s us 👋 ), analytics tools like Google Analytics and customer relationship management (CRM) tools like HubSpot to gather and analyze historical data
- Create segments based on your personas and apply the relevant customer segmentation model
- Use segmentation data to update your personas to best reflect your ideal customers’ characteristics and include nuances in behavioral patterns
2. Target specific customer needs
Once you’ve observed common characteristics among your segments, you can tailor their experiences strategically and deliver features or solutions that meet people’s needs in their specific context.
For example, you could
- Prioritize new products or features based on what high-value customers
are looking for, using customer journey data
- Trigger marketing campaigns based on customer behavior, geographic location or other key factors to only send people the most relevant messaging
- Segment visitors by gender on your eCommerce clothing site, then target each segment with promotional campaigns
- Deliver better onboarding experiences to different segments, guiding each type of product audience toward the features they most need and use
- Use content segmentation to refine your strategy and create content more relevant and engaging to your audience
How New Balance personalized customer experiences with Contentsquare
Jessica Bartlett, CRM Manager EMEA at New Balance, champions personalization in eCommerce. She knew that to truly personalize user experiences, she needed to dive deep into the nuances of customer behavior. By analyzing and leveraging existing customer data, Jessica crafted segments based on shopping habits and preferences.
“Like visitors who have viewed your products within a certain amount of time,” she explained, “or visitors that have looked at specific product pages or styles.”
Understanding her target customers’ journey was key. Insights from Contentsquare transformed these narratives into personalized experiences that resonated deeply with New Balance’s audience.
3. Solve customer experience and UX problems
While your products or services alone deliver value to your users, it’s your CX—the culmination of all interactions a customer experiences with your brand over time—that truly sets you apart.
Throughout the customer segmentation process, you create personalized moments and give each group the attention they deserve, increasing customer lifetime value (CLV) and customer loyalty and turning them into your biggest fans.
Say you’re puzzled about why your product’s casual users aren’t upgrading or renewing their subscription plan or why your newest customers are hitting a roadblock at onboarding. This type of segmentation streamlines the process of understanding exactly what’s going on with valuable customers, and what you can do about it. And it goes like this:
- Identify relevant customer segments
- Gather customer experience data
- Analyze your quantitative and qualitative data
- Personalize and improve CX and UX by segment
With this personalized approach to user analytics, you get answers to specific questions about your audience and use those insights to improve CX with segmentation.
Which customer segments are most relevant?
When done right, customer segmentation teaches you more about your most valuable cohorts of users, giving you deep insights into the audiences that matter most.
You may find these segments helpful for an effective digital experience strategy:
- Customers who churned: discover their frustrations and unmet needs to improve customer retention
- Free- and paid-account users: know who to target with promotional messages that entice them to upgrade
- Inactive and most active users: research why some customers get more value from your product
- High- or low-lifetime value customers: learn how to improve the experience of those users who spend more or less with you
🔥 If you’re using Hotjar: All Hotjar tools include filters that let you drill down into your data and find valuable information. Use these to apply different types of market segmentation, for example:
- Behavioral segmentation: filter by the pages users visit, where they click, exit, churn, u-turn, enter text, encounter an error or trigger an event
- Technographic segmentation: filter by device, screen resolution, browser and operating system
- Geographic segmentation: filter by country
Next steps in customer segmentation
Your business is already collecting user data, but there’s a chance you’re not leveraging it to its fullest extent. By segmenting customers, you unlock the potential of your data—so you can put your learnings into action to optimize your digital experience and drive growth.
Keep reading for deeper insights into what delights and frustrates every segment of your digital customers:
- Customer segmentation models: types, methods and techniques
- How to perform customer segmentation and implement an effective strategy
- How to conduct a customer segmentation analysis (with key metrics)
- The X best customer segmentation tools, software and platforms
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FAQs about customer segmentation
Segmentation models come in a variety of attributes and characteristics. The four most common are
- Demographic segmentation
- Behavioral segmentation
- Geographic segmentation
- Psychographic segmentation
The number of segments you use depends on your customer data, products and prioritization capabilities. For instance, a SaaS start-up may be able to handle three to five segments, while more enterprise solutions could manage six to eight at a time.
Customer segmentation enhances CX by allowing you to provide your users with personalized, precise messaging and relevant features and solutions. This approach helps you improve user satisfaction, get higher retention rates and create more effective product iterations based on segment-specific feedback.
