What is Customer Segmentation | Product Management Glossary

What is Customer Segmentation?

Customer Segmentation is the process of breaking down a user base into smaller groups of individuals based on their similarities, such as age, gender, use case, industry, buying behavior, etc. Customer segmentation aims to deepen your understanding of that group's behavior to help develop more targeted products and feature sets.

It's a tremendous help for all departments as it allows companies to take a more targeted approach and provide personalized experiences for each segment, ultimately improving customer retention and driving revenue.

Types of Customer Segmentation Methods

Customer segmentation is a great way to identify high-yielding segments or, in other words, the segments that have the most potential to be profitable or have the potential for expansion. Though there are many ways to segment customers, and many SaaS tools to help do this in a modern and helpful way, some customer segmentation methods include:

Demographic segmentation divides users based on age, gender, income, education, etc. This method helps reveal basic yet essential information about your target audience and can help companies tailor their product, marketing, sales, and success efforts to specific groups.‍
Needs-based segmentation divides your customers into groups based on their needs. When building a new product or feature, it's essential to make sure what you're building will resonate with your users. So for example, if your high-yielding market segment is predominantly project managers, consider building or enhancing your forecasting features.‍
Behavioral segmentation is based on customer behavior, such as purchasing habits, frequency of feedback, loyalty, etc. This method reveals how users interact with their products and services and can be used to build new features or create targeted campaigns to increase customer engagement.‍
Geographic segmentation is helpful for understanding regional differences and can help companies tailor their marketing efforts to specific geographic areas.

Once the market has been segmented, companies can take the next step and create customer profiles for each segment to help align with the needs and preferences of each segment.

How to Execute Effective Customer Segmentation

Effective customer segmentation requires a deep understanding of the market and the customers being targeted. This is achieved through customer research and data analysis, including surveys, focus groups, and interviews.

Once the market has been segmented, companies can build features that meet and solve core challenges for the specific customer segment, create targeted marketing campaigns, and provide personalized experiences for each segment. This can include tailored product offerings, customized pricing, and targeted paid advertising. Providing a tailored experience for each segment can work wonders for customer acquisition and retention. UserVoice’s powerful segmentation capabilities allow users to filter feedback by custom cohorts to discover retention drivers and quantify the impact of requests.

Conclusion

Customer segmentation is a crucial aspect of product management. By understanding and targeting each customer segment, companies can develop stronger relationships with their users by delivering products that better meet their needs. A well-designed customer segmentation strategy can increase customer dedication, drive revenue, and improve overall business performance.