5 Questions to Ask for Effective Customer Segmentation

The practice of customer segmentation has been around as long as there have been businesses. Knowing who is buying and the reasons behind those purchases helps the business keep its customers happy by continuing to provide them with the products and services they want.

As B2B buying processes evolve in a digital world, business owners as well as sales and marketing leaders are incentivized to understand how customer segmentation works. If you want to customize your sales and marketing strategies based on customer segments, you need to understand how it works—and sometimes how it doesn’t—before investing your resources in the process.

What is customer segmentation, and why is it important?

Customer segmentation is a marketing strategy used to improve customer engagement, streamline marketing, and boost sales. It requires identifying similarities between customers and grouping them according to their buying habits. This process deepens a company’s understanding of the businesses that buy from them and allows the sales and marketing teams to tailor their practices to target groups.

Engaging in the process of segmenting customers does more than help you understand why your customers buy from you. The information you gain through this process is useful for developing a plan to scale the sales and marketing approach you use with these customers. Segmentation also fits in with the company’s broader strategy. The more you understand about your current and potential customers, the better prepared you are for developing new products and identifying the best media and sales channels for engaging with them.

5 questions to ask yourself for effective customer segmentation

Not all customer segmentation plans are created equal. To be effective, spend time considering why you want to engage in segmentation and the outcomes you expect to see from it. These five questions can help you determine your next steps:

1. What is driving the need for customer segmentation?

Companies have plenty of reasons to segment their customers, and the most common is to develop and implement effective sales and marketing strategies. You can do this by expanding your understanding of your customers and their needs—and you can do much more with this information. When you know your customers’ needs, you’re better poised to provide them with the products and services they’re looking for.

You can start customer segmentation beyond the scope of the marketing department. The development team can use the information to expand the product line. Leadership teams can consider the data when deciding how to allocate resources. This data can also help you set prices, schedule production, and more.

2. Is your customer base large enough to have distinguishable buying behaviors?

The practice of customer segmentation may be most useful for companies with a large customer base^[1] and a broad range of product lines. Segmentation helps identify characteristics of the customers most likely to benefit from each brand.

However, smaller companies with homogeneous customer bases can also benefit from segmentation, and ignoring the practice based on the faulty assumption that all the customers are the same can lead to missed opportunities. Say, for example, that your customer base is medical facilities. Your customers may be in the same industry, but a deeper look into their purchasing history may reveal key differences in their buying habits. Their geographical location, area of practice, and patient demographic may influence their buying cycles.

3. Will you be able to implement changes based on customer segmentation?

The value of customer segmentation depends on your ability to use it. It’s possible to identify an accurate customer segmentation that’s not actionable. For example, you may segment your customers by the number of employees. This is an easy segmentation—you can get the information from corporate websites or call HR to ask for the number of employees.

Company size may not be an accurate indicator because other factors, like corporate policies, industry trends, and geographical location, can influence purchasing decisions. Although you may notice similarities in the buying habits of large companies versus small companies, that segment may not be specific enough to glean actionable insights.

4. Do you have the necessary resources to follow through with the segmentation plans?

The cost of customer segmentation plans can be significant, and you’ll need the financial and human resources available to complete the process. You must choose a segmentation scheme, collect and analyze data, and draw conclusions from it to make decisions. If you’re not able to commit fully to the process, it may make more sense to wait. Otherwise, you’re spending resources without receiving a return on the investment.

5. Will your organization be able to act on potential outcomes?

The success of a customer segmentation plan relies on the willingness of corporate leaders to implement it. Companies that effectively use customer segmentation tend to embrace organizational change. Segmentation may reveal new marketing channels to explore or product lines to develop. When that happens, you need teams ready and available to take the next steps. For example, you may find that a customer segment prefers a self-service portal instead of speaking with a sales rep to review and compare products. Engaging with this group may mean cutting back on the phone calls and adding more information to the website.

Select the right segmentation scheme

Selecting a segmentation scheme is an important first step in the customer segmentation process. There are four segmentation schemes used to group customers:

The leadership team may be tempted to implement each segmentation scheme, but having quality data is more valuable than having large quantities of data when making strategic decisions. It’s also important to consider the available resources when choosing a segmentation scheme. The company must be able to collect the data, analyze it, and act on it.

Let’s explore how one company may choose a segmentation scheme. Company ABC has developed comprehensive project management software with an embedded cloud-based workspace, document collaboration, and task timing. It may start with firmographic segmentation since it is fairly easy to start and it’s cost-effective. Identifying the industries and types of companies most likely to use this software and its features is helpful. It can then focus marketing and sales efforts on construction companies, software developers, and marketing firms, for example.

The advantage of using a firmographic scheme is that information is relatively easy to find—in many cases, in public documents. A significant limitation of this type of segmentation is scalability. Even within these segments, the needs and behaviors of the customers can vary greatly. A small company with a handful of team members who share an office space may be less likely to purchase the software than a larger company with multiple teams to manage.

If Company ABC has long-term relationships with some customers, it can segment them by behaviors like whether they have bought previous products based on price, quality, or support. This lets the company capitalize on these behaviors when they market the product. For example, the company may reach out to price-conscious customers during a planned sale event or develop a campaign that emphasizes the customer support system to reach service-focused customers. The result is a series of targeted campaigns based on actual customer behavior, but it requires substantial data and still doesn’t account for the factors influencing purchasing decisions.

Company ABC may decide to go directly to the source—its customers—to find out which features they want most in a product. A needs-based segmentation scheme lets it engage with customers through surveys, consulting firms, and feedback from the sales team. This customer-centric approach lets the company produce a product that addresses those needs and creates opportunities for cross-selling. It’s highly effective if the company has established relationships with customers.

Next steps

An effective customer segmentation scheme will give you the insight you need to understand and leverage your customers’ buying habits. Identifying the similarities and differences in these patterns can help you determine why they buy from you. You can then create campaigns to reach other potential customers within that segment to increase your customer base and sales.