One of the biggest pitfalls businesses fall into when marketing their products and developing growth plans is assuming all their users are the same. In fact, every person that uses your product or service is different and unique. They obviously have different backgrounds, but also have different needs and wants from your product.
However, the opposite of one homogenous strategy is just as unhelpful. It's practically impossible to target every individual user. That's why we aim to segment customers into groups or strata to better understand and target. Diversifying your marketing strategy to appeal to different user types can help you attract more customers and grow your business. This process is known as user segmentation.
The main goal of user segmentation is to better understand and serve customers by dividing them into groups with similar needs, behaviors, or characteristics. In order to be actionable, however, segmentation should not only be accurate but also useful for informing business decisions and strategies. Too often, segments are derived without an understanding of what actionable insights they will provide or how they will be applied.
Here at June, we believe that user segmentation should be easily accessible to all. That’s why we’ve built a myriad of tools for SaaS product managers to track user engagement and crafted detailed and meaningful customer segments.
In this article, we'll explore what user segmentation is, why we need it, and introduce you to some actionable best practices for approaching customer segmentation in 2022.
What Is User Segmentation?
Customer segmentation, or user segmentation, is the process of dividing customers into groups based on specific traits and factors they share. This enables companies to market more effectively to particular groups and cater to their needs.
There are many different types of user segmentation, and each of them offers their own advantages and disadvantages. We'll cover them in more detail later on in this article.
Why Do You Need to Segment Your Users?
Segmenting your customers can help you understand and target specific areas of your user base. Without segmentation, you risk your product being too broad and unfocused to provide value to your users.
Here’s how customer segmentation can help you grow your business:
- You can create targeted marketing campaigns that are designed to resonate with certain segments of customers.
- Tailoring customer experiences to meet the needs of customer segments helps improve the customer experience.
- Creating customized content and specialized interactions helps build greater customer loyalty.
- Understanding how certain segments of your customers interact with your app can help build unique experiences tailored to certain interests. For example, through an effective onboarding flow and data-driven insights, Ghost managed to increase their conversions by 1,000%.
- This also allows you to communicate with your users on channels that are meaningful to them.
- By understanding the specific needs of your customer segments, your business can easily identify opportunities for new features, new products, and ways to improve your existing products.
How does that translate into real-world performance? A survey from Mailchimp found that segmented campaigns were 14.31% more likely to be interacted with than non-segmented campaigns. Next, we’ll explore the different ways businesses can split up and segment their customer base.
Demographic segmentation is the process of dividing a population into groups based on their age, gender, income, education level, occupation, religion, or other similar characteristics. This information is used to better understand and target marketing efforts to specific groups of people.
One of the most common ways to segment a population is by age. Young people are typically more interested in new and trendy products, while older people are more likely to prefer established brands. Another common way to segment a population is by gender. Men and women often have different interests and preferences when it comes to products and services.
This is a great starting point for your segmentation – as demographics likely won’t make your search narrow enough to be as effective. However, demographic segmentation gives you a great platform to use another method of segmentation to craft an effective marketing strategy.
A great example of demographic segmentation in practice is how VEED markets its video editing platform to casual video content creators. In the landscape of bulky video editing platforms with a steep learning curve like Adobe Premiere Pro, VEED stands out by catering to casual content creators who want to edit a clip in under 10 minutes to publish on social media. This can also include firmographic data – basically demographics for B2B SaaS companies. The data here includes employee count, market sector, revenue, size, etc.). For example, companies whose biggest market sectors are SMBs could market almost exclusively based on company size (e.g., annual revenue or number of employees).
Behavioral segmentation is a process of dividing a population into groups based on their observed behaviors. It involves asking:
- How do people use your product?
- How long do they spend on certain pages of a website?
- How often do they use your product?
- Do they share your product with their friends and family?
Behavioral segmentation is a powerful tool because it allows businesses to understand their customers on a deeper level. This information can then be used to create more targeted and relevant marketing campaigns that are more likely to resonate with customers.
For example, SaaS providers often tailor their mailing lists and retention marketing campaigns depending on whether users are using their service for themselves personally or for their business. Business customers have different needs and usage patterns, and, therefore, will need to be communicated with differently. It’s easy to collect data on the behavior of your users using June. For example, you can track which of your users are engaging with a certain product feature and export that list. This could be a great segment to upsell a similar feature or market an update to their favorite part of your service.
This is a very simple segmentation practice to define. Geographic segmentation involves targeting users and potential customers in certain geographic areas.
There are a few different ways to segment your market geographically. You could target a certain country, region, or even city. When you’re targeting a specific geographic area, you need to make sure that there is a demand for your product or service in that area. You also need to consider the competition in that area. If there are already a lot of businesses offering similar products or services, it will be more difficult to succeed in that market. However, if you can find a niche that isn’t currently being serviced, you can capitalize on that opportunity. Some SaaS platforms change their pricing based on geography. For example, Playpass employs different pricing rates (i.e., parity pricing) in regions that can’t afford their US pricing.
Psychographic Customer Segmentation
Psychographic segmentation is a marketing strategy that divides a population into groups based on their psychological characteristics. Marketers use this strategy to understand what motivates people and to create messaging that resonates with them.
There are three main types of psychographic segmentation:
- Lifestyle segmentation: This type of segmentation categorizes people based on their lifestyle choices. For example, a marketer might divide people into groups based on whether they are urban or rural, wealthy or low-income, or their political beliefs.
- The second type of psychographic segmentation is personality type. This approach divides people into groups based on their personality traits. For example, a marketer might separate people into groups based on their level of impulsiveness, agreeableness, or neuroticism.
- The third and final type of psychographic segmentation is behavioral segmentation, which we have already discussed above. For example, a marketer might separate people into groups based on their spending habits, voting patterns, or media consumption habits.
The main challenge of this type of customer segmentation is finding the data. How do you collect this information about your potential and existing customer base?
It involves linking behaviors and psychographic observation with quantitative measures like engagement. A great way of doing this is to contact a sample of users who meet certain measurable criteria (e.g., product usage, feature adoption, referral likelihood, time on page, bounce rate, etc.) and use your findings to develop customer profiles.
Sure, this is a generalization of your customer base. But it allows you to target psychographic characteristics and link them with quantitative data points.
How to Carry Out Customer Segmentation
Now that we’ve covered the main types of user segmentation, let’s explore how to tackle segmenting your customer base in practice.
Set Out Clear Customer Segmentation Goals
What are you trying to achieve by segmenting your customers and audiences? How are you planning on actioning these methods and using your segments?
Is it to improve your product and collect more accurate user feedback? Is it to create a successful acquisition strategy? Is it to understand your budget for developing this strategy?A huge part of developing a successful user segmentation plan is picking the right segmentation methods/models for your business. Remember, just as your business is unique to any other, your ideal customer segmentation plan will also need to be unique and tailored to your goals and strengths.
Tracking User Engagement Is Key
The first step to segmenting your audience is to track the engagement and usage of your users. To make this process easy and seamless, you’ll need to call on a product analytics tool – and the best one out there is June.
A useful example of a user engagement metric to track is feature adoption.
We believe an important segment of your audience is your power users. These are the people who use your product daily and engage with your company the most.
Consider How You’ll Measure the Success of Segmentation
The success of user segmentation will be related to how well-segmented marketing practices can be used to solve key business priorities.
The main metric here is conversion and return on investment (ROI). This is how many impressions have been transformed into paying customers – and how much value has been created as compared with the initial outlay for the marketing strategy.
- Engagement rate and feature adoption
- Customer lifetime value (CLV)
- Acquisition source
Want to learn more about how user retention metrics can be used to reduce churn and measure the success of marketing instruments? Check out our blog post on that here.
Develop Your User Segmentation Strategy
The key to a good user segmentation strategy is using a quality product analytics tool. This is because collecting data on user engagement and retention can be particularly difficult without an analytics tool. However, with June, you can automate this process.
You can automate retention tracking by connecting your segment account to June. Acquired by Twilio, Segment is a platform for collating your customer usage data into one easy-to-access place. With Segment, you can automatically collect user metrics from hundreds of software tools like Google Analytics and Stripe. With June, you can easily generate attractive and functional engagement and retention graphs and reports.
Segmentation is a powerful tool in a business’s arsenal. It helps create more meaningful and personal advertising campaigns, in turn reducing customer acquisition costs and increasing conversions. With a product analytics tool, you launch a segmented marketing strategy in no time. Get started today at June and access BS-free, accessible and beautiful product analytics for B2B SaaS companies.