Customer Segmentation

November 17, 2022
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Timothy Ojo

Oftentimes, businesses struggle to fully convey the value of their products and services to their customers. The marketing strategies they employ may reinforce their position in the market, but they might not be enough to establish dominance. The example of an automobile company that is hellbent on selling its products without regard for the social class of its target market comes to mind. The marketing of a product can make it appeal to everyone, but it's the actions being taken that matter most. If an automobile company makes an advertisement trying to sell a car, there will be different reactions. Another classic example would be a footwear company trying to advertise its sneakers; the advertisements would be segmented to appeal to different users – athletes and basketball players for instance. This is where market segmentation comes to play. 

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As an individual, you may have practiced customer segmentation unknowingly. How do we know? Have you ever had important information to yourself and you kind of select the people you want to tell. For example, if your wife had a baby, the first person that will come to mind to tell the good news to will be your close friend or your parents. You are not obligated to relay the news to your colleague at work even though you get to see each other every day. In essence, the expectations your colleague at work has of you or vice versa are different from the expectations required of you by your partner. You give information about your personal life to people who are close to you first before other people. This is exactly the way customer segmentation works. 

Customers have unique needs specific to them. By segmenting customers with similar needs together, you can meet their needs more effectively. If this also applies to another group, then you do the same thing. 

As a business, your product may appeal to everyone. It however doesn't mean that everyone will make a purchase if they do not see the need  or if they do not actually believe it is a priority. A certain demographic may be interested in your product, but not in that geographic area. A profitable business must take all of these factors into consideration. Customer segmentation should be on the top list of a company's strategy for growth. 

What is Customer Segmentation?

Simply put, customer segmentation, according to Investopedia, refers to "aggregating prospective buyers into groups or segments with common needs and who respond similarly to a marketing action." Customer segmentation will help you better understand your customers and meet their pain points as you are able to take a penetrative look into your customers and see how best you can serve them. 

Why is Customer Segmentation Important For Your Business?

One of the most important reasons for customer segmentation is to understand who your most valuable customers are and why they choose your brand. You get to know this by learning about your customers' behaviors and experiences and then you streamline your marketing to attend to their challenges. Once you have a full grasp of the different segments of your customer base and can find a way to meet all the unique needs of each segment, then you consolidate that with good customer service, leading to customer retention. All of these would ensure that you do not waste efforts in your marketing campaigns. Hence, the marketing strategy will be targeted at different segments with the preferred channels and platforms. Another benefit of customer segmentation is, the business gets to know other opportunities for products, services, and support.  

In Lumiere, a suite of our machine-learning models, there is a solution that helps your business to properly segment its customers. You want to attend to your customers’ pain points directly and you can only achieve that when you understand their unique needs. In our customer segmentation model, we are able to use Artificial Intelligence to group your customers based on the data provided and our analytics gives you an insight into customer retention and churn rate. 

These are the ways our customer segmentation model can help your business: 

  1. Improve product and customer experience to strengthen product stickiness.
  2. Identify Customers to upsell to, hence improving revenue and profit
  3. Select effective engagement actions by using targeted marketing method that will resonate more with a particular segment

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