Clientbook Blog
November 20, 2023

How retail customer segmentation works

Every retail customer is different. All of your current customers and potential customers have individual needs, preferences, and goals, and more than half of them expect personalized brand communication. Understanding your customer base can feel like a mysterious process at times, but it doesn't have to be. 

So, what's the best way to go about understanding and meeting your customers' individual needs? The answer lies in customer segmentation. By creating a customer segmentation strategy in your retail business, you'll get to know your customer base in a more authentic way and as a result, see more retail success. 

In this article, we'll go over the basics of customer segmentation and why it's important for retailers to practice, give examples of the customer segmentation process, and then discuss how Clientbook can help retailers implement retail segmentation in their businesses. 

What is customer segmentation?

Retail customer segmentation is a marketing strategy that involves dividing a retailer's customer base into distinct groups based on certain characteristics and behaviors. 

This includes many categories of demographic segmentation: geographic segmentation, segmenting by marital status, income level, family size, and several other aspects of your customer profiles. But it also includes more psychographics categories as well, such as buying behaviors, product interests, and personal values.

The goal of a customer segmentation model is to better understand the diverse needs and preferences of different customer segments, allowing retailers to tailor their marketing efforts, product attributes, and overall business strategies to meet the specific requirements of each group. 

Customer segmentation also leads to more sales—according to research by Notify Visitors, 80% of companies that use market segmentation report increased sales. This approach recognizes that not all customers are the same and that targeting distinct segments can lead to more personalized and effective marketing campaigns.

Why is customer segmentation important?

There are many benefits of customer segmentation, but the most notable one is that you can reach your target market and target audience in a personalized way that will give them the best customer experience possible. 

By dividing customers into meaningful segments, retailers can create targeted marketing strategies that resonate with specific groups. This leads to more efficient use of resources, increased customer satisfaction, and improved overall business performance.

For example, a retailer might create different promotions, discounts, or product bundles for various segments, increasing the likelihood of attracting and retaining customers within each group.

Examples of customer segmentation

Now, let's delve into the details of different types of customer segmentation. We’ll give a quick explanation and a couple of practical examples of each type. While there are many to choose from, below are the most common types:

1. Demographic segmentation

You can segment your customers based on their basic demographic information like age, gender, and household income. Demographic segmentation is commonly broken down like the following:

- Age: Teens, young adults, middle-aged, seniors
- Gender: Male, female, non-binary
- Income: Low income, middle income, high income

2. Geographic segmentation

Geographic location affects how retailers segment their customers based on cultural and regional preferences, climate and seasonal variations, and local competition.

- Region: North, South, East, West
- Urban vs. rural: City dwellers vs. suburban or rural residents

3. Psychographic segmentation

Part of understanding your loyal customers and how to segment them is knowing what they value and what kind of lifestyle they live. 

- Lifestyle: Outdoor enthusiasts, tech-savvy, health-conscious
- Values: Eco-conscious consumers, socially responsible shoppers

4. Behavioral segmentation

For behavior segmentation, retailers should ask themselves: what kind of shopping behaviors am I seeing among my customers? The answer to this question can help to segment buyers into appropriate groups. 

- Purchase occasion: Regular shoppers, seasonal buyers, occasional purchasers
- Customer behavior: Brand loyalists, price-sensitive shoppers, impulsive buyers

5. Purchase history segmentation

Keeping track of your customers' purchase history is a great way to target them based on their preferences and habits.

- Frequency: Daily, weekly, monthly shoppers
- Average transaction value: High spenders, moderate spenders, low spenders

-Product type: Vintage pieces, floral patterns, leather fabrics

6. Product preferences segmentation

Similar to purchase history segmentation, product preference segmentation groups customers by their interests. Only this kind of segmentation also includes shoppers who haven’t made a purchase yet. Certain types of customers gravitate to different product categories. Knowing what your customers want to buy and how they engage with your brand will let you know how to plan retail customer segments.

- Category preferences: Clothing, electronics, home goods
- Brand affinity: Customers loyal to specific brands

7. Technographic segmentation

Understanding how customers engage with your retail store (online, in-store, or both) helps you to segment them into groups based on their interaction style. 

- Online behavior: E-commerce enthusiasts, in-store shoppers, omnichannel consumers
- Device usage: Mobile-only users, desktop users, tablet users

8. Customer loyalty segmentation

Customers who are part of a loyalty program need to be targeted differently than customers who are a churn risk. Knowing where they're at in their customer journey will help you tailor your segments more appropriately.

- Loyalty program members: Customers enrolled in loyalty programs
- Churn risk: Customers at risk of leaving or reducing their engagement

9. Social media segmentation

Younger generations are generally more active on social media channels—often, social media and user generated content is the main form of retail marketing they engage with. So, paying attention to those customer responses will be a useful way to segment customers.

- Social media engagement: Active on Facebook, Instagram, Twitter, etc.
- Influencer followers: Customers influenced by social media influencers

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10. Life stage segmentation

People need different products for different phases of life. This means that segmenting based on life stages, marital status, and career stages is an important move for your retail success.

- Family life stage: Singles, married with no kids, families with children, empty nesters
- Career stage: Students, working professionals, retirees

11. Value-based segmentation

Some retailers will focus on customer price preferences to determine how to market to their customer base.

- Bargain shoppers: Price-sensitive customers
- Premium customers: Willing to pay more for premium products or services

These are just a few examples of types of segmentation, and many retailers use a combination of segments to create a more nuanced understanding of their customer base. The specific criteria chosen depends on the retailer's industry, products, and business goals. Once segmented, retailers can tailor their marketing strategies, communication channels, and product offerings to meet the unique needs of each customer segment.

How Clientbook helps retailers with customer segmentation

Clientbook is a retail CRM and clienteling software made to help retailers succeed through clienteling. Clienteling is the process of building long-term relationships between retailers and customers by getting to know them, organizing their information, and communicating with them consistently and effectively. 

Clientbook can specifically assist retailers with customer segmentation through our client management feature. With this feature, you can organize your customer base in seconds. You can assign tags to each of your clients to easily filter and organize your client base. Tags can be based on birth date, product interests, gender, or any other target segments you can dream up.

Use Clientbook to begin your customer segmentation efforts and immediately see the benefits of market segmentation in your retail business. 

Conclusion

If you have an interest in improving your business's customer service, customer retention, and customer engagement, look no further than retail customer segmentation. 

By implementing a customer segmentation strategy, you'll quickly achieve a greater understanding of your retail customers and what they look for in a retail business. It’s all about  looking at who they are as a person and customer.

Begin segmenting your customers with Clientbook today by booking a demo. Get a closer look at Clientbook's unique customer segmentation capabilities and improve your sales today.

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