Segmentation is the process of splitting up your customers into groups based on behaviors, characteristics and/or needs. Several levels of segmentation exist, including geographic, demographic, psychographic, and behavioral. For example, a segment can be “all customers who live in San Francisco”, or “All customers who purchased handbags”.
Within each of these levels, segments describe common qualities among a group of customers that correlate with (but don't necessarily cause) certain behaviors.
There are a couple of reasons to segment your customers and they have to do with the two main functions of marketing: to improve customer acquisition and to improve customer retention. As we think about segmentation, keep in mind that the goal of any form of segmentation should be to have a better understanding of our customers so that we can improve acquisition and so that we can improve customer retention.
Imagine a spectrum of customer differentiation ranging from the entire customer base (no differentiation at all) to complete personalization (differentiation on the individual level). Segmentation lies somewhere in the middle of this spectrum.
If most of the customers who come in from Facebook tend to buy certain types of products, you will want to alter the way you advertise on Facebook. Your advertising should highlight the part of your business that will resonate most with a prospective customer. Segmentation will help you identify how groups differ and how your acquisition strategy should change going forward.
Segmentation allows you to tailor your retention and conversion marketing campaigns (via email, promotions, or other channels) to specific customer segments. For example, instead of blasting the same “Sale” message to all of your customers, you can send customized messages promoting “Sale on Men Shoes”, “Sale on Women Shoes”, and “Sale on Kids Shoes” to customers who previously bought relevant products or have otherwise expressed interest in relevant product segments.