Customer Segmentation Strategy: A 6-Step Guide to Execution

According to the 2024 State of CX Personalization Report by Medallia, customers who go through very personalized experiences rate their overall satisfaction as 9.4 out of 10. By developing a customer segmentation strategy, you can build the right segments, analyze their behavior, and set tactics to reach them through tailor-made initiatives.

In this article, we’ll explore definitions, customer segmentation models, benefits, and how to design a customer segmentation strategy that boosts product engagement. Let’s begin.

TL;DR

• Customer segmentation is the act of grouping customers based on shared characteristics, such as purchasing behavior, values, or location.
• Customer segmentation differs from market segmentation as it focuses on dividing existing customers, while market segmentation separates the entire available market.
• There are different types of customer segmentation, including:
  – Demographic—age, gender, income, marital status, etc.
  – Geographic—location, climate, and language.
  – Behavioral—usage, purchase history, and loyalty.
  – Psychographic—psychological traits, values, hobbies, and lifestyle.
  – Technographic—preferred device and operating system.
  – Firmographic (for B2B)—company size, industry, and annual revenue.
  – Needs-based—feature needs, pain points, motivations, and issues.
• A customer segmentation strategy is a systematic approach to building and analyzing customer segments while using tactics to achieve goals.
• Benefits of customer segmentation strategies include:
  – Improved customer experience.
  – Increased customer retention.
  – Better product development.
  – Targeted marketing strategy.
• Follow these steps to create an effective customer segmentation strategy:
  1. Set customer segmentation goals.
  2. Collect customer data.
  3. Segment your customers.
  4. Implement tactics based on goals.
  5. Track customer segments’ behavior.
  6. Improve the strategy based on insights.
• Examples of customer segmentation strategies include:
  – Building personalized onboarding plans for new customers.
  – Improving satisfaction among existing customers by adding in-app communication.
  – Triggering proactive support based on real-time data to simplify product adoption.
• Customer segmentation software recommendations:
  1. Userpilot to build personalized user experiences and track segment performance.
  2. HubSpot to segment email lists and build targeted marketing campaigns.
  3. Qualtrics to separate users into groups based on feedback survey answers.
• Track customer behavior, build segments, launch in-app initiatives, and analyze their performance with Userpilot. Get a demo.

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What is customer segmentation?

Customer segmentation is the process of grouping customers based on shared characteristics that allows you to provide them with personalized experiences.

For example, segment customers based on their purchasing behavior so you can present each group with exclusive offers that match their buying habits.

Customer segmentation vs market segmentation

Customer segmentation is a subset of market segmentation.

Market segmentation separates the entire market based on similar characteristics, usually for market validation, whereas customer segmentation divides your existing customer base into smaller segments.

Types of customer segmentation

Choosing the right segmentation types for your strategy

To build an effective strategy, you must first decide which data points matter most for your goals. Most SaaS companies use a combination of these core segmentation types:

• Demographic: Groups users by personal traits such as age, gender, occupation, or income.
• Geographic: Focuses on physical location, language, and regional preferences to localize the experience.
• Psychographic: Targets psychological traits, including values, interests, and lifestyle.
• Behavioral: Analyzes how users interact with your product, including feature usage and purchase history.
• Technographic: Groups users by their tech stack, device type, or preferred operating system.
• Firmographic: (B2B) Segments accounts by company size, industry, and annual revenue.
• Needs-based: Focuses on specific pain points and the unique problems users are trying to solve.

Choosing the right framework depends on your product’s complexity. For a complete breakdown of which type fits your business, see our guide on customer segmentation models.

What is a customer segmentation strategy?

A customer segmentation strategy is a systematic approach to identifying different customer segments, analyzing their behaviors, and creating an action plan that allows companies to personalize the customer experience.

Business benefits of implementing a segmentation strategy

These are the key benefits of a customer segmentation strategy:

Now, let’s see how an effective strategy leads to these business outcomes:

• Improved customer experience: Analyzing how each segment reacts to your strategy allows you to tailor interactions based on specific needs and preferences.
• Increased customer retention: Personalizing the journey for each segment makes users feel understood, which can positively impact customer retention. A healthy retention rate allows you to install upselling techniques and generate revenue through customer expansion strategies.
• Better product development: By segmenting customers, you get deeper insights into their pain points. This allows your product team to prioritize features and identify friction points to solve as part of your overall product strategy.
• Targeted marketing strategy: You can use collected data to build more targeted marketing campaigns. For example, determine which content each segment interacts with most and send campaigns in their preferred format.

The STP Model: The framework behind every great strategy

A successful customer segmentation strategy doesn’t exist in a vacuum. To drive real growth, most SaaS leaders use the STP Model—a three-step framework that ensures your product value reaches the right people at the right time.

Segmentation: First, you divide your entire user base into smaller groups based on shared characteristics (e.g., behavioral patterns or pain points). This is where you move from “one-size-fits-all” to data-driven clusters.

Targeting: Next, you decide which of those segments offer the highest ROI. Instead of trying to please everyone, you focus your resources on the segments most likely to convert, expand, or stay loyal.

Positioning: Finally, you tailor your product experience and messaging to solve the specific problems of your target segments. In SaaS, this often means triggering personalized in-app flows or custom feature tours that highlight the most relevant value proposition for that specific user.

By following the STP framework, your segmentation strategy moves beyond simple data organization and becomes a repeatable engine for driving product adoption.

A step-by-step guide to creating an effective customer segmentation strategy

Let’s explore the six steps to creating an effective customer segmentation strategy.

Step 1: Set customer segmentation goals

Determine how you’ll measure your strategy’s performance by setting goals. However, your goals shouldn’t just be a list of metrics; they should align with your current business lifecycle.

For example, an acquisition-heavy strategy focuses on trial-to-paid conversion by segmenting users based on their “Job to be Done.” Conversely, a retention-first strategy prioritizes long-term customer retention by segmenting existing users based on health scores and expansion potential.

Examples of business objectives include:

• Improve retention rate by offering a more personalized customer experience.
• Optimize marketing efforts and spending by focusing on the most responsive segment.
• Personalize product recommendations based on segment-specific preferences and behavior.
• Increase customer loyalty by catering to your users’ needs.
• Improve the free-to-paid conversion rate by personalizing your onboarding.

Some KPIs you can use are:

• Retention rate.
• Customer satisfaction score (CSAT).
• Net Promoter Score (NPS).

Step 2: Collect customer data

Adopt qualitative and quantitative collection methods to gather customer data. Quantitative data tell you what your user does, but qualitative insights explain why they behave in such a way.

You can get quantitative data by looking at your product analytics by conducting usability tests, or in-app event tracking.

Usually, to collect qualitative data, you’ll need to conduct user surveys, interviews, or focus groups.

Step 3: Segment your customers into groups based on data

Once you’ve collected the information, you’ll need to analyze customer data to segment customers. You can adopt any type of customer segmentation mentioned above.

Examples of customer segmentation can look like this:

• Disengaged customers who answered 3 or less in the customer satisfaction score (CSAT) survey.
• New accounts of over 500 users.
• Loyalty segmentation based on net promoter score (NPS) survey answers.
• Active customers who use your product at least four times a week.
• New customers who use your product primarily for the task automation feature.

Step 4: Implement different tactics based on the goals

Now that you’ve built your segments, define which tactics you’ll use to achieve your goals. For example, if your goal is to improve your free trial conversions, a useful tactic could be to trigger personalized flows based on their welcome survey answers.

Some other tactics include:

• Building personalized email marketing campaigns to drive users back into the app.
• Offering a direct line of communication to unsatisfied customers.
• Triggering in-app walkthroughs for the first time a customer uses a feature.

Step 5: Track how different customer segments behave

Now, it’s time to track and analyze the impact of your tactics on each of your customer segments. Use product analytics to understand user behavior and determine whether your initiatives are working.

Some example reports include:

• Trends report. Track how different segments perform specific events over time to identify patterns.

• Funnel report. Track how your segments move across the funnel and identify any friction points that cause them to abandon the flow.

• Path report. Visualize different paths segments take within your product.

• Retention report. Discover how well you manage to retain different segments.

Step 6: Improve your strategy based on insights

Your strategy, like your product, will likely go through many iterations. This will guarantee that it works. So, make sure to conduct analyses to determine which actions are helping you reach your goals. Then, make improvements based on the gathered insights.

For example, imagine your onboarding flow is confusing for 30% of new accounts. They say that the instructions aren’t clear to them. You’ll only be able to offer an improved experience after iterating on your guidelines and making them easier to understand for this segment.

Another example could be that you launch a new feature to a particular customer segment but only 3% of users interact with the said functionality. This data shows that you need to conduct further research and determine why that’s happening. After, you may need to reevaluate the users in that segment or change your communication strategy.

Examples of customer segmentation strategies

You’ve seen how to build a customer segmentation strategy, now let’s see examples of how these come to life. While the strategies below focus on high-level goals like retention and onboarding, you can find a broader gallery of specific personas in our list of customer segmentation examples.

Create personalized onboarding for new customers

This strategy uses a welcome survey to categorize users the moment they sign up. By assigning newcomers to segments based on their goals or experience level, you can trigger a journey tailored to their specific needs.

The tactic: Beginners receive an in-depth, step-by-step guide, while power users are fast-tracked with a short app walkthrough.

The goal: Win customers from the start by showing value quickly and respecting their time.

Improve customer satisfaction among existing customers

Since it’s more cost-effective to retain customers than to acquire new ones, this strategy focuses on maintaining high satisfaction levels throughout the lifecycle.

The tactic: Segment users who leave poor feedback or have high support ticket volume. Reach out directly to solve their issues or trigger proactive in-app tooltips to guide them through friction points.

The goal: Build strong connections and increase long-term customer retention.

Trigger proactive flows based on real-time data

This strategy utilizes auto-capture functionality to respond to user behavior as it happens. By monitoring real-time interactions, you can provide help before a user even realizes they need it.

The tactic: Automatically trigger in-app tips or redirect users to a self-service resource center if they struggle with a specific task or make repeated errors.

The goal: Reduce friction in the user experience and drive higher feature engagement.

You can also offer proactive customer service and redirect the user to self-service resource centers or tutorials that solve their current issues. For example, include a resource center button at the bottom of the page that’s accessible at all times.

Looking for more? Browse our full gallery of 19 customer segmentation examples for a deeper look at specific use cases across the SaaS industry.

Common pitfalls in customer segmentation strategy

Even the best-laid strategies can fail if they aren’t managed correctly. To ensure your segmentation remains actionable, avoid these three common mistakes:

1. Over-segmentation

It is tempting to slice your data as thinly as possible, but creating too many segments leads to “analysis paralysis.” If a segment is too small to receive a unique, automated experience or a dedicated marketing campaign, it probably shouldn’t be a standalone segment.

2. Static segments

Customer behavior is fluid. If your segments don’t update in real-time based on in-app actions, you’ll end up sending “Welcome” messages to power users. Ensure your strategy relies on dynamic segments that evolve as your users progress through the lifecycle.

3. Data silos

A segmentation strategy is only as good as the data feeding it. If your product usage data isn’t synced with your CRM or email tools, your segments will be inconsistent across different touchpoints, leading to a fragmented customer experience.

Customer segmentation software that can help you drive retention

To segment your customers efficiently and systematically across time, you’ll need a customer segmentation tool. Here are three that we recommend:

1. Userpilot: Best for creating a personalized user experience

Userpilot is an all-in-one, no-code product growth platform. It allows you to segment your customers, build personalized product experiences, and track how users behave with its analytics.

With Userpilot, you can:

• Add different properties and conditions to segment customers.
• Analyze how different customer segments behave.
• Auto-capture real-time engagement for customer segments.
• Launch surveys for different segments to gather user feedback.
• Create flows for different segments.
• Do A/B testing.

To create a new segment in Userpilot, simply go to the ‘People’ tab and click ‘Create a new segment’.

With Userpilot, you can also add conditions to build specific segments.

2. HubSpot: Best for segmenting your email list

HubSpot is a customer platform powered by AI. It offers solutions for different areas of the business, such as marketing, sales, and operations. When it comes to customer segmentation, HubSpot allows you to launch targeted email marketing campaigns.

If you integrate HubSpot with Userpilot, you can send more targeted emails by using the customer segments you had previously defined in Userpilot.

3. Qualtrics: Best for segmenting customers based on survey data

Qualtrics is a customer segmentation research tool that allows you to launch studies and surveys and segment customers based on their answers.

You can also choose how to communicate with each segment based on their preferences. It also comes with AI and machine learning functionality that suggest segmentation ideas.

Conclusion

You can make your users feel more engaged and loyal to your brand by implementing a customer segmentation strategy. Through this customer segmentation process, you can analyze the performance of each of your segments towards KPIs and define tactics to wow them with a highly personalized user experience.

However, to execute a good strategy, you need the right tools. Userpilot is a no-code, all-in-one solution that lets you track your customers’ behavior in real time, build segments, launch in-app initiatives, and track their performance—all in one place. Get a demo.

Try Userpilot and Take Your Customer Segmentation Strategy to the Next Level

Get a Demo

• 14 Day Trial
• No Credit Card Required