Customer Segmentation: The Ultimate Guide for SaaS Companies
Customer segmentation is essential for engaging users effectively.
Our ultimate guide discusses the specific benefits of customer segmentation and its different types.
More importantly, it shows how to segment your users and deliver personalized experiences. It also introduces tools that you can leverage to facilitate the process.
Let’s get right to it!
- Customer segmentation involves dividing customers into groups based on shared characteristics, like age.
- Customer segmentation focuses on existing customers and aims to enhance their experience, while market segmentation addresses the broader market context to target new customers.
- Segmentation enables businesses to understand the unique characteristics of various customer groups, allowing them to tailor the user experience to each segment’s distinct needs and preferences, enhancing overall satisfaction.
- Boosting customer satisfaction leads to higher brand loyalty and increased user retention.
- Effective customer segmentation also identifies opportunities for account expansion.
- Demographic segmentation categorizes customers based on factors like age, gender, income, or occupation.
- Primarily used in B2B contexts, firmographic segmentation classifies customers by attributes such as industry, company size, number of employees, or revenue.
- Behavioral segmentation divides users based on in-app behavior and product usage patterns.
- Psychographic segmentation groups customers based on psychological characteristics such as personality traits, lifestyle, social class, attitudes, values, and beliefs.
- In technographic segmentation, you divide customers based on technical data such as their device type or the operating system.
- Needs-based segmentation takes into account customer pain points, needs, and wants.
- Begin the customer segmentation process by establishing clear objectives that will guide your segmentation efforts.
- Use various data collection methods such as surveys, product analytics, and user interviews to gather the necessary information about your customers, their behavior, and preferences.
- Next, segment your customers along the criteria that align with your segmentation goals.
- Once segments are created, analyze the behavior of each group to gain insights into their preferences, pain points, and interactions with your product.
- Finally, act on the insights by implementing personalized in-app marketing strategies to engage and guide particular segments.
- Tools like Userpilot, HubSpot, and Google Analytics offer advanced segmentation features that allow businesses to create customer segments effectively.
- Want to see how good Userpilot segmentation is? Book the demo!
What is customer segmentation?
Customer segmentation is the process of dividing customers into groups based on shared characteristics.
For example, a SaaS company may segment customers based on their age, location, the device they use, or their role in the company.
Segmentation allows businesses to better understand their customer base and develop targeted marketing campaigns and tailored product experiences. It also helps them to identify potential growth opportunities.
Customer segmentation vs. market segmentation
Market segmentation and customer segmentation, though related, serve different purposes.
Customer segmentation is about dividing a company’s current customers into distinct groups that share similar characteristics like JTBDs or in-app behavior to enhance their experience and boost the product’s usage and adoption.
On the other hand, market segmentation is a marketing strategy that involves segmenting the entire market, not just the existing users. It’s about identifying distinct segments within a broad market context that share similar needs, preferences, or characteristics.
What are the benefits of customer segmentation?
Customer segmentation is essential if you’re serious about developing product experiences that satisfy customer needs and creating strong customer relationships. It also enables teams to optimize their marketing efforts to maximize expansion opportunities.
Create a personalized customer experience for different segments
The odds are that your customer base is far from homogenous. In many cases, it consists of at least a couple of distinct groups with unique pain points, needs, and preferences.
Improve customer loyalty and satisfaction
Providing a personalized experience increases customer satisfaction.
That’s because the product helps them achieve their objectives easily and in less time without distracting them with unnecessary information or features. It also sends a powerful message to the users that you care about their success.
Increase upsells and customer lifetime value
The better the retention rate, the higher the customer lifetime value. That’s a no-brainer.
However, customer segmentation allows you to boost the CLV even more by helping you identify and maximize account expansion opportunities.
For example, by segmenting customers based on product usage patterns, the product marketing team can identify customers who are likely to upgrade their current product and use the insights to upsell them with personalized offers.
What are the different types of customer segmentation?
There are a number of popular customer segmentation models that use different criteria to group users. Let’s look at a few of them.
Demographic segmentation is used by B2C businesses and classifies customers based on factors like age, gender, income, or occupation. It also includes geographic segmentation where you group customers based on their location.
This data can be used to develop targeted marketing campaigns and products that are tailored to the specific needs of certain customer groups.
Firmographic segmentation is the counterpart of demographic segmentation in the B2B context. It groups customers based on properties like the industry, size, number of employees, or revenue.
Just like demographic segmentation, it’s used to tailor products to specific needs and optimize marketing messaging to resonate with the target audience.
Behavioral segmentation divides users based on their in-app behavior and product usage patterns. For example, you could segment your users into two groups, those who have completed an event and those who haven’t.
Psychographic segmentation groups customers based on psychological characteristics like personality traits, lifestyle, social class, attitudes, values, and beliefs.
This type of segmentation helps organizations understand the motivations that drive their behaviors, buying patterns, or preferences. Consequently, they can create more accurate user personas, develop better products, and optimize their positioning and differentiation strategies.
Technographic segmentation uses technical data to divide users. For example, this could be the device type they use, the platform or operating system, or their browser.
Understanding what technology users use to consume the product or content allows teams to optimize their user experience and enhance product usability. For example, you could optimize the visuals or app navigation so that mobile users can easily use it.
It will also enable you to personalize their onboarding experiences so that they can easily discover the features that are relevant to their use cases, while your marketing colleagues will be able to highlight them in their marketing messaging for prospective customers.
How to create a customer segmentation strategy?
Building a customer segmentation process consists of 5 steps.
First, you set goals, then collect data and use it to segment customers. Next, you analyze individual segment data for insights and use them to personalize the customer experience.
Let’s look at each of the steps in a bit more detail.
Define your business goals and priorities
Setting clear goals will be the basis for the customer segmentation model you develop. It will help you choose the right kind of segmentation and, consequently, the best ways to collect the data.
Imagine that your goal is improving onboarding to reduce time to value. To achieve this, you could use technographic segmentation to optimize the usability and ease of use on different device types.
Needs-based segmentation, on the other hand, will help tailor the content of the onboarding flows to aid the discovery of relevant functionality.
Collect customer data for creating customer segments
As you’ve decided on the goals of your customer segmentation program, it’s time to collect the data. Common data collection methods include surveys, product analytics, and user interviews.
Surveys can provide a wealth of information that you can tap into for segmentation.
For example, you could use welcome surveys to collect data about customer roles or their JTBDs, while customer satisfaction surveys like NPS can help you identify your power users and most loyal customers. You can also use them to collect information for psychographic segmentation.
In-app surveys are very effective for collecting data from active customers. They use the product on a regular basis, so they’re more likely to respond to the survey. You can easily trigger them at a specific time and place or contextually, for example when a user completes an event.
Email surveys tend to have lower response rates, but they’re the only way to reach inactive users.
In both instances, you can send your surveys to all your users, or to specific segments you’ve created before. This allows you to collect granular data about each user group and create subsegments within each group.
Product and website analytics
They can also provide you with data necessary for demographic and technographic segmentation. For instance, web analytics tools can give you the details of the user’s age, geographical location, or the device they use.
Customer interviews and focus groups
Customer interviews and focus groups are excellent sources of qualitative data.
Such data is of limited use when it comes to actual segmentation because you can’t possibly interview all your customers. It’s simply too time-consuming and expensive.
However, qualitative insights can help you refine and enhance your user segments. You can better understand their needs or motivations by talking to customers from already existing segments. As such, they’re particularly useful for needs-based and psychographic segmentation.
To get the best of your interviews, prepare for them adequately. Always start by defining your goals and only then recruit the right participants and develop the questions.
Segment customers based on the data collected
Once you have the necessary data, segmenting your users with the right tools is fairly straightforward.
Product analytics and customer engagement software allow you to easily organize customer data and group users along multiple criteria, so you can easily tweak your segments according to your customer segmentation project goals.
If you’re using qualitative data for segmentation, you can use natural language processing algorithms to help you sift through the data and discover common characteristics. Likewise, AI and machine learning algorithms can help you spot trends you wouldn’t be able to discover yourself.
It’s generally accepted that you should start with broader segments, for example, based on the users’ company role, and make them more granular as needed by adding new criteria.
Perform customer segmentation analysis to understand customer behavior
Having segmented your users, it’s time to analyze their user behavior for insights that you can leverage to achieve your goals.
What kinds of data analysis you use depends on your objectives.
For example, if you’re looking at improving your product onboarding, you could conduct funnel analysis to see how unsuccessful users have progressed through different stages in the customer journey. This will show you where they came across bottlenecks or dropped off.
To get even more granular insights, you can then analyze their engagement with the onboarding flows and specific features, while session recordings and heatmaps can reveal exactly how they interacted with different UI elements. This will help you uncover where the friction is.
At the same time, you could analyze the paths of successful users with similar use cases to identify the happy path that you can replicate for other users.
Devise targeted in-app marketing strategies for different segments
The final step is about acting on the insights to change user behavior and improve their experience.
Let’s continue with the example above. If your analytics have revealed friction, you can trigger in-app guidance to help users overcome it. For example, you could use a tooltip that will prompt them to engage with a particular feature.
You could also boost the effectiveness of your onboarding by developing a personalized checklist or interactive walkthrough that will make new users emulate the journey to activation of your power users with the same JTBDs.
The best customer segmentation software tools of 2023
When choosing the customer segmentation software for your SaaS, consider what data and properties you can use to segment customers, how well you can analyze the data to extract actionable insights, and whether you can act on it.
Userpilot – ultimate customer segmentation and engagement tool
Userpilot offers very advanced segmentation features. It allows you to create user segments based on:
- User attributes, like name, ID, plan, web sessions, device type, or signup date
- Company data, like size
- Tagged features they have engaged with
- Custom events they’ve completed, both those set in Userpilot and API ones
- In-app experiences they’ve engaged with, like flows or checklists
- User feedback – both quantitative, like NPS scores, and qualitative, like NPS responses
As Userpilot is a product engagement platform, it offers advanced analytics and feedback features so that you can collect the data necessary to create and refine your segments. You can also use the features to analyze the behavior of different segments for insights.
What’s more, you can act on the insights, too, because Userpilot allows you to create in-app onboarding experiences to drive product adoption and engagement.
HubSpot – for creating specific customer segments based on lead scores
HubSpot is a well-known customer relationship management (CRM) platform.
You can use it to segment your users based on their personal and company attributes, like in many other tools and then target them with customized marketing campaigns or approach them through your customer service team.
For example, HubSpot offers features for scoring users that you can use to qualify leads and route them to your sales colleagues. You can also target your segmented users with surveys and use the results to create different segments.
HubSpot integrations expand its segmentation functionality even further. For example, thanks to the Userpilot integration, you can create customer segments based on customer behavior data or target them with in-app messages created in Userpilot.
Google Analytics – for segmenting customers based on in-app and website analytics data
Google Analytics is a powerful and free product and web analytics platform.
It provides teams with plenty of actionable data about their app or website users, which can be used to create customer segments. For example, it’s an excellent source of demographic and technographic data.
You can use Google Analytics to segment user sessions as well as hits, which are individual interactions and completed events.
GA enables you to present the data you’ve collected about each segment in custom reports and analyze it for further insights. For instance, you can carry out funnel analysis to track conversions or cohort analysis to monitor retention across different segments over time.
Customer segmentation is essential for teams from across the organizations.
It enables them to better identify customer needs and deliver personalized product experiences that address them. It also helps to create targeted marketing campaigns that position the product to appeal to different customer groups.
If you want to see how you can leverage Userpilot segmentation features to achieve your product and business goals, book the demo!