Product Management

15 Customer Segmentation Examples for Product Managers

Is there a mistake in the title? Customer segmentation is mostly used by Marketers, not Product managers, right? 

Wrong!

Segmenting customers is the cornerstone of any successful product management strategy. If your goals as a product manager are to increase engagement with the end users & ease buy-in from the buyers, you will inevitably end up segmenting your audience. Because without these distinct groups that share characteristics, behaviors, and needs, you can’t build your product roadmap. 

This article looks at 15 such Customer segmentation examples for Product managers. At times, there could be an overlap with how the Marketing function segments the audience but there is a nuanced difference in how Product managers should do it. Because the end goal for product managers is to identify the product strategy & direction. We will also briefly talk about the kind of mistakes that Product managers usually make, while segmenting the customers.

What is Customer Segmentation?

Segmentation is the process of classifying elements based on their underlying characteristics. By extension, you are segmenting your customers when you are trying to ‘classify’ them in different clusters based on their traits that are relevant for your use case. The traits could be demographics, psychographics or anything that is tightly coupled with your product/service (e.g. role in your product, feature usage, frequency of use & so on). 

Customer Segmentation Methods

Below, we discuss some very common customer segmentation methods used in the industry. However, do keep it in mind that the list is of course not exhaustive. In fact, Product managers would find these methods lacking in nuance (in some respects) for their needs.

  • Demographic Segmentation: Simplest of all. Just divide the target audience based on various demographic attributes such as age, gender, income, education, occupation, marital status etc.
  • Psychographic Segmentation: This one goes a bit deeper into the human behavior territory. When you classify the audience around their interests, values, attitudes, and personality traits, you are doing their psychographic segmentation.
  • Behavioral Segmentation: This type of grouping may feel like overlapping with a psychographic one, however there is a difference. This one entails grouping customers based on their purchasing behavior, usage patterns, brand interactions, loyalty, and readiness to buy.
  • Geographic Segmentation: Sibling of the demographic segmentation. When we group the audience by their geographic location, including country, region, city, climate, and urban/rural areas – it is an example of geographic segmentation.
  • Firmographic Segmentation: Relevant for B2B businesses, this method involves segmenting contacts based on their associated companies. Here, attributes of the company in question such as company size, industry, revenue, and organizational structure are taken into account.
Customer Segmentation Methods

15 Customer Segmentation Examples for Product Managers

For Product managers, underlying characteristics for customer segmentation usually depend on the type of product/service they are responsible for. For example, if the product is a sport shoe brand, then the corresponding segmentation can be based on the Gender, Age, Sport & so on.

Here, we look at such examples with additional context around the product/service in question.

  1. Age-based Segmentation: A clothing retailer may divide its customers into segments based on age. So teens, young adults, middle-aged, and seniors are the segments they will keep an eye on.
  2. Lifestyle Segmentation: A fitness app may segment users into groups based on their fitness goals. For example, weight loss, muscle building, or marathon training, offering personalized workout plans and nutrition advice.
  3. Purchase History Segmentation: Any e-commerce platform you have used is already doing this. They are putting you into different buckets based on your past purchase behavior to create segments such as frequent buyers, first-time shoppers, high-spending customers & so on. This is then used to send targeted promotions.
  4. Geographic Segmentation: A tourism agency might tailor their vacation packages based on customers’ geographic locations. Audiences that are living in landlocked areas may be shown ads of beach getaways whereas those on the coastal areas might receive offers for desert safaris.
  5. Usage Segmentation: A software product company can categorize users based on their level of engagement with the product. For example, power users may need different sets of features & capabilities as compared to the casual users.
  6. Socioeconomic Segmentation: A digital first bank will need to target different products to segments with varying income levels. For example, students & low-income users are more apt for basic accounts whereas high net worth individuals should be offered premium services.
  7. Life Stage Segmentation: Have you seen an insurance provider recommending different insurance products to customers based on their life stages? Such as life insurance for a young individual who has recently joined the workforce and retirement planning services for senior citizens.
  8. Psychographic Segmentation: A luxury brand such as Rolex watches will identify segments of users who value status and exclusivity over those who prioritize sustainability. This will help them develop their product line accordingly.
  9. Channel Preference Segmentation: A product manager at an omnichannel retailer may analyse customers’ preferred shopping channels to build the experiences accordingly.
  10. Tech-Savvy Segmentation: Apple, a consumer electronics company targets tech enthusiasts with cutting-edge products such as Vision pro whereas the rest of the world is still focused on iphones & macbooks.
  11. Seasonal Segmentation: An online grocery store will try to compose its shelf depending on the seasonal availability & demand of different fruits & vegetables.
  12. B2B Industry Segmentation: A software-as-a-service (SaaS) company may focus on various security audits & compliances if it serves the regulated industry such as Finance, Health, Aviation etc.
  13. Brand Loyalty Segmentation: Look at the Genius loyalty program by Booking.com. It segments users based on their usage frequency & graduates them into various Genius levels, eventually getting them more discounts & better offers. This is a classic case of customer facing segmentation used to improve retention & engagement.
  14. Value-Based Segmentation: A grocery store located in an upscale residential area with health-conscious consumers may focus more on organic & premium products rather than budget-friendly items.
  15. Referral Segmentation: Based on the age of the user & their usage of the service, a new OTT platform service may identify a segment of customers who are likely to refer friends and family, incentivizing them with referral bonuses or discounts.

How to do Customer Segmentation?

As a product manager if you are just getting started with the process of Customer segmentation, here are the steps involved –

  • Gather Data: You can start with a hypothesis around who your customers are. However, the actual segmentation can only be confirmed if the relevant information is being gathered about the target audience. So, collecting the data points really becomes your starting point.
  • Identify Segments: Start with your initial hypotheses & see if the collected data fits the assumptions. This is an important step. Without the hypothesis, one can segment the data in thousands of ways without really gaining much out of it. Look for patterns, similarities & differences that can guide your segmentation strategy.
  • Define Segment Characteristics: Develop detailed profiles for each segment & document them. The detailed profiles should include key characteristics, needs, pain points, and behaviors to better understand and target the audience effectively.
  • Influence Product Roadmap & Positioning: Use the segments to influence your product roadmap & position the product/services accordingly. Of course, do this for your top paying segments first & then move on to the next one. 
  • Test and Iterate: Continuously monitor and evaluate the effectiveness of your segmentation strategy, experimenting with different approaches and refine your segments based on feedback and results.

Customer Segmentation Mistakes to Avoid

Mistakes to avoid in Customer Segmentation
  • Over-Segmentation: Teams who start without initial hypotheses end up in this trap. Creating too many segments leads to irrelevant complexity and spreads your resources too thin, making it challenging to effectively target and serve each group.
  • Ignoring Data Quality: Capture all the relevant information without fail. Building up your analyses on incomplete or inaccurate data can result in flawed segmentation.
  • Static Segmentation: Like it or not, customer preferences and behaviors evolve over time. Failing to account for these changes will keep your segments static leading to stagnation and missed opportunities.
  • Neglecting Uncommon Segments: While focusing on the largest segments may seem logical, neglecting smaller or niche segments with unique needs and preferences can result in missed revenue and loyalty opportunities.
  • One-Size-Fits-All Approach: Treating all users within a segment as homogeneous overlooks individual differences and preferences, leading to generic experiences that may fail to resonate.
  • Lack of Integration: Customer segmentation should inform and integrate with other business functions such as marketing, sales, and product development to ensure alignment and consistency across the customer journey.

So the next time your marketing team talks about the Customer segments, chime in. Customer segmentation as a process is owned by all customer facing functions, including Product management.

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