Articles

Beyond Demographics:

Exploring Effective Customer Segmentation Methods

2022/08/24

Image by Mohamed Hassan via Pixabay


Three Customer Segmentation Methods: Alternatives to Demographic Data

We've discussed the importance of demographic data and how surveys and other tools can help market researchers obtain customer information. There are other data points that can be beneficial for marketing purposes. This data can be easily collected through the same methods as demographic data. 

These data points are geographic, psychographics, and behaviour variable data. Together with demographic data, these are often referred to as 'customer segmentation methods'. We'll discuss each of them in this article.​​​​
 

What is geographic data?

Geographic data is a kind of data that revolves around a target customer's location, be it their residence, workplace, school, etc. The most common purpose for this data type by businesses is to indicate where to open up a new branch or physical outlet for their business.

Convenience stores, banks, and restaurants are but a few of the businesses which utilise geographic data in combination with demographic data to determine where best to physically position themselves relative to their potential customers.
 

Examples of geographic data use

Here are some examples of geographic data in use at several businesses, including some of the more recent innovations:

  1. Company A, which operates coffeehouses, chooses to open a new outlet in a recently built office building that already has several tenants.
  2. Company B, which operates several pet shops, has a Google My Business page, and uses Google Ads to target users located near their stores who are searching for 'pet shops near me'.

What is psychographic data?

Psychographic data is a type of data that provides businesses with information on their target customer's values, personalities, and lifestyles.

With today's diversified customer needs, people's tastes and needs are subdivided. Psychographic analysis is becoming more important since customer choices increase as the market grows and matures. 

Specifically, psychographic analysis can be performed from obtaining data on the following elements:

  • Lifestyle: Outdoor activities, prefers to stay indoors
  • Personality: Extraversion, agreeableness, neuroticism, openness to experience, integrity
  • Hobbies: Reading, jogging, surfing the internet, keeping pets

To collect psychographic data, it is common to conduct a survey and perform a cluster analysis, which is a method of extracting similar data from the entire dataset and grouping them.
 

Examples of psychographic data use

The following are several examples of psychographic data use cases:

  1. Company C is experiencing a downtrend in revenue for their fair-trade coffee. After conducting some survey sampling research, Company C discovered that its current customer base is concerned with the company's use of plastic packaging, and feels that the company's products are not in line with their values.
  2. Company D is trying to build a customer profile for their luxury hotel chain brand's online ad campaign. Through Google Analytics, they find that most of the customers who book into their hotels tend to use Instagram and are vegans.

What are behaviour variables?

Unlike the other types of data mentioned in this article, behaviour variables data tend to be used not to build customer profiles, but to directly influence existing customer behaviours. 

These data are often utilised with the intention of increasing sales without increasing the number of customers.

Some behaviour variables can be seen in the following, often focusing on the differences between light users and heavy users. 

  • Past purchasing experience: Yes, No
  • Frequency of use: 2-3 times a week, once a week, 2-3 times a month, once a month, at least once every few months
  • Benefits to focus on: Quality, cost performance, appearance, convenience
  • Purchasing decision-maker: Person in charge, general manager, president
     

Examples of behaviour variable use

Some examples of behaviour variable use can be seen below:

  1. Company E produces a soap brand that most customers only buy one product, once a month. To increase sales, Company E decides to engage in a bulk-buy promotion, which resulted in one customer buying an average of four products per month, to be used by the entire household.
  2. Company F operates a subscription-based accounting software business. Most of its customers tend to buy subscriptions on a monthly basis. To increase sales, Company F offers a yearly discounted rate that results in most of their customers subscribing to their service on a yearly basis.

Summary

Aside from demographic data, there are three other data types that are of no less importance in marketing: geographic, psychographic, and behaviour variables data. Any of these kinds of data can be used for your business - and in most cases, all four combined would give you the competitive advantage needed to increase your market share.

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