Customer segmentation — targeted marketing made simple.

Adobe Experience Cloud Team

04-21-2023

A man in a brown jacket using a laptop in a modern office, with a floating customer segmentation chart showing 95K people categorized into new members, frequent shoppers, and VIP members.

Customer segmentation involves grouping customers based on specific characteristics, such as demographics or behavioral metrics, using data from online and offline sources.

On this page, you’ll learn:

What is customer segmentation?

Customer segmentation is the process of dividing a customer base into smaller groups, or segments, based on shared characteristics such as purchasing behavior, demographics, or psychographics. It allows businesses to craft marketing campaigns and strategies tailored to each segment’s unique needs and preferences, rather than relying on generic messaging.

Unlike market segmentation, which focuses on broader market characteristics, customer segmentation homes in on a company’s existing customers. This makes it a critical tool for improving personalization and enhancing the customer experience.

By using segmentation data to build detailed buyer personas, businesses can better understand customer motivations, address pain points, and deliver messages that resonate — ultimately fostering loyalty and improving retention.

Benefits of customer segmentation.

The growing demand for personalized experiences has made customer segmentation more important than ever.

A 2022 Adobe Trust Report highlights this shift: 58% of customers stop purchasing from brands that fail to provide personalization, underscoring the importance of tailoring experiences to meet customer expectations.

How is customer segmentation different from market segmentation?

While both strategies involve dividing groups based on shared traits, they differ in focus and scope:

In an era where personalization drives business success, customer segmentation has become a priority for modern companies.

How do you target the right customers?

Targeting customers effectively begins with gathering accurate data and leveraging the right tools, such as data management platforms (DMPs) and customer relationship management (CRM) systems.

Steps to target the right customers:

  1. Data collection: Gather data on both visits (engagement metrics) and visitors (demographics and lifestyle).
  2. Segmentation goals: Define which customer attributes or behaviors to target.
  3. Analytics evaluation: Use analytics tools to track performance, ensuring the right audience is being reached.

Example in practice:

A company identifies that monthly visitors to their site are less engaged than daily visitors. By analyzing demographic and behavioral data, they design a personalized promotion to encourage more frequent purchases, increasing engagement within this segment.

Types of customer segmentation.

A diagram titled Types of customer segmentation, featuring three blue circles labeled demographic segmentation, behavioral segmentation, and psychographic segmentation, connected in a triangular layout.

Customer segmentation can be broken into three key types, each offering unique insights:

Challenges in customer segmentation.

Despite its benefits, customer segmentation presents several challenges:

  1. Data limitations: Many companies lack sufficient first-party data or rely on outdated information, making accurate segmentation difficult. For example, a segment initially targeting single users aged 18–24 may become irrelevant as the audience ages and transitions into a new demographic group.
  2. Resource constraints: Organizations often lack the necessary tools or skilled personnel, such as data analysts, to fully utilize segmentation strategies.
  3. Failure to act on insights: Even when segmentation data is available, businesses may not apply it effectively, leaving potential opportunities untapped.

How to overcome these challenges:

For example, a clothing retailer targets “young urban professionals” but relies on outdated demographic data. Over time, this segment evolves into a mix of married couples and mid-career professionals, leading to irrelevant campaigns that fail to resonate. Updating the segmentation based on purchase behavior and lifestyle changes allows the company to refine its strategy, increasing relevance and campaign ROI.

Practical applications of customer segmentation.

Customer segmentation is a powerful tool for improving marketing strategies and enhancing operational efficiency.

Examples include:

Segmented strategies also drive loyalty by personalizing customer experiences, helping businesses stay ahead of competitors.

Can over-segmentation be a problem?

Yes, overly narrow segments can limit reach and lead to missed opportunities.

Key considerations:

The future of customer segmentation.

Advances in AI and machine learning are revolutionizing customer segmentation. These technologies are enabling businesses to:

With these developments, segmentation will continue to evolve, becoming more precise and effective in delivering personalized experiences.

Example:

Retail companies are leveraging AI-driven tools to create dynamic segments, such as grouping customers based on real-time shopping behavior during sales events. This allows personalized recommendations to be updated instantly, driving higher conversions during short-term campaigns like Black Friday.

Getting started with customer segmentation.

To begin, gather data on customer interactions through purchase history, surveys, and analytics tools. Define segmentation goals and use this data to create meaningful segments that personalize the customer journey.

Adobe Target is a personalization solution that provides AI-powered testing, personalization, and automation to help you understand what customers want and deliver those experiences at scale.

Watch the Adobe Target overview video to learn more.