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What is customer segmentation and how is it used in analytics?
Customer segmentation groups customers by shared characteristics or behaviour, such as spend, frequency, product mix or industry, so you can tailor marketing, pricing and service. It shows which groups drive profit and which need attention. Start with simple rules based on value and recency.
Segments can be rule-based, like top 20 percent by revenue, or discovered with clustering techniques.
To be useful, segments should be:
- Understandable to staff
- Stable enough to act on
- Linked to different actions
Start with simple rules based on value and recency. More sophisticated methods help when you have rich behavioural data. Review segments periodically, because customers move between groups as behaviour changes. Name segments in plain business language so staff remember and use them.
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