Customer segmentation, or market segmentation, at a basic level, is the partitioning of a broad range of potential customers in a given market into specific subgroups of customers, where each of the subgroups contains customers that share certain similarities. The following diagram depicts the formal definition of customer segmentation where customers are identified into three groups:
Illustration depicting customer segmentation definition
Customer segmentation needs the organizations to gather data about customers and analyze it to identify patterns that can be used to determine subgroups. The segmentation of customers could be achieved through multiple data points related to customers. The following are some of the data points:
- Demographics: This data point includes race, ethnicity, age, gender, religion, level of education, income, life...