What is customer segmentation?

Customer segmentation involves dividing customers into distinct groups based on shared characteristics, preferences, or behaviors, which allows marketers to tailor their marketing strategies effectively. This practice enables businesses to identify and understand different customer segments within their overall audience, allowing for more personalized marketing efforts that resonate with each group's specific needs and preferences.

By using segmentation, businesses can develop targeted marketing campaigns that speak directly to the interests and motivations of each group, leading to higher engagement and conversion rates. For example, a company might segment its customers based on demographics, purchase history, geographical location, or psychographics, thereby facilitating customized messaging and product offerings.

Other options, while relevant to marketing strategies, do not capture the essence of customer segmentation. Analyzing customer spending habits could be a part of the segmentation process but doesn't itself define what segmentation is. Creating loyalty programs and implementing direct marketing strategies can be tactics used after segmentation has occurred, but they do not represent the fundamental concept of dividing customers into distinct groups based on their characteristics.