Customer segmentation is a very basic component of most modern marketing strategies. The process involves dividing a customer base into groups of individuals who are similar in specific ways that matter in the context of your marketing programs.

You can use segmentation to target groups effectively and allocate marketing resources appropriately. A recent SAS white paper covers two types of segmentation worth considering:

1. Foundation segmentation creates core segments that you will use to deliver consistent customer treatments and to create focus for your long-term strategy. All customers must be included, and each customer can fall into only one segment. Segments can also be subdivided into natural clusters, such as geography or level of profitability. Key attributes of foundation segments include value, profit, attrition, risk, demographics, etc. If you are introducing a new product, where no segmentation exists, foundation segmentation would be the primary method of segmenting for the initial marketing campaigns.
2. Targeting segmentation identifies customers with specific needs and preferences. Not all customers may be included in targeting segments, and each customer may fall into multiple segments. This segmentation is useful for specific marketing programs and campaigns. For example, identifying a targeting segment that is most likely to respond positively to a specific campaign or identifying customers most likely to leave for a competitor. Attributes include behavior, time periods, account status, usage, etc. It is focused on short-term marketing activities, not on long-term relationship building.

To go beyond foundation segmentation to targeting segmentation, you need more advanced analytics. The difference will pay off in your ability to execute more effective, sophisticated campaigns with messages and offers that are highly relevant to recipients. The paper, A marketer's guide to analytics more clearly describes the benefits you can see with targeting segmentation. It also includes examples and case studies that show improved outcomes and marketing ROI, and a useful section on how to apply predictive models to your marketing strategy.