The 2 Ways to Segment Customers for Data-Driven Marketing

A Billion Dollar Business

In 2010, Facebook acquired Instagram—a 2 year old company of just 13 employees at the time—for 1 billion dollars.

But why?

Facebook could have easily built and launched a clone of Instagram in the matter of months, if not weeks. So if they didn't care so much about Instagram's technology, what were they interested in?

They were interested in two things:

Users;
Data about those users.

Facebook had a burgeoning advertising business, and they knew that more users, more data about those users, and a new channel for collecting more information about existing users, would enable them to grow their advertising business.

But 1 billion dollars?!

What did Facebook see?

Tell Me Who You Are, and I'll Tell You What You Want

Facebook saw that by understanding different customer segments and their preferences, they could provide personalized advertising that deliver higher returns for advertisers:

A parent who buys diapers once per month can be shown a well placed advertisement right at their normal time to purchase, along with an advertisement cross-selling new toys.
A high frequency, high value hotel visitor can be offered an elite loyalty program.

With personalized advertising, you figure out who somebody is in order to decide what to sell to them. Customer segmentation is how you scale it.

For example, we recently used Customer Segmentation to save an e-commerce company $1M+ in incentive expenditure per year, with no negative impact on purchase volume. Read the full case study here.

In this article, we'll break down customer segmentation into the two fundamental approaches that you can use to enhance your marketing efforts:

Identity-Based Segmentation: Who Are You?
Value-Based Segmentation: Who Are You to the Business?

Each approach offers unique insights and advantages, and when combined, they provide a comprehensive framework for understanding and engaging with your customer base.

Intrinsic Segmentation: Who are You?

Intrinsic segmentation is about the core, observable traits of a customer: the things you'd find on their driver's license, census form, or LinkedIn profile. It's the "who" before the "why."

This includes things like:

Age
Gender
Location
Language
Income level
Education
Household composition
Profession or industry

These characteristics don't change overnight, which makes them powerful inputs for building consistent messaging, targeting strategies, and customer journeys.

Real-World Marketing Actions from Intrinsic Segmentation

Intrinsic data gives you a stable foundation to work from. For example:

Seasonal promotions: Show summer vacation ads to families in warmer climates and ski trips to those in colder regions.
Language-based campaigns: Automatically tailor messaging to customers' preferred language in multilingual markets.
Income-sensitive offers: Promote luxury vs. budget product lines based on household income bands.
Age-based targeting: Promote retirement planning to older professionals and student loan products to recent grads.
Profession-aware content: Target business tools to startup founders, or insurance plans to healthcare workers.

Intrinsic segmentation isn't about stereotyping—it's about surfacing patterns at scale, and making smart bets on what kind of messaging is likely to resonate with different groups. It's one of the simplest ways to move from one-size-fits-all marketing to relevance at scale.

Value Based Segmentation: Who Are You to the Business?

Intrinsic segmentation helps you understand who your customers are on paper. But value-based segmentation helps you understand who they are to you—in terms of revenue, retention, and long-term profitability.

This type of segmentation answers questions like:

How much are they worth?
How often do they buy?
Are they likely to churn?
Are they growing in value—or declining?

Where intrinsic traits are relatively fixed, value-based attributes are dynamic. They reflect a customer's relationship with your business over time. And that relationship is one of your most powerful levers for optimizing marketing performance.

Spending Behavior Based Segmentation

Not all paying customers are equally valuable. Spending-based segmentation groups customers by how much and how often they spend. This can include metrics like:

Purchase frequency
Average order value (AOV)
Total spend to date

This allows you to create high-impact marketing strategies like:

Loyalty and retention campaigns for your top-tier customers—the "whales"—who buy frequently and spend heavily.
Discount bundle offers to high-frequency but low-AOV customers who may be price sensitive, but are ready to spend if the deal is right.

Customer Lifecycle Based Segmentation

Every customer is on a journey. Lifecycle segmentation focuses on where they are in that journey, using signals like:

Customer Lifetime Value (LTV)
Churn Status

By aligning your messaging to a customer's stage in the lifecycle, you can take actions such as:

Streamline onboarding sequences for new customers, designed to build habits and reduce early churn.
Win-back offers for Churned High-LTV customers, such as discounts, reminders, or limited-time bundles.
Surprise and delight moments for loyal, high-LTV customers to reinforce retention (e.g. early access, exclusive perks).

Value-based segmentation ensures you're not treating all customers equally, but treating them appropriately based on their relationship with your business. It helps you allocate marketing spend like a portfolio manager: investing more where the return justifies it, and pulling back where it doesn't.

Real World Marketing Actions from Value Based Segmentation

Ride sharing apps like Lyft and Uber use machine learning to offer precise discounts to Churning customers to reengage their usage of the app.
At Beyond Data Consulting, we helped an e-commerce company reduce $1M in annual marketing expenditure by withholding discounts from a segment of high-frequency, low-churn-risk customers (read the full case study here).
Apple sells a premium AirPods offering—AirPods Pro—to optimize engagement of high LTV, high AOV customers.

Conclusion: Building a Unified Approach to Customer Segmentation

By combining intrinsic and value-based segmentation, marketing organizations can create a comprehensive understanding of their customers that drives both long term strategy and mid term profitability.

The most sophisticated marketing approaches leverage both methods simultaneously:

They use intrinsic traits to ensure messaging resonates on a personal, actionable level.
They use value-based metrics to optimize resource allocation and ensure that customers' have optimal relationships with the business.

However, all businesses are different, and have different ways of doing things.

For example, businesses with high customer acquisition costs and high lifetime value (such as consulting firms) typically benefit from longer, more personalized marketing approaches. In contrast, businesses with low acquisition costs and low lifetime value (like many e-commerce companies) often find greater success with traditional marketing channels such as social media.

Additionally, a company's maturity significantly influences its marketing strategy. To effectively implement Value-Based Segmentation and understand customer relationships, a business needs sufficient historical data from customer interactions and transactions.

Ultimately, marketing represents just one vector of a business's evolution, and Intrinsic-Based Segmentation and Value-Based Segmentation take on varying roles and importance at different stages of a company's development.

Questions for Reflection:

➡️ At what stage of marketing evolution is your business?
➡️ Are you doing Intrinsic-Based Segmentation, Value-Based Segmentation, or both?