Why is customer segmentation important?
Picture the last person to visit your ecommerce site. Where do they live? What do they do for work? How do they spend their weekends? There isn’t, of course, only one answer. We all live, work and shop in our own unique ways.
There’s no ‘one size fits all’ approach to ecommerce marketing. An effective sales, marketing and customer experience strategy needs to account for individuals’ own wants and needs, targeting personalised messaging and promotions to groups with similar characteristics. And to do that, you first need to decide your target audience and divide those people into groups. This is more commonly known as customer segmentation.
Customer segmentation is fundamental to driving higher sales and increasing brand loyalty; four in five consumers now actively expect an ecommerce experience that’s personalised to them. The same proportion are more likely to buy from brands which provide that superior experience. As a result, marketers see an average 20% boost in sales after implementing a personalisation strategy.
In this blog we will address the different types of customer segmentation, the differences between market segmentation, and how to apply customer segmentation to any business model (B2B and B2C) to achieve your ecommerce goals.
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The difference between market segmentation and customer segmentation
Market segmentation can be described as the act of arranging potential customers into segments (or groups) that respond in a similar way to your marketing efforts. This could refer to an email or social campaign you have launched. This group of people can be further segmented by their shared needs and interests.
Market segmentation is useful when businesses want to target different groups of people who perceive the full value of certain products and services differently to each other.
Firstly, it is important to establish your value proposition. Then look at your target market, understand opportunities for new markets, and see if there’s any niche markets you could target. Then based on this information you can perfect your marketing messages to cater for your specific audiences. Following these steps will make for more effective marketing.
There’s four main types of market segmentation: demographic, psychographic, behavioural and geographic. All four of which can be used within customer segmentation too (more on this later).
Customer segmentation, on the other hand, is the grouping of online visitors. A group of people are categorized based on specific characteristics or factors that a marketer or business has deemed important to their marketing efforts. This can be decided through customer data stored in the CRM, Google Analytics (or similar), social media analytics and other data capture platforms used by the business. Segments can also be determined through market research.
For example, a business might choose to focus on promoting a particular brand of products – maybe they have a flash sale on – and want to target customers who have shown an interest in these products before. Therefore, you could create a customer segment to target customers who have purchased this brand previously, with marketing campaigns that advertise the brands range of products. This group of customers would then be shown unique brand-related content when they are on your site; ‘based on your last visit’.
How can segmenting customers help ecommerce businesses grow?
The business case for segmenting customers is a strong one:
- Higher conversion rates & average order values: Better understanding your customers means you can show them the things they’re looking for. And at the same time, you can also show them other things they’re likely to want, opening up opportunities for cross selling and up-selling. The result is more conversions and a higher average order value (AOV).
- Higher lifetime customer value: Treating customers like individuals, not numbers, gives them a more positive, memorable experience of your brand. So they’ll stay loyal to you, spending more over the long term.
- Deeper understanding of customers: By clearly defining the characteristics of each segment, it’s easier to spot trends and patterns of behaviour. That can give you all kinds of actionable insights – like what they want you to sell in future, or what sales messaging they don’t respond to.
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We’re all different in an infinite number of ways, so theoretically, there’s an infinite number of ways to group your customers. In practice though, segmentation is usually one of eight main types:
1. Geographic segmentation: where they are
The location somebody is browsing from can give you a lot of insight into their potential purchase drivers. Let’s say you’re a fashion retailer, it’s June, and a customer’s IP address shows they’re browsing from the south of England. We know it’s warm where they are right now and summer is on its way – so they’re probably interested in shorts or summer dresses. Or if you sell bicycles, it’s a fair guess that somebody in the Highlands is more interested in a mountain bike than somebody in Brixton.
If you sell internationally, their location can also tell you their time zone and the language they speak. It also gives you an indication of their cultural norms. A browser in Spain, for example, probably values family time highly – useful to know at Christmas – while a browser in Turkey is unlikely to want anything produced with matter from pigs (like Haribo).
2. Behavioural segmentation: how they behave
Everything we do online says something about what interests and motivates us. How we interact with shopping apps, respond to push notifications, cycle through product carousels on web-pages – they all give the savvy ecommerce marketer an indication of our purchase drivers.
Behaviours to consider for this kind of segmentation include:
- Purchase behaviour – what they bought last time, and on previous occasions
- Purchase occasions – when in their life they often browse, such as in the holidays or ahead of weddings
- Browsing patterns – which kinds of items they’re looking at, or often looking at, in succession
- Search terms – the things they’re actively trying to find
Take all those factors together, and you’ve got a clear picture of the person on your site. That means you can retarget desired behaviours like ordering the same item again, suggest other products they’re probably interested in and target them with messaging at precisely the right time.
3. Demographic segmentation: what their lifestyle is like
Demographics are one of the most accurate indicators of the lifestyle we lead – and thus, the products we’re going to be interested in. A woman in her twenties, with a white-collar job and a high income, will almost certainly have different purchase drivers to a sixty year old male with a blue-collar job and below average income.
Other useful demographic factors with which to segment your customers include:
- Family structure (number of children, total household size etc)
- Level of education
4. Psychographic segmentation: who they are
To understand – and influence – a person’s decision-making process, we first need to understand their psychology. Or, in other words, the attitudes, traits and habits that make them who they are. Those variables include, among others:
- Personality type
- Pain points
By grouping customers according to psychographic factors, we can see each segment’s motivations and principles – then target them with more effective promotions.
5. Value-based segmentation: how much they’ll spend
Best suited to retailers with both high and lower priced alternatives for similar products, value-based segmentation is perhaps the simplest kind: grouping customers based on how much they’re likely to spend. With a clear indication of somebody’s budget, you can then show them products within their price range and target higher spending customers with messaging for big ticket items.
6. Persona based segmentation: any of the above combined
This kind of segmentation is ‘customised’ to your market, blending two or more of the above segments to create a group of ideal customers – like older people who buy the same thing each year at Christmas, or men who play golf.
7. Firmographic segmentation: segmenting based on companies
Another type of segmentation which is commonly used in B2B ecommerce business is firmographic segmentation. This means segmenting based on things such as; industry, company size, status, executive title and location.
8. Seasonal segmentation: based on popular seasonal products
Seasonal segmentation is also used to target customer markets based on who purchases different products based on the time of year (e.g. the winter months increase the sales of Christmas trees).
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Segmentation strategy: how to get started
1. Decide on your goals
Your approach to customer segmentation will be unique to you, your products, value proposition, and your customer base. So it’s vital to know from the outset what the end game is. It might be to attract more high spending customers. Perhaps it’s to grow your customer base in a new region or market. Or maybe it’s to launch a new product line, or drive more repeat purchases, or boost sales ahead of a cultural event – all require a different approach to segmentation.
2. Start listening
To segment your customers, first you need to better understand your target customers. Find out what they like, their personality traits, what interests them and typically gets them to convert.
There are all kinds of tools and platforms out there which can tell you more about the people who are visiting your website. A big part of any kind of segmentation relies on rich datasets:
- Google Analytics is particularly useful for finding out where your visitors came from, where they are, what device they’re using and what they’re doing on your site.
- Social listening tools like Hubspot, Hootsuite, and Sprout Social can give you deep insights into a visitors’ interests and attitudes with your social media campaigns.
- Customer Relationship Management (CRM): Most businesses will use a CRM to store data about their customers. Usually these are a great place to get more clarity about who your customers are and what segments could be created based on commonalities.
- Ecommerce personalisation software, like PureClarity, can give you a detailed overview of what segments to create. Our customer segment explorer gives you insightful analytics into which segments and conditions will make the most impact to your business, by providing you with metrics such as; conversion rate, reach, average order value, revenue, and amount of orders. It also allows you to see return on investment from day one.
3. Choose how to segment your customers
Now that you have learnt about your customers, visualise them. Are there any segments that could be created around purchasing habits, the demographics, or the devices that your customers use? The list is endless and can be as niche as you see fit. Decide the different segments based on which are going to help you achieve your ecommerce goals.
For example, if your goal is to convert more potential customers you might look at targeting first time visitors with promotional material to encourage them to convert to a paying customer.
Say you have another goal of improving customer retention as you have a lot of first time buyers who do not return. You could then focus on segmenting customers who have bought from you once before but not returned in the last 3 months, to target them with a campaign to re-engage them and encourage them to return to your store.
4. Choose your tech
Manually completing the segmentation process would take longer than most businesses can resource. Third party technology is usually a good option – but there’s a whole lot of choice out there. The next step would be to learn and read about the different technology solutions out there and see which align with your ecommerce goals and values.
Start segmenting your customers today!
Our ecommerce personalisation solution and service provides businesses like yours with the right tools and knowledge to create powerful customer segmentation strategies across your online store.
Case study: how PetPlay increased AOV by 13.7% with customer segmentation
Our client P.L.A.Y, a pet retailer, wanted to find out which of their products customers were most interested in when they landed on the site. So they segmented website visitors into different groups by behaviour: those who had viewed a lounge bed before and those who hadn’t. Targeted content – a banner offering a discount – was then A/B tested against the two groups to gauge the impact on conversions.
Customers who had viewed the lounge bed before responded more positively to the banner than those who hadn’t; the outcome for PetPlay was a 13.7% rise in average order value.
Pet Play uses customer segmentation on most of their campaigns to ensure that they are targeting the right people and seeing a greater impact. Our customer segment explorer and built-in analytics provides them with accurate insights into what’s working, what could work, and what to do next.
As Natalie Hennessy, Senior PR & Integrated Marketing Manager, puts it, “we love the insights of seeing where our visitors are interacting with the personalised content, understanding how they use the site and seeing what content they respond best to.”
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