Customer Segmentation for e-Commerce: What You NEED to know!
Jairene Cruz-Eusebio on Jul 3, 2021 9:26:21 AM
Are you looking for a way to increase customer satisfaction? Do you want to strengthen your relationship with consumers? If so, then this blog post is perfect for you!
We’ll talk about what exactly customer segmentation is and its entire process. We’ll also explore some proven ways that companies can use customer segmentation in order to provide customized offers that cater specifically to specific segments of a population. This way, you can increase customer satisfaction and strengthen your relationship with consumers while still differentiating yourself from competitors.
Segmenting your customer base allows you to utilize this marketing tactic. But what exactly are customer segments, and how do you use them for your strategies?
To help you understand its concept and application, we’ll divide the topics in this article into the following sections:
What are Customer Segments and How to Market to Them
2. Level of Product Interest
3. Price Sensitivity
4. Average Customer Spending
5. Purchase History and Engagement
Common Mistakes To Avoid When Segmenting Customers
What are Customer Segments and How to Market to Them
Different customers have different behaviors, interests, and personal preferences. The first step in creating a successful marketing strategy is determining what your customers care about most and how they prefer to interact with brands.
You may want to research their demographics, psychographics profile, or purchase history for clues about what will drive them the best. Once you know that, you could take advantage of these differences to create compelling customer segments based on their product interests, geolocation, price sensitivity, purchase history & engagement, and average customer spending.
There are lots of different customer segments you can create, but the most useful ones you can apply for greater customization are explained below:
Customer segmentation by geolocation is a very effective way to grow your e-commerce business. Different markets have different demands and are more open to certain products than other product categories.
For instance, in the US market, consumers prefer home goods over apparel, whereas Europeans tend to want a combination of both.
Segmenting by location can help you understand what types of campaigns work best for each region and then send targeted marketing messages to them. For example, if you have a store-wide sale, you can prepare an ad for home goods discounts for US residents and a separate ad for apparel discounts for your European customers.
You could even go as far as fine-tuning your target consumer segments by specific cities and zip codes if you know the particular wants and needs of these areas.
2. Level of Product Interest
Knowing about your customers’ interests is a huge key to marketing. Many companies have a customer segmentation based on interest. These segments are usually created when the company finds that some customers exhibit certain behaviors.
You could get a lot of insight from customer browse activity, cart and browse abandonment, purchase history.
What they are reading or looking at on your website can tell you a lot about who they are as customers. For example, if someone looks at your best sellers page, then it tells you that this person is not looking for anything in particular. But if this person searches for a specific item, then there is buying intent.
If a customer browses your website but does not purchase anything, there are many reasons why they may be discouraged from doing so. One reason could be because they are not actually in the market for purchase right now, or they could be looking for something specific that you don’t offer (maybe your company has too many products to browse through).
Have you ever experienced this: your customer adds an item to his cart but does not proceed with the purchase? All e-Commerce businesses experience this. In truth, many factors lead to cart abandonment.
It could be that the customer has shown that they are interested in the products you have to offer, but they may be unsure about their purchase because of reasons like price or shipping. It could also be due to their current mindset (are they in the buying state of mind or the “browsing only” state of mind).
Whatever the reason, you can place these customers in a separate segment. You have seen their interest; all they need is a little (or maybe a lot) of convincing.
If someone has made a purchase before on your website, this tells you that this customer has buying intent went on with it. Depending on the product’s lifespan, you can remarket the same product to them in the future. You can also send them offers on products that fall under the same category.
The insight from the above points could be used to segment customers based on their interests and then create marketing content that is more likely to resonate with those segments.
You will want to send the customers what they want and make your brand stand out with helpful targeted messages. You can do this by:
- sending promotional campaigns based on your customers’ specific product interests,
- reminding them to check out their items before it gets sold out,
- giving them social proof in the form of personalized recommendations or links to testimonials, or
- providing other product picks related to what they bought previously.
3. Price Sensitivity
Price-sensitive shoppers tend to be concerned about the price because they are on a tight budget. They have other things they need money for, so the price of goods is essential to them.
Customers who are price-conscious would often only shop during specific events with promos and discounts or only within a certain price range.
Sensitivity to price for your product can be due to:
- income range
- assumed level of importance of the product
It’s essential to segment price-sensitive customers because they are often the ones you can win over with discounts and sales. They also tend to buy less regularly, so it may be wise to offer them things like trial periods for subscriptions or services in order to encourage purchasing more from your company. Price-conscious shoppers can usually be identified by observing their purchase history and behavior or simply by asking them.
There are many such shoppers, ranging from those who can’t afford to spend much on items they intend to purchase to customers with a larger budget but have extremely specific preferences about what and where they will buy.
It’s vital that you know which price-sensitive groups your company targets so that you target them with the right marketing messages. Some of these groups are:
<>Specific Preference Shoppers
Shoppers who are price conscious but don’t have a very specific preference about what they buy are the easiest to market to. They’re usually not loyal to one brand and will purchase from whichever company offers them the best price on an item they need.
For this group, it’s essential that you make sure your product or service comes with very attractive offers, including price discounts, sales events, and free shipping.
Another essential segment based on price sensitivity is the holiday shoppers. These shoppers take advantage of the price-related sales and buy more when they see a chance to save money, such as during the holidays. You can market to these kinds of price-sensitive shoppers through the use of sales events like coupons or discounts on certain items during specific celebratory periods.
There are those who wait for a sale to happen in order to buy what they need or what they are looking forward to. But there are also those who jump in on a promotion just because the item is on sale and not because they have an immediate need for it.
These are the kind of people who think,
“I should buy it now; I may need it in the future. And when I do need it, I have it and got it at a discounted rate.”
This group is those who have the spending power because they are not really buying out of need but out of emotion.
Generally, you can reach out to price-sensitive customers by advertising products within specific price ranges that suit them. This can be done in different ways, such as remarketing, the use of social media, or personalized SMS marketing messages.
For example, you could have an advertisement that says “Only $XX for this item!” with graphics showcasing what it looks like or how much they get to save. Another way is to price your products at a price point that is in the middle of competitors, so customers see you as affordable and not overpriced.
Note that when creating and marketing to price-sensitive segments, price segmentation should always include all types of price-sensitive shoppers. Not all price-sensitive shoppers are the same, and not everyone can be segmented in one category, so price sensitivity should always vary by customer type (income level, age, ethnicity).
4. Average Customer Spending
Another method of customer segmentation is by average customer spending. You can create different VIP segments based on your customers’ amount of purchases and engagement with your store.
Customers have a lifetime value once they purchase from your e-commerce store. A customer’s lifetime value is based on the purchases made by the customer from their first purchase to the last. If your customers keep coming back and purchasing more, your LTV will increase. (Customer LTV is a whole different beast, and we’ll discuss it in more detail in the next article.)
Now, while you can estimate an average LTV, you can also segment your customers based on their LTV by evaluating previous purchases.
These shoppers can be segmented into three categories:
<>a. Big Spenders (VIPs)
Bigger spending VIPs will often purchase more than one item from your store and frequently, too. You would notice that they have made a large purchase in the past. This high-end VIP customer group has the highest amount of purchases and engagement with your store. For this reason, these customers are the most important to target and market to, so they get special treatment like personalized offers or discounts.
<>b. Medium Spenders
Medium spending customers are two things: they can be ones who go for the higher range products but purchase once in a while; they can also be the ones who go for mid-range products but purchase consistently.
<>c. Light Spenders
These are either the lowest spenders or the most infrequent buyers. If you run a subscription-based business, these are those who try the service for just one month or those who are there to take advantage of the free tier or free trial.
You can also create VIP segments based on a particular total spending amount. For example, a VIP segment could be customers who have spent a total of above $1000 on your store; medium spenders are those who spend between $200 to $999, while light spenders are those who spend less than $199.
This is a more organized way of targeting them and can be helpful if you need to know how much they spend on an annual basis as well as what products or services are most popular among this customer type.
The best approach to take when marketing to this segment type is to make them feel important for the amount of money they’ve spent. This can be done by giving them access to or sending them exclusive or VIP-only offers, including discounts and deals. This way, they’d feel proud to be part of something exclusive, and this will encourage them to keep buying from your store.
5. Purchase History And Engagement
Customer segmentation is often based on a customer’s purchase history and engagement. The more you understand your customers’ needs and the way they engage with your content, the better chances you have at appealing to their individual interests.
Based on this category, many different customer segments can be derived. You could segment your customers into First-time buyers, Recent subscribers who have not purchased, Engaged subscribers, Engaged and active customers, Lapsed repeat customers, and Active repeat customers. These segments each require different marketing approaches and tactics.
<>a. First-time Buyers
Marketing to first-time buyers may be the most challenging thing to do because they are not yet familiar with your brand or product. You will need to impress them from the get-go and focus on promoting a certain quality, attribute, or benefit which is unique from the competition to win their business.
While doing this, you may want to avoid sending them too many unrelated SMS messages that could annoy them and cause them to opt out of your store. To keep them interested and nudge them in the right direction, you could send messages containing discounts for newcomers and keep reminding them about the offer. For this marketing technique to be more effective, the newcomer discount offers should come with a deadline, so they are forced to act immediately to avoid missing out.
Another way to encourage first-time buyers is by sending them a welcome gift which may not necessarily be a discount. It could be a bundle deal containing some related products available to only subscribers.
Apart from offering discounts and deals, you could also provide free shipping to first-time buyers. This is a very commonly used marketing method, and an effective one too. Many customers abandon their carts just due to shipping fees. Knowing they won’t have to worry about this, at least on their first purchase, could be a huge encouragement.
<>b. Recent subscribers who have not purchased
For recent subscribers who have not purchased, you could take almost the same approach as you would for first-time buyers because they are also yet to make a purchase.
However, the fact that they subscribed to your newsletters or SMS list shows that they are very likely interested in your products. It would be a good idea to send them more information about your products and services. In addition to that, you should create a sense of urgency to persuade them to act faster. Some ways you could do that are by offering time-limited discounts. You could do this in different ways.
For instance, you could:
- Offer a coupon code to entice them to make the purchase.
- Send an email with a special offer for their first order if they complete it in a specific timeframe.
- Offer a discount if they buy now rather than wait for it to go on sale.
- Give them an exclusive deal that is only available at the time of subscription.
- Offer monthly, or yearly discount offers that are ending soon.
You should also follow up after 30 or 60 days of no orders and see what might have changed since their last visit. Maybe something has been marked as out of stock that they were interested in.
At this point, not much else can be done because these customer segments have not yet made a purchase and have not really been integrated into the customer database. So you can only send them offers to entice them to finally do so before you begin to send the regular promotional messages.
In addition, you should ensure you update your mailing list and newsletter with these special deals because it is the only way they will get this information about what’s happening in your store. It also keeps your store at the top of their minds and reminds them that they need to come back and purchase.
<>c. Engaged Subscribers
These customers may be loyal, engaged, and active with your store’s social media accounts, SMS, or newsletter, showing that they have a genuine interest in the products or services you have to offer. You could define this segment by subscribers who have engaged with your marketing campaign at least once or replied to your messages within a specific period of time.
Treat these customers like VIPs with exclusive discounts and offers, as well as first-looks at new products and sales. You could use online ads to capture more of their attention by advertising on websites they are frequently on or using retargeting/remarketing techniques. This technique will help you reach out to customers who have already shown an interest in your e-commerce store but may not be making purchases yet. You could also reach out to them through email or SMS marketing.
Since this segment of customers already wants to receive your content, your aim should be to keep them interested. This could be done by sending them messages about your brand and products, and most importantly, making it very easy to return to your store to view the products you’ve piqued their interest in.
There are several ways you could achieve this.
- Make it easy for customers to find you by including a link to your web store at the foot of all messages.
- Emails should be short and contain precise information to ensure they don’t become overwhelming. Of course, SMS messages are always short and direct to the point because of the character limit.
- Offer discounts or promotions in your email and text messages to make it easy for the customer to come back and purchase something from you. This is particularly powerful if they’ve already expressed interest in a specific item; this way, you can remind them about that product specifically.
- You could also send customers promotions via email, text, or social media and provide special coupons for them to use on their next purchase.
Within the messages you send to your engaged subscribers, it often helps to highlight specific products they may be interested in or particular products that are of high value during holiday seasons.
You could also send personalized educational content that appeals to your customers. Not only will this help you talk directly to them, showing that you understand their needs, but it will also help gain more insight into your subscribers’ interests. If you can establish this kind of connection with your clients, then it’s more likely that they’ll remain interested in your brand.
<>d. Engaged and active customers
This segment comprises customers that are passionate about the company’s offers and therefore purchase many of your products. These customers can be found on social media platforms like Facebook or Twitter posting reviews and pictures, as well as creating content such as blog posts for their own site.
These customers comprise one of the best segments, and it’s important that e-commerce stores market to them because they not only patronize the company frequently but also engage with marketing content on a regular basis which increases the business’s following and brand awareness.
If you can make them into strong advocates of your brand, you will not only get repeat purchases from them; you might even gain new customers through their influence! Remember, word-of-mouth marketing is still one of the best there is.
The best way to market to this kind of customer segment is by posting more content on social media and updating your blog with new posts about the company’s newest products. Customers in this category also like it when companies reach out to them directly for feedback, so having a survey or giveaway that asks customers what they want from the company can be very helpful in making them feel valued and appreciated.
Other ways to market to this customer segment include offering discounts for their favorite brand or offering a loyalty points program that enables them to earn rewards with each purchase.
You could also take the approach of inciting the fear of missing out on items almost sold out or boosting the value of an average order through buy-one-get-one-free campaigns. When creating this segment, you should include customers who have made a purchase within a short period of time, perhaps three months, and at the same time engage with marketing content like SMS, emails, or social media content.
<>e. Lapsed repeat customers
This segment comprises customers who have made a few purchases on your e-commerce store (at least two) and then ceased purchasing but are still considered customers. Marketing to lapsed repeat customers can be tricky as they often behave erratically from the average customer.
For example, it is important not to assume that just because an individual has spent $500 over their lifetime on your site, they will be willing to pay the same amount for a single purchase.
The first step in marketing to lapsed repeat customers is identifying them, which means looking at customer lifetime value instead of just purchases made over time. This can help you create personalized campaigns that resonate with this group better than those who have only spent a small amount over their lifetime on your store.
The key to marketing to lapsed repeat customers is understanding where they are in the customer life cycle and making sure you cross-reference that with any information available about them like purchase history, demographics, or how old they were when they made a purchase for the first time. This will allow you to create targeted campaigns that are tailored to their specific needs and interests.
A Bit About Customer Life Cycle
The customer life cycle starts with awareness, moves on to consideration, then evaluation, and lastly, conversion before moving back up the chain again. It’s vital at each stage of this process to create relevant content that helps your lapsed repeat customers move forward in their decision-making process and gain a better understanding of your brand.
The first stage of the customer life cycle is awareness, and you can create content to help lapsed repeat customers stay informed about what’s new in your industry. An example would be a brief video with quick tips on how to use one item from your catalog that they may have purchased before but had forgotten about until now.
In the consideration stage, you can create content to help lapsed repeat customers consider your products with a video testimonial of someone who also bought the same product they used to be interested in. This will encourage them to click on the link and read more about that specific item or category to see if they like the testimonial and want to buy something themselves.
In the evaluation stage of the customer life cycle, information is critical. You can create content to help lapsed repeat customers evaluate your products with customer reviews on the product they’re considering buying. Providing them with information, such as what other people think of that specific item, will make it easier for these customers to decide if this is something they want or need to purchase.
The last stage is the conversion stage, and you can help them convert by providing an easy checkout process. Remind them of their previous purchase with a thank-you email, or send out promotional emails to recent customers about the latest sales they should take advantage of. This could include discounts on restock purchases.
The whole idea of marketing to this customer segment should be to remind them why they made a purchase from your store in the first place and why they shouldn’t stop. Your marketing messages to this segment should always start with an attention-grabbing line or heading.
For example, ‘Hi XXX, we’ve missed you!’.
Lapsed repeat customer segmentation is valuable for e-commerce stores because it allows businesses to provide relevant content and target them with the right marketing messages.
<>f. Active repeat customers
This segment is made up of customers who have been purchasing from the store for a while. They spend time on your site, reading reviews, and checking out products before they buy them.
These customers are more likely to purchase on impulse because they have already spent time browsing your site. This segment is more loyal and less price-sensitive than most customers, so you don’t need as many incentives or discounts to keep them coming back for more.
- You could try loyalty programs that reward repeat purchases from this type of customer. An example would be providing them a chance to unlock higher discounts with a higher total spend. You could also offer this type of customer a free shipping code or something else as an incentive to buy.
- Consider offering discounts on products they’ve already bought from the store in order to lure them back. Offer coupon codes that are valid for only items that these customers have purchased previously, such as “Buy one pair of shoes and get a second pair for half off.”
- You can also offer them the chance to bundle in items they want or need when they are already going to make a purchase (example: buy Nike shoes and get Nike socks for free)
- Consider using Facebook ads, YouTube video ads, or other social media campaigns to reach these customers through their favorite channels.
- Create an email or SMS campaign that will allow this type of customer segment to get exclusive access to specific promotions and discounts from your store.
- Offer VIP access with promotions available to VIP customers only. These people need very little push to encourage them to buy, so make that push, and they will buy more items more frequently.
This type of customer will spend more time on the site, and when they do make a purchase, it is typically larger than other customers. They may have an affinity for your brand or product line, so give these folks some extra love to ensure that they continue coming back!
Common Mistakes To Avoid When Segmenting Customers
We’ve discussed customer segmentation and offered tips on how to market to each and every one of them. As you may have noticed, marketing based on groups is very detailed-oriented. If you do it right, you can expect to increase purchases and even improve your customer lifetime value.
However, if you screw it up, there are also some unsavory consequences. To avoid this from happening, here are some common mistakes that you should avoid:
- Don’t segment customers in a one size fits all approach. Your strategy should be tailored to the type of customer you are looking for and their specific needs, so make sure that your offer is relevant to them!
- If you’re not careful, it’s easy to use just general demographics without considering other areas such as psychographics or even geographics. There are many different ways to segment customers, but if they don’t match up with what kind of customer you need, then there won’t be any point in doing this at all. You want segments that will provide value to you based on the industry you work in, whether it’s an e-commerce store or something else entirely like education or healthcare.
- Understand how your company can benefit from each segment before you start using it. This way, there won’t be any confusion when you’re trying to choose between segments, and the wrong decision can ultimately hurt your business in a number of ways!
- Don’t just create customer profiles based on what they want but also understand their needs as well. You should always take into account how your offer will satisfy them because if people don’t feel like they are getting anything out of this, then chances are that they’ll never come back again for another purchase.
- It’s important to keep things simple with only three or four criteria, so make sure that all these pieces match up together seamlessly so that no one is left behind when it comes to making a purchasing decision. The last thing you need is to have dozens of customer segments, which means dozens of customized promotions!
While there are many kinds of grouping mentioned above, it doesn’t mean you should use them all! Choose a category most relevant to your business, or one that you think can benefit you the most.
Final Thoughts about Creating Customer Segments
Using customer segmentation is important for e-commerce businesses that sell different products or services to consumers. Segmentation should ideally be done on a regular basis. Different segments may be more in need of a certain service or product at different times, and you can’t tell just by looking at customers’ demographics alone.
Dividing your customers into segments is crucial to maintain your competitive edge over other businesses because it allows you to provide better-targeted products and services that are relevant to the needs of each customer segment.
You can create different kinds of segments based on the observations you make of your customers, but the above types of grouping have proven to be effective. With the right customer segments, you’ll be serving an elevated customer experience and building a stronger relationship with your buyers. It will also be easier for you to draft SMS marketing strategies based on segments, therefore increasing engagement.
Are you ready to take your marketing strategies to the next level using a combination of customer segmentation and SMS marketing? Start your 14-day trial today!
Topics: Customer Segments