Customer segmentation is the practice of dividing your customers into groups based on common characteristics, such as age, gender, hobbies and spending habits.
What Is Customer Segmentation?
Customer segmentation is the practice of dividing your customers into groups based on common characteristics, such as age, gender, hobbies, and spending habits. These groups help better understand customers in each segment and accurately tailor marketing campaigns toward their preferences.
What Are the Benefits of Customer Segmentation?
Create Targeted Messaging
Without segmented customer groups, marketing will be like throwing a wide net into the open ocean, with no idea of a direction or potential catch. In other words, you will have no idea of the market, the customer, and the type of products that sell. Using segmentation helps create targeted messages for each audience set.
Improve Business ROI
Customer segmentation can improve the bottom line and customer lifetime value of your business. Personalized messages can ensure that your marketing is relevant and there is no wasted effort. Segmented audiences earn your business more ROI than broad audiences.
Upsell With Ease
If you are an ecommerce business selling jewelry, your customers will probably like to buy a set. Using targeted information, you can see people who ordered earrings and suggest necklaces to go with as a set. When you have similar products in your catalog, you can target people who can extend their budget and allow you to upsell. It is just like Amazon’s ‘you may also like’ section because it attracts interest.
Predict Customer Behavior
Customer segmentation information can get you more insights into a customer’s world. Based on their spending patterns, you can predict their psychology and try several pricing patterns to see which one works best.
Customer Segmentation vs. Market Segmentation
Sometimes there can be confusion between customer and market segmentation. Some entrepreneurs think that customer segmentation is a sub-category of market segmentation. They do overlap, but both have their own uses. While customer segmentation groups customers together based on their behavior and characteristics, market segmentation groups customers based on the products and services they purchase, like software.
Depending on their product or service, some businesses may choose to do either customer or market segmentation. Both processes aim to refine the audience, which is the main goal. One creates person-based characteristics while the other focuses on market segments.
Types of Customer Segmentation
The first step towards finding who your customers are begins with demographic information. Common characteristics build up a person’s demographic information. Demographic information includes things like ethnicity, age, marital status, etc. information compiled this way can help build user personas to target. For example, a perfume brand can target customers who fit the persona of age 18-25 and living in the US.
Geographic segmentation looks at where in the world your customers are and from which location they browse. You can go as narrow as you wish to find out cities, towns, and regions. This type of segmentation is beneficial for small businesses which target a local audience and want to develop a loyal community of buyers. This information favors marketers who want a relevant audience that may focus on their product based on a location. With the help of geographic segmentation, you can avoid unnecessary targeting that does not concern you.
Behavioral segmentation relies on a customer’s lifestyle and habits, but particularly their buying habits. For example, different age groups tend to spend their money in different ways. So, brands need to be mindful of who is buying which products. You can always use automation to gather website and social media analytics data to establish customer buying habits. They can use this information to their advantage when launching a new product.
This type of segmentation focuses on the personality of the buyer and includes their interests. This is a common way of establishing a customer base by big organizations and brands that focus on a certain way of life. For example, a vegan food brand will focus on people who like the vegetarian way of life.
This is quite similar to behavioral segmentation but differs based on the customer’s journey. You only follow the customer’s journey and the stages they cross to get to the end. For example, in one customer journey, a person might start by searching for a particular service. Next, they will shift to explore interesting services they found. Then they will choose as to which service suits them best. Based on this journey, they will order a service.
How Do I Segment Customers for My Ecommerce Business?
When segmenting your customers, it is crucial to first look at your business goals and what you want to achieve. Start by:
Data collection is a key part of customer segmentation. You can speak to experts, customers, and your customer service representatives. It is also important to research competitors. Create a plan that focuses on where each variable can be found and how to extract the important data.
You can build a clearer picture from each data set and determine who your customers are. Then use data analytics to see which fields the customers best fit into.
Looking for Problems to Solve
Consider the different problems customers have to sort them into groups. For instance, you can create a group for those unsatisfied with your pricing. Another group can be created for those who think your product packaging needs a revisit. Segmenting customers like this makes it easier to solve specific problems, as you can gather insight from specific groups about what they consider to be a good resolution.
Customer relationship management is all about a business building a strong partnership with its customers. It is based on the principles and practices put together by a business when dealing with customers. CRM helps businesses streamline customer segmentation as well. It helps you reach customers that are most likely to shop and interact with your products and services.
A little example of the positive benefits a CRM can bring is that by performing market research and getting a more detailed view of your customers, you can target customers with new services or products in the future.
Customer Segments for Ecommerce Businesses
An ecommerce business can segment its customers into the following groups:
These are just a few examples; there are a lot more segments you could create to maximize the value of different customers to your business.