Ecommerce customer segmentation: A beginner’s guide to driving sales with targeted marketing
The promotions tab in Gmail is a gift for email users — it’s the perfect junkyard for irrelevant ads, discount emails, and offers.
From a marketer’s perspective, though, think of all the wasted dollars it represents. Almost all mass emails blasted without segmentation and personalization meet a similar fate: deleted, archived, or caught in the promotions tab.
Occasionally though, I end up clicking and buying from an email promotion. Most recently, it was a dark blue evening jacket.
Why’d I choose to open that particular email? For one, I’d checked out the jacket several times on the website. Also, I’m a 20-something woman who enjoys dinner with friends over the weekend. A savvy marketer probably took the time to collect this data and send me an offer I couldn’t resist.
Why customer segmentation is important for ecommerce
Customer segmentation, or grouping customers based on shared attributes, helps ecommerce companies send relevant, timely promotions to their users. Age, gender, location, browsing habits, interests, and even the devices we use, say a lot about our shopping habits. They influence what we buy, why we buy, and how often we spend money.
Combined with behavioural data, customer segmentation empowers online stores to deliver personalized experiences that mimic a customer’s favorite neighborhood shop.
Picture this: you log in to an online baby shop, and the homepage greets you with a friendly high five. Then, it leads you to a selection of picture books you browsed on your last visit. Knowing it’s time to restock diapers, a chatbot prompts you to get them. It also suggests a pack of wet wipes, in case you’re running low. At checkout, you’re offered a special discount for being a loyal shopper. Would you ever consider buying from another online baby store again?
In a recent survey conducted by Researchscape, on behalf of Everage, 75% of marketers reported using customer segmentation to deliver personalized experiences to specific groups of customers, while 54% delivered personalized notifications based on user’s actions. The impact was overwhelmingly positive: marketers reported an improvement in customer experience (64%), better conversion rates (63%), and an increase in visitor engagement (55%).
Another analysis by Appboy looked at 10 billion marketing messages, and found campaigns sent to well-defined customer segments resulted in a 200% increase in conversions, as opposed to generalized campaigns.
Customer segmentation helps inform marketing on all platforms: emails, ads, product recommendations, landing pages, product pages, and push notifications.
What’s the best way to segment customers, though? How should you best use this data to inform your marketing? In this article, we’ll delve into various strategies for customer segmentation, as well as how to best engage and prioritize different segments.
Customer segmentation strategies for ecommerce
Traditionally, market segmentation has focused on four areas: demographic, psychographic, geographic, and behavioral. Today’s marketers, though, have a wealth of other data at their disposal to create multiple micro-segments, and deliver targeted experiences to each of them.
Researchscape’s survey found marketers using the following customer attributes to offer personalized experiences:
- products purchased (39%)
- email click throughs (37%)
- pages/content viewed (36%)
- geolocation (35%)
- email opens (35%)
- demographics (35%)
- previous visit(s) behavior (34%)
- stage of customer journey (33%)
Data gleaned from on-site behaviour and the stage of a customer’s journey represents two other segments marketers should track.
Let’s take a look at each of the major customer segments you should focus on as an ecommerce company.
This is one of the oldest ways to cluster customers into different groups. It makes sense, because marketing to a new mom who sells SaaS products for a living is different than marketing to a 40-something bachelor with multiple passive incomes.
Here are some common ways to segment customers based on demographics:
People in similar age groups tend to share similar likes and dislikes. You can divide customers into different age groups such as babies, toddlers, teenagers, young adults, middle-aged people, and seniors.
Generational groups such as baby boomers, gen X, gen Y, and gen Z, also work well. Those in the same generation may share an affinity for similar products, brands, and price-consciousness based on shared experiences.
This Friendship Day ad by Nykas is geared toward college kids in their teens.
Across certain product categories, men and women have varying shopping preferences. That’s why it still might make sense to tailor your promotions based on gender. However, be sure to steer clear of stereotypical promotions suggesting pink is a feminine color, or that men cannot buy household essentials. It could lead to your brand being labeled as sexist.
If a customer does not have the spending power to buy your product, no amount of marketing will get them to buy. Income targeting can help you push relevant brands, offers, and products to customers with the propensity to buy.
This type of targeting bundles customers as per their profession and experience level. A doctor or lawyer might not care about fashion trends, while a PR professional may be easily lured by chunky statement necklaces. Even within a specific profession, junior employees are more likely to prioritize hip trends and discounts, while senior executives might value quality and comfort.
Among other habits, marriage has an undeniable impact on what we buy and how we spend our money. A large family will buy essentials, school supplies, and save for medical emergencies, while a single woman in her 20s is more likely to splurge on the occasional cocktail dress
Demographic data can be acquired in two ways. Ask for relevant data in sign up forms and nudge customers to update their details every now and again. Second, tune into clues such as the operating system your customers use (iOS users are more likely to spend more than Android users) and their browsing and spending habits on your website. A web analytics tool such as Google Analytics should also help you get this data.
Editor’s note: If you’d rather play with your segmentation data in Google Sheets or Excel, you can now get a free 14-day trial of Supermetrics.
Once you’ve created your demographic segments, push relevant promotions to your customers on special occasions (like Father’s Day or Women’s Day), when new products are launched, and when you have a big sale coming up.
A customer’s location influences their shopping preferences in a big way. It determines what climates they experience, which products have a cultural significance, what currency they use, and which holidays they celebrate.
Other than a user’s country, state, region, and city, ecommerce companies can segment users into different groups based on the following:
A common language helps brands forge intimate connections with people. Marketing messages informed by a region’s common dialects, jargon, and colloquialisms, are likely to be appreciated.
Payment and currency
Online stores must ensure their prices reflect local currency, and customers are not left calculating costs. They must also ensure their payment platforms are available in a given country.
Amazon India’s homepage celebrates Indian artisans and weavers, highlighting the importance of handlooms and handicrafts in the country. This helps them strike a chord with local audiences. Tuning into your customers’ cultural preferences helps them warm up to your brand.
Sending weather and climate-based recommendations makes your brand look smart and informed. Because really, would a customer in a desert region appreciate a discount on umbrellas?
Local events and festivals provide the perfect opportunity for brands to cash in on their customers’ spending fervor. For instance, Black Friday is the holy grail for ecommerce in the US, while for Indian audiences, Diwali marks increased spending.
Take a look at this Independence Day sale ad by First Cry for their Indian audiences:
In an always connected world, geographic location is easily accessible through simple analytics tools. The key is to create customer segments in advance and be prepared to benefit from the data.
Are you a baseball fanatic, or do you live for football premier leagues? Do you volunteer at an animal shelter, or are you more concerned about your carbon footprint? Would you rather watch Netflix or do you prefer curling up in a corner with a book? No matter what your preferences are, they’re a part of your psychographic make up.
Psychographic segmentation digs deeper into a person’s likes and dislikes by taking a look at the following: lifestyle choices, hobbies, social awareness, and values.
Let’s take a closer look at each of these.
Hobbies are a powerful motivation for marketers to tap into. Try promoting a limited edition, signed copy of The Half Blood Prince to a Harry Potter fan and you’ll see what we mean. Based on what customers enjoy doing for leisure, you can send them relevant offers, discounts, and products.
Accenture research found that 63% consumers preferred to purchase products and services from brands that stand for values similar to their own, and avoided brands that did not match their beliefs. Pushing a mink fur coat to a vegan shopper can only mean rejection.
On the other hand, the same shopper will gladly spend extra money on cruelty-free cosmetic products. Whatever cause they care about, animal rights, equality, environmental protection, targeting customers based on their values is a sureshot way to earn their loyalty.
Here’s Amazon again, with a store promoting women entrepreneurs:
Introverts and extroverts, extravagant shoppers and thrifty buyers, go-getters and easy goers, each of these personality types has a divergent way of buying online. Thus, it pays for companies to segment common buyer personalities together and promote similar products and brands to them.
Surveys are one way to get psychographic information about your consumers. You can also look for clues in customers’ search history on your website. For instance, those looking for sustainable products or eco-friendly delivery are likely environment protection advocates.
Online behavioural segmentation takes the guesswork out of predicting what customers want and what they’re most likely to buy. With granular behavioural tracking, each click reveals a world of customer data to marketers.
From sign up to cart abandonment and purchases, marketers can segment customers based on varying actions on their website. Here are a few of them:
In 2019, the average cart abandonment rate was 77.13%, according to Barrilliance. Abandoned carts are a major pain point for ecommerce stores, but all is not lost. According to a survey by Klaviyo, abandoned cart emails help recover 4-5% customers for businesses with large average order values.
Note that each abandoned cart doesn’t merit an email. It helps to further segment this group based on cart value and number of items to help you entice only the most lucrative customers.
A customer’s purchase history is a Narnia-like portal for marketers, opening up exciting possibilities for personalization. Other than recommending similar and related products, ecommerce stores can also promote complementary accessories and advanced versions of a product to customers. For instance, those who bought an Android phone recently might be interested in phone cases and earphones, while other buyers may be interested in an upgraded model of the same phone.
Users who browse your products for more a given time, but don’t take any action may need further assistance or impetus to buy. A good way to engage these customers is by using conversational marketing. Let’s say a user spends more than 15 minutes on your website without adding anything to their cart. Set up a chatbot that can find out more about their preferences and offer recommendations.
Behavioral data works best when paired with demographic, geographic, and psychographic data, to offer a granularly personalized experience. A woman who adds shoes to her cart might also be interested in bags and clutches, while a teenager who’s simply browsing might be price-conscious and led to the clearance section.
As your website grows, you’ll attract customers with different intents. There’ll be customers spending top dollar on a monthly basis, and those who abandon your website soon after signing up.
Customers at different stages of exploring your website and products will need a different type of nudge. Let’s take a look at how you can segment and engage customers, depending on their journey:
Awareness (first-time visitor)
These are users who’ve recently learned about your website. For brand new visitors, you’ll want to track how they landed on your website and observe the actions they take and products they view. This will help refine your recommendations.
Quick tip: don’t be in a rush to get them to sign up on your website, it will drive them away. Instead, let them browse your catalogue and only encourage them to sign up based on actions such as adding products to cart or a wishlist. Incentives such as discounts, coupons, free shipping, and points-based rewards also work well.
Myntra’s signup page entices new users with free shipping and a discount on their first order.
Consideration (casual browsers)
At this stage, users have viewed a product page or two and they’re simply browsing your collection.
You want them to move them deeper into your site and keep them engaged. Think Instagram’s Explore section that keeps you scrolling for hours. Recommend similar and complementary products, pique their interest. In time, they will move on to the next stage.
Acquisition (active customer)
These are users who have added products to their cart, wishlisted items, and probably added their billing details. While they haven’t converted, they’re most likely to buy and should be monitored closely. Abandoned cart emails work best to woo these users back to complete their purchase.
Purchase (active shopper)
These users have likely completed a purchase or two from your website. Now, they’re officially an active shopper at your website. To get them to visit your store again, set up a rewards system with lucrative discounts for future purchases. Engage them on social media and entice them to sign up to your newsletter, so you can send deals and offers their way.
Advocacy (loyal shopper)
Loyal shoppers are your online store’s biggest asset. As the Pareto principle states, 20% of your users typically bring in 80% of your revenue. Loyal shoppers have a high affinity for your product and are likely a part of your rewards program.
To engage them further, offer them exclusive access to mega sales, early access to new product launches, freebies, and gift vouchers.
These users are also most likely to become brand ambassadors. Make sure to have referral programs with suitable rewards that enable them to invite friends and family to shop with your store.
The point of tracking customer journeys is to get every first-time visitor to become a loyal shopper. China-based shopping app, Shein, provides helpful tips for achieving this.
The app targets millennial fashion-conscious women with their selection of dresses, tops, tees, and pants. They entice users to collect Shein points with actions such as daily check-ins, product reviews, posting pictures of their purchases, and logging in for seven consecutive days. The points culminate into discounts during checkout. The points ensure the app has thousands of daily, engaged visitors, while a high number of points encourages users to make repeat purchases.
Setting up a rewards system brings visitors to your site on a regular basis, and also encourages them to shop more.
Source of customers
Where do customers come from on your website? What devices and platforms do they use to access it? Both these factors give you clues to their shopping potential and can be used to personalize their experience.
There are three major types of customer sources you want to track.
These can point to a shopper’s propensity to spend. iPhones are considered high-end phones, while Macbooks are premium laptops. Thus, those using iOS and macOS, might be considered lavish shoppers, while those with an Android device may not be willing to spend as much.
A 2018 Mobile Commerce Report by Ibotta found 50% of ecommerce sales took place on a mobile device. In another study, Oberlo reported 50% of consumers prefer shopping on mobile rather than in-store.
What about your ecommerce store’s customers? Do they access your shop via a mobile device, or are they likely to use a laptop or computer? If it’s the former, you’ll want to spend more resources optimizing your mobile website experience, and maybe even building a mobile app. Users with your app are also prime candidates to receive push notifications about new offers, rewards, and discounts.
Which platforms send you the most traffic? How does shopper behaviour differ across referring platforms? Shoppers who land on your website from Google Ads might buy more often, while those who came across your products while browsing Instagram or Pinterest might only peruse your catalogue. By tracking your highest referring platforms, you can spend more time optimising marketing channels, like using QR code tracking, that bring in valuable customers.
For instance, if a sizable number of Instagram visitors take actions such as adding products to their cart or wishlist, you might want to set up Instagram ads to your product landing pages.
Editor’s note: If you’re interested in experimenting with paid marketing channels for ecommerce, check out this article next.
How to prioritize customer segments
Unless you’re a behemoth like Amazon, you may not have the resources to track and market to each of your customer segments at once. For one, different customer segments may demand different analytics tools. Additionally, you may also need to invest in developing customized marketing messages, set up new marketing channels, and track results across different campaigns.
For companies getting started with customer segmentation, it makes sense to prioritize a few customer segments initially, and gradually invest in others.
Which of your customers should you go after first, though? We have a handy framework to help you decide which customer segments you should track and market to first.
Often used by startups to prioritize market segments, the SCALE framework is a helpful guide for ecommerce segmentation too. Here’s what it stands for:
S for Size: How big is the customer segment? It’s obvious you need to go after your largest segments first. For a women’s clothing store, that might mean women between 18-35 years, with a penchant for hip hop movies and exercise.
C for Currency: Do they have the income to buy your product? Going back to the clothing store example, it doesn’t make sense targeting teens just out of school if they cannot afford products on your site. Instead, you may want to target women with a stable income.
A for Access: Do you have easy access to this market? Where do they spend most of their time online? Do you have the budget to advertise or reach them on those platforms?
L for Love: How passionate are you about selling to this segment? Did you build your store with these customers in mind? Do you know enough about them to market to them? If not, can you get access to this data?
E for Early Adopters: Was this segment an early adopter of your product? Do they care enough about your products to actually purchase them?
Examine each of your customer segments using this framework, and you’re likely to see your most valuable customer segments emerge.
Most ecommerce companies adopt a one-size-fits-all marketing strategy, only to find their messages hitting the walls of spam folders. If you want your marketing to bring in revenue and wow customers, customer segmentation can help you get started.
While this article lists the most important customer segments you should track, don’t try to go after all of them at once. Analyze your most valuable customer segments, invest in marketing to them first, and then tackle smaller segments.
Editor’s note: If you need any help with analyzing your ecommerce data, you can read our ultimate guide to ecommerce analytics and try our Shopify connector.
About the author
Farheen Gani is a freelance writer who specializes in content marketing for B2B, SaaS, and tech companies. Her work has been published on Zapier, InVision, Automate.io, and Hiver. You can read more on Farheen’s website or connect with her on Twitter or LinkedIn.
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