How to Grow Ecommerce Business with Customer Segmentation

Anastasiya Kupriyanova
By Anastasiya Kupriyanova
Jan 12 2022
Time to read
8 min to read
Knowing how to address your customers' needs and pain points is the key to business success. Customer segmentation can considerably help with that, as it allows you to group customers with similar characteristics and identify the needs of each group. In this article, we're going to look at the benefits consumer segmentation can bring to ecommerce if done right.

What is customer segmentation?

Ecommerce customer segmentation is the practice of dividing customers into groups based on common characteristics and variables, such as age, gender, interests, shopping behavior, etc. Segmentation helps companies better understand and satisfy the needs of every specific customer group and, as a result, acquire and retain customers easier.

What are the benefits of customer segmentation?

Customer segmentation is a gold mine of various growth opportunities. Ecommerce businesses can benefit from an in-depth knowledge of customers' needs and pain points in many ways:

1. Improved marketing strategy

A genuine understanding of customers helps businesses build a powerful marketing strategy. You can use the information you've gained from customer segmentation to:

  • direct your marketing efforts to the acquisition channels your customers are most likely to engage with
  • target customers with strong marketing messages addressing their needs and pain points
As a result, you will be able to communicate more efficiently, better connect with your customers and achieve your business goals easier.

2. A deeper understanding of customer behavior

With segmentation, you'll better understand customer behavior as you'll have a clear idea of what matters for your customers and what doesn't matter. Based on this knowledge, you can move the buyers towards the conversion stage by meeting their current needs and assisting future actions. For instance, you can do so by removing the barriers during the customer journey and enhancing the customer experience. Let's break the latter down in more detail.

3. Customer experience optimization

Use the knowledge you've gained from segmentation to create an ultimate customer experience. For example, you find out that your repeat customers quickly make a purchasing decision. In this case, they will appreciate fast and clear on-site navigation, personalized search results, and a simple check-out process that would help them purchase the desired product in a few clicks.

4. Higher customer loyalty

Customer segmentation allows you to differentiate your first-time buyers from repeat buyers and tailor your marketing efforts for each group.

First, you'll learn what your customers appreciate most of all. With this knowledge, you'll be able to optimize their customer experience to win their loyalty and offer them tailor-made marketing campaigns, like reward programs or personalized discounts.

Also, you'll be able to identify about-to-bounce buyers and get them back on track, for instance, by tackling abandoned carts.

5. Increased conversion and sales

A more effective marketing strategy, improved customer experience, and higher customer loyalty result in better conversion rates and more sales. But that's not all. Customer segmentation also allows predicting for which buyers your up- and cross-sell efforts will be more effective and which products you should offer them, boosting sales even further. To effortlessly implement upsell and cross-sell blocks consider using a site search app with build-in promo tools, such as Searchanise.

6. Product development insight

Customer segmentation can also be a valuable source of product development insight. If you have a thorough understanding of customers' needs, you'll be able to develop products they will fall in love with.

However, keep in mind that buyers may change their preferences over time. So, consider updating your customer segmentation strategy from time to time, to ensure you have the latest information about your audience and unearth new opportunities.

Customer segmentation models for ecommerce

Demographic segmentation

Demographic segmentation is the first thing that comes to mind when you think of segmentation. Even though it's the simplest way to draw a line between customer groups, it is nonetheless effective. Demographic segmentation looks at such traits as age, gender, occupation, family status, education, income, ethnicity, religion.

The most straightforward example of demographic segmentation is gender. For instance, few men purchase makeup and beauty products, that is why the ad below targets women Facebook users:
The use of demographic segmentation in advertisement
The example of the ad based on demographic segmentation
A more complex example of demographic segmentation is based on occupation. For example, the ad below is tailored for business people working with multiple WordPress websites:
The example of demographic segmentation
The ad on Facebook targeting people who manage WordPress websites

Geographic segmentation

Geographic segmentation, as it follows from its name, divides buyers according to their location. The location influences customers' preferences in many ways, as it determines language, currency, climate, local holidays, and cultural preferences.

A good example of geographic segmentation is Adidas. Compare the home pages of their websites for the USA and China:
Adidas website for the USA market
Adidas home page for the USA
Adidas website for Chinese market
Adidas home page for China
Despite both screenshots being taken on the same day, the home page for the USA market does not mention any holiday, while their Chinese website promotes products for the New Year. This is because the New Year in China falls between the 21st of January and the 21st of February, depending on the lunar calendar.

Another important aspect is the choice of color. The second screenshot is full of red: red background, red clothes. This is done on purpose, as in Chinese culture, red symbolizes luck, joy, and happiness. Also, people often wear red on New Year's Day. Adidas is perfectly aware of these cultural preferences and successfully uses them on its website.

Psychographic segmentation

Psychographic segmentation is focused on the psychological traits of customers. This model of segmentation analyses customers' personalities, lifestyles, hobbies, life goals, interests, values, and beliefs.

This segmentation is harder to implement than demographic segmentation, as it requires in-depth research. Typically, customers' psychographics data can be gathered through surveys, marketing trends research, and social listening. However, once implemented, this segmentation model allows to develop highly effective marketing campaigns, as consumers appreciate when companies speak to them on a personal level.

For example, the ad of Coursera below directly addresses the customer's traits "Are you a natural problem-solver?". Also, it takes into account the career circumstances, as it targets a person who thinks about starting a new career or gaining new knowledge, and considers the age, since advertising such a course to a teenager will not be effective.
The ad illustrating psychographic segmentation
The example of psychographic segmentation in the advertisement
Another excellent example of psychographic segmentation is the landing page of Bite, a brand that offers plastic-free personal care products. Bite emphasizes sustainability of its products, therefore targeting an eco-aware audience:
The landing page using psychographic segmentation.
Psychographic segmentation on the landing page

Behavioral segmentation

Behavioral segmentation is arguably the most useful for ecommerce merchants, as it segments customers according to what they have actually done on the website. The data for this segmentation can be gathered from your own website. For example, search analytics sheds light on how customers use site search.

Behavioral segmentation can group customers regarding their user status (new or repeat customer), stage of the customer journey (awareness, consideration, conversion, retention, or advocacy), on-site behavior, spending habits, buying behavior (complex, dissonance-reducing, habitual, or variety-seeking), brand loyalty and customer lifetime value (CLV).

CLV is the total amount of products a customer will purchase from your store over time, including both past and predicted purchases. For instance, you can use past CLV to offer personalized promotions for returning customers or use predicted CLV to target customers who are likely to purchase again from your store in the future.

Another example of behavioral segmentation is personalized search results that combine behavioral segmentation with demographic segmentation.

Compare the two screenshots below. The first one shows search suggestions after looking up "t-shirt" on the first visit to the website:
The suggestions for the first search input
The search suggestions on the first query
The second screenshot shows search suggestions after the customer has viewed several products for women:
The example of personalized search
Personalized search suggestions

How to effectively segment customers in 6 steps

Let's see which steps you need to take to build a successful customer segmentation strategy.

Step 1: Set goals

The first step is to determine the goals you want to achieve with the help of customer segmentation. Also, think about what will determine the success of your segmentation strategy. For example, you may want to increase the conversion rate by 7% using personalized email offers or improve the qualified traffic by 10% with targeted ads on social networks.

Step 2: Gather information

A successful customer segmentation strategy requires collecting and analyzing a lot of data about your customers. You can gain this data from purchasing information, site search analytics, social media discussions, customer reviews, and feedback. Also, you can run interviews and surveys, analyze the reports of market research companies, or conduct a focus group.

Step 3: Select segments

The three segmentation models we've discussed above can give you an enormous number of customer segments. But unless you are a behemoth like Amazon, you probably won't be able to target all segments at the same time - the cost will likely prove too steep.

This is where the framework SCALE comes in. It can help you prioritize customer segments. The abbreviation itself stands for:

Size: What is the size of your customer segments? Of course, it is worth targeting the largest segment first.

Currency: Can your target audience afford your products? Consider going after the customers with stable income, who have enough money to buy from you.

Access: Do you have access to your customers? Think about whether you have enough budget to successfully advertise on the online platforms your customers use.

Love: Are you passionate about selling to this particular customer segment? Do you know enough about the customers, their needs, and pain points?

Early Adopters: Are these customers your early adopters? Naturally, you have better chances to sell to those who care about your product.

Use this framework to analyze your customer segments, and you'll figure out which segments you should target first to meet the goals you've set.

Step 4: Build segments

It's easier to build segments in the place you store customer contact information, that's why most ecommerce merchants prefer to do it in the customer relationship management (CRM) system or email service provider they use. For example, such software as HubSpot, SproutSocial, MailChimp, and Salesforce allows you to build and store the segments. Also, you can feed data to your segments through API of other platforms (for instance, Shopify and HotJar allow to do so).

Step 5: Reach segmented customers

After you've segmented your customers, the next step is to develop creative marketing messages that would appeal to each specific segment. Use the channels your segmented customers are most likely to engage with, be it your own media channels such as social media and email, or paid channels, including Facebook, Instagram, and Google ads.

Step 6: Analyse the results

The last step will be analyzing the results of your campaign. Did you manage to achieve the goals you've set? Should you do anything differently next time? Maybe you should try different segments? Or, maybe it is worth addressing other needs and pain points of your customers? Ask yourself these questions every time you finish customer segmentation.

Final thoughts

Customer segmentation is a complex process that requires investing a lot of time and effort. It begins with the research and ends with implementing new marketing and business strategies.

But the efforts you put into customer segmentation pay off in full, as it gives you an in-depth understanding of your customers. And with this knowledge, you can build an effective marketing strategy, improve customer experience and boost loyalty, get product development insight and eventually skyrocket your business metrics.

We hope that our guide will help you sort out customer segmentation and make the most out of it, as our top priority is to assist ecommerce businesses to grow their conversion.
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Anastasiya Kupriyanova - Content creator
Anastasiya Kupriyanova
Anastasiya is a content creator at Searchanise. Her professional areas of interest are SaaS solutions and ecommerce. Anastasiya believes that quality content must be valuable for readers and achieve business goals. When she is not busy writing, which does not happen often, she reads passionately, both fiction and non-fiction literature.

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