Mass media and advertising have radically changed in the past few decades. Although there are many old-school advertising strategies you can continue to use to engage your audience, the emergence of ecommerce and social media has revolutionized how people shop.
In the old days, brands would spend their marketing budget on print ads, TV spots, brochures, and other media to try and reach their target audience. Although the price of Super Bowl commercials continues increasing, expensive and general marketing campaigns have largely fallen out of fashion.
Today’s brands rely on targeted ads, search optimization, or social media to engage with their audience. They dive deep into their marketing analytics and try to find ways to further optimize their messaging to resonate with shoppers and move them down their conversion funnel. When it comes to ecommerce, one of the most effective tactics you can use to boost sales is customer segmentation.
Shoppers expect a personalized experience and flock to marketplaces offering curated recommendations and messaging tailored just for them. If you want to increase revenue and compete with Amazon and other big retailers, you must start to think about practical customer segmentation solutions.
What is Customer Segmentation?
Customer segmentation is the process of dividing customers into groups based on a shared factor and creating tailored experiences and messaging specifically for each segment. The more customer segments and buckets you can place customers in, the more granular and specific you can engage with each prospect. Some of the most common ways you can segment customers for ecommerce include:
- Geographic and demographic factors: Age, location, gender, income, profession, etc.
- Psychological or Behavioral: How they like to shop, marketing communication preferences, when they are most likely to purchase, etc.
- Visitor Profiles: Repeat vs. first-time shoppers, account vs. guest users, premium members vs. basic members, subscribers, etc.
- Purchase Behavior: High vs. low average order value (AOV) customers, single item vs. bulk shopping, card abandonments, inactive shoppers, subscriber reengagement, etc.
- Source of Visit: Shopping device (desktop, tablet, smartphone, etc.) or initial touchpoints from a brick-and-mortar location, social media platform, or search engine, etc.
Why Customer Segmentation is Important in Ecommerce
For ecommerce and direct-to-consumer (D2C) brands, customer segmentation enables you to go beyond generic messaging, creating a shopping experience that resonates on an individual level. By dividing your audience into specific groups, you can tailor marketing, product recommendations, and offers to match each segment’s unique profile. This targeted approach helps optimize your marketing spend, enhancing ROI and allowing you to make informed decisions rooted in data. Rather than casting a wide net, segmentation lets you connect with customers in a way that’s more meaningful, increasing satisfaction and fostering brand loyalty.
Customer segmentation also unlocks a range of powerful capabilities for ecommerce brands, including:
- Highly targeted and personalized marketing campaigns
- Optimized customer journey and experience
- More efficient allocation of marketing resources
- Data-informed product development and inventory management
- Increased customer lifetime value
- Competitive differentiation and market advantage
- Enhanced channel strategy and communication
- Data-driven insights for strategic decision-making
10 Benefits of Customer Segmentation
Don’t let your audience data go to waste. Leverage customer segmentation to turn first-time visitors into loyal customers. Some of the top benefits of customer segmentation include the following:
- Improved Customer Retention
- Stay Competitive with Big Retailers
- Turn Shoppers into Loyal Brand Enthusiasts
- Find the Right Price and Offers
- Stop Wasting Time Trying to Reach Cold Audiences
- Discover How Your Audience Wants to Be Engaged
- Riches are in the Niches: Identify Your Big Spenders
- Better Marketing Messaging that Makes an Impression
- Improve Inventory Management and Merchandising
- Gain Audience Insights to Guide Product Development
1. Improved Customer Retention
Segmentation should be at the top of your customer retention strategy. Retaining existing shoppers is cheaper than finding new ones. Repeat customers already have a shopping account, and you can continue to nurture the relationship through email or other touchpoints since you have their contact information. Segment customers based on the most engaged and loyal segments rather than trying to reengage with one-time shoppers who have opted out of your pipeline. Reward your most-active and frequent shoppers with coupons, exclusive offers, or loyalty points. Spend more effort rewarding your best shoppers and encourage them to leave valuable five-star reviews. Implementing personalized shopping experience techniques can also boost customer satisfaction and retention by making each customer feel uniquely valued and catered to.
2. Stay Competitive with Big Retailers
Customer segmentation is essential to stay competitive with big retailers like Amazon and Walmart. They invest billions of dollars to create a superior ecommerce experience for visitors, and customer segmentation tactics are crucial to retaining their shoppers. You can deliver comparable experiences using customer segmentation strategies to reach their audience. Tailoring content and marketing messages to each visitor’s interests will keep them engaged in your sales funnel, without resorting to spammy and ineffective offers. Create positive customer experiences through customer segmentation and keep your shoppers coming back.
3. Turn Shoppers into Loyal Brand Enthusiasts
You can use customer segmentation to create deeper connections with your audience, leading to loyal brand ambassadors. Segmenting customers based on similar demographics, product interests, or stages in the buyer’s journey will help you deploy stronger messaging and offers that improve click-through rates and engagement. Whether it’s personalized recommendations, exclusive offers, or relevant content recommendations, your goal should be to turn visitors into repeat customers. Improving shopping experiences through the use of data can help you build stronger relationships with your audience. This, in turn, increases the likelihood of them sharing positive reviews, mentioning your brand in relevant online forums, comment sections, and social media groups.
4. Find the Right Price and Offers
You should constantly experiment with product listing and retail pricing strategies to find optimal price points that convert customers. Do bundle offers increase purchases? Should I increase the price of the product so I can offer free domestic shipping? Customer segmentation will help you answer these types of questions. Once you start segmenting customers, you can examine which audiences are converting and which ones are walking out the door. Utilize your customer data to gain insights into the spending habits of your visitors. Identify the thresholds you need to overcome in order to increase average order values by identifying optimal price points or product recommendations.
5. Stop Wasting Time Trying to Reach Cold Audiences
Customer segmentation will help you divide your visitors into cold, warm, and hot audiences. You’ll quickly identify your top-performing shoppers so you can allocate more time to craft compelling content and offers to keep your big spenders spending. Find cost-effective strategies and stop wasting your team’s efforts on cold audiences. Once you gain insights into disinterested customer segments, you can experiment with stronger offers and discounts to see if you can finally turn them into loyal shoppers.
6. Discover How Your Audience Wants to Be Engaged
Are your customers glad when they receive a push notification for a new product or are they annoyed? Are those daily emails helping or hurting your bottom line? Marketing is crucial to keep customers engaged and informed, but sometimes, it can hurt a brand. Discover how to communicate with different audiences using segmentation. Learn which channels are helping past shoppers return so you can stop wasting your time on marketing collateral that isn’t resonating with your audience. Create tailored messaging based on visitor behavior and uncover the best channels to reach your customers for better engagement, open rates, and, most importantly, conversions.
7. Riches are in the Niches: Identify Your Big Spenders
Most brands have a highly varied audience. Each visitor has unique interests, buying habits, and how much they are willing to spend. Customer segmentation will help you deploy marketing collateral specific to each shopper. As you start to bucket shoppers into groups based on their behavior and user profile, you can gain insights into each niche marketing segment. For instance, you can bucket customers in colder climates and deploy email offers with discount codes on winter essentials, like coats and gloves. The further you segment audiences based on their behaviors, the easier it will be to develop marketing collateral that aligns with what drives them to make purchases.
8. Better Marketing Messaging that Makes an Impression
Once you start segmenting your audience, you can craft more effective marketing messages that align with each customer’s profile. Generic email and marketing campaigns often yield low engagement rates and can create the wrong impression on potential shoppers. By fine-tuning your messaging based on the preferences and needs of each customer segment, you can generate positive impressions and reduce customer acquisition costs. Additionally, integrating an effective Amazon review management strategy can further enhance your brand’s credibility, leading to better marketing results with fewer expenses. With customer segmentation, you can obtain higher-quality leads, increase ROI, and enhance each shopper’s lifetime value.
9. Improve Inventory Management and Merchandising
Utilize customer segmentation to make informed merchandising decisions and ensure your best-selling products are always in stock. By grouping your audiences based on shared demographics, interests, or behaviors, you can gain a deeper understanding of product performance and inventory management. Customer segmentation also provides valuable insights on how to display products in ways that appeal to specific segments, allowing you to make data-driven decisions on inventory stocking. This approach enables you to buy in bulk to save costs, increase sales, reduce operating expenses, and create better customer experiences.
10. Gain Audience Insights to Guide Product Development
Leveraging customer segmentation is an effective approach to gain valuable insights for product development. By dividing your customer base into smaller groups based on specific criteria, you can discern the product features that particular audiences desire. Reverse engineer customer preferences to create new products that appeal to specific groups or improve existing products based on the preferences of your target shoppers. By developing products that align with the wants and needs of your audience, you can reap the benefits of increased sales, improved customer satisfaction, and a stronger brand presence.
Examples of Segmentations for Ecommerce Brands
For ecommerce brands just starting with customer segmentation, identifying examples of common segmentation strategies can provide a solid foundation. Each type of segmentation offers a unique way to understand and engage your audience, making it easier to create personalized marketing efforts. Below, we outline key segmentation types with definitions and use cases that demonstrate how brands can leverage each approach in their marketing strategies. This can help you identify the right starting points to build an effective, data-driven segmentation strategy tailored to your specific audience needs.
Here is a list of segmentation examples applicable to ecommerce brands.
| Category | Segmentation Type | Definition | Marketing Use Case |
| Demographic | Age Group | Dividing customers by age brackets such as Gen Z, Millennials, etc. | Tailor product offerings and marketing messages to age-specific preferences. |
| Demographic | Income Level | Segmenting based on customers’ income ranges (e.g., low, middle, high). | Offer luxury products or discounts based on income level to appeal to purchasing power. |
| Demographic | Gender | Grouping customers by gender to reflect different buying behaviors. | Create gender-specific marketing campaigns, especially for products with a high gender affiliation. |
| Behavioral | Purchase Frequency | Dividing customers into frequent, occasional, and one-time buyers. | Develop loyalty programs for frequent buyers and re-engagement campaigns for occasional buyers. |
| Behavioral | Shopping Channel Preference | Segmenting based on preferred shopping channels (e.g., mobile, desktop, in-store). | Optimize mobile experience for mobile shoppers, or retarget desktop users with abandoned cart reminders. |
| Behavioral | Brand Loyalty | Categorizing customers by their loyalty to the brand, such as brand loyalists vs. switchers. | Provide exclusive perks for loyal customers and targeted promotions to attract switchers back to the brand. |
| Geographic | Region | Dividing customers by location (e.g., region, state, or country). | Customize marketing messages and promotions to reflect regional events, holidays, or weather. |
| Geographic | Urban vs. Rural | Grouping customers based on living in urban or rural areas. | Adjust product offerings (e.g., lifestyle products for urban customers, outdoor gear for rural customers). |
| Geographic | Climate | Segmenting customers by the climate they live in (e.g., tropical, arctic). | Promote climate-specific products, such as winter wear for cold regions or sunscreen for warm climates. |
| Psychographic | Lifestyle | Dividing customers by lifestyle, such as fitness enthusiasts, travelers, or homebodies. | Target products and messages that align with the customer’s lifestyle preferences and needs. |
| Psychographic | Values and Beliefs | Segmenting based on shared values, such as eco-consciousness or minimalism. | Emphasize sustainable products to eco-conscious customers or simple, functional products to minimalists. |
| Behavioral | Buying Motivation | Segmenting customers by motivations, like necessity vs. luxury purchases. | Craft messaging to highlight necessity for practical buyers or luxury for those seeking indulgence. |
| Behavioral | Occasion-Based | Dividing customers based on buying occasions, such as holidays, birthdays, or special events. | Create seasonal or event-specific marketing campaigns and product bundles. |
| Demographic | Family Structure | Grouping based on family composition, such as single, married, with children, etc. | Promote family-oriented products to those with children or luxury items to single, young professionals. |
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Customer Segmentation FAQ
What are the criteria for customer segmentation?
You can create a custom segmentation based on any factor of your choosing and that is relevant to your business. Common segmentation criteria include geographic location, demographics, behavioral characteristic, and psychographics factors.
How to choose a segmentation model?
Your customer segmentation model should help you easily identify cohorts of customers based on common attributes. Start with factors like demographics or behaviors, then evolve that model over time. Make sure the model aligns with your business goals and marketing strategies.
What are the different types of segmentation?
The main types of segmentation are geographic, demographic, psychographic, and behavioral. Each type helps you group customers based on different characteristics like location, age, interests, or buying behavior.
What are the core customer segments?
The four core customer segmentations are:
- Demographic
- Behavioral
- Geographic
- Psychographic
How do you identify customer segments?
You can identify customer segments by analyzing your customer data, looking at patterns in demographics, purchase behavior, and preferences. Use tools like surveys and data analytics to find common traits among your customers.
What is the value of customer segmentation?
Customer segmentation helps you to understand your customers better, create personalized marketing, and improve customer experiences.
