What is Customer Segmentation? Boost Sales With Better Customer ClassificationUpdated on October 31, 2022 in Ecommerce by Alifiya Mustafa
The success of buying and selling marketplaces such as eCommerce highly depends on how they are perceived by their customers. Their recognition, growth, sales, and success are all dependent on their customers.
As per the recent studies, it’s discovered that customer satisfaction will surpass the priority level of quality and pricing for a customer in choosing a brand. In a nutshell, the brand that can provide the best customer service will be loved the most!
Every customer is different and it could be difficult to cater to each one’s exclusive needs – but, if you want to win the race and increase your eCommerce sales, this needs to be done.
That’s where customer segmentation strategy comes in handy and is effective. All you do is organize your audiences into specific, easily trackable segments. This way you have a clear idea of each customer segment and gain the power to boost your eCommerce business.
Let’s know more about customer classification in a little more detail. In this article, you’ll be learning about the customer segmentation model and how it can be helpful to grow your online store.
What is Customer Segmentation?
Customer segmentation is the process of dividing consumers into groups that share the same interests and characteristics. This makes it easier for eCommerce companies like yours to market to each group effectively and as required and grow eCommerce sales.
On What Factors Customer Segmentation Can Be Based?
In an eCommerce business, customer classification can be based on several factors. The most common and useful factors for customer segmentation strategy are as follows:
Demographic information of a customer includes:
- Type of profession
Psychographic factors relate less to quantitative but more qualitative characteristics. These include:
- Social status
- Social media engagement, etc.
3. Geographical factor
This customer classification factor concerns where your customer lives. Small business owners often focus on small geographical areas like cities, states, or countries. Large enterprises focus on large areas like countries, continents, or even worldwide.
4. Behavioral factor
Behavioral factors dig deep into what your customer is for better understanding. This includes:
- Actions they take online
- Where they spend most of their time online
- Which products they are most interested in
- What benefits they prefer availing
- Shopping times and pattern, and more
What Are The Benefits Of Customer Segmentation?
A customer segmentation strategy can be highly beneficial to improve your eCommerce sales. It can help you with a number of things that can level up your online business. 6 Such powerful benefits are:
1. Better Customer Retention
Your customers would be more likely to stick with you as long as you can fulfill their needs satisfactorily. As per the studies, 75% of the customers are more likely to remain loyal to a brand that regularly meets up their needs effectively.
Since customer segmentation strategy allows you to have a clear idea of which of your customers wants what, it becomes easier to retain your shoppers.
2. Strong Competitive Weapon
Segmentation strategy is a powerful weapon to beat the eCommerce competition. With this, you stand out from the rest of your competitors in reaching out to your customers.
The customer segmentation strategy allows you to better understand your customers and bring them the best in the market.
3. Improves brand identity & visibility
Your efforts can always be seen by the shoppers as you practice them consistently for the long term.
That’s how you build your brand identity. When people like something, it becomes contagious. You can promote your actions through your marketing strategies over social media and other platforms.
Giving exclusive attention with the help of a customer segmentation strategy can become your strongest USP. This, with time, becomes your brand identity along with improving your brand visibility.
In a nutshell, the customer classification strategy helps you gain goodwill and makes you more authentic, credible, and reliable.
4. Enhances Customer Relationship
With the customer segmentation strategy, you can start providing personalized service to your shoppers. And that’s what your customers are gonna love.
Exclusive service, personalized recommendations, and custom-made offers only available for one particular section are all the things you get to provide your customers with the customer classification strategy.
This easily builds and enhances customer relationships which take us back to our first benefit – customer retention.
When people start admiring your products and service, they end up becoming your loyal customers.
5. Boost Conversion Rates
When the shoppers can see what benefits they can get if they deal with you, it doesn’t take them long to close the deals.
All the benefits mentioned above come along to improve the traffic on your eCommerce store which ultimately leads to increased eCommerce sales.
Customers are more likely to purchase when they’re provided with what they exactly want.
6. Optimized Marketing Strategy
Using the customer segmentation strategy helps you create customized marketing campaigns that better convince each group of the potential audience.
Now, you’re not blindly throwing arrows in the dark, but you know better what’ll work best for which section that helps you improve conversion rates.
For example, if you are to show the ads on makeup, then targeting your male audience won’t make much sense. In Fact, the regular occurrence of such irrelevant ads can frustrate your male customers.
Hence, segmenting customers based on their gender can help you target only your potential audiences. Similarly, the children’s book ads would be best for parents and not teenagers.
You can run targeted ad campaigns on FB, Pinterest, Instagram, etc. Share personalized emails, and provide exclusive discounts to the selected groups.
Be very precise in personalizing your emails and messages. You may consider addressing your customers with their names, but that’s where your competitors would stop. You need to be a step ahead.
Along with the name, try talking in brief about their history with you. Talk about their last purchase and what relevant they can look for in relation to it. Tell them what’s coming next in your store that’s going to be of their interest.
Make complete use of the customer segmentation strategy and provide amazing service to your customers.
What Are The Types Of Customer Segmentation?
Broadly, customer segmentation can be divided into 3 types:
1. Characteristics Segmentation
This type of classification is based on general classification based on demographics and behaviors. This is basically the most common segmentation. The information extracted can be used freely by every eCommerce party.
Characteristics segmentation is a good initial step towards creating more complex and actionable segmentation. This customer segmentation provides broad data that can be used to construct the next levels of customer classification models.
2. Need-based Segmentation
Once you determine who your customers are, you now need to identify what are their needs and what they’re looking for. This revolves around pinning out your customer pain points and how your products can solve them.
This segmentation needs you to be more interactive with your customers. Take feedbacks and ask them what they want from an eCommerce company like yours. Build relations and gather all the pieces of information you need to make your customer segmentation strategy powerful.
This ultimate step towards customer classification goes beyond the characteristics and needs of your shoppers. You’ll need to classify your customers based on their value to your business.
This means certain customers will be worth higher levels of investment as they are more likely to, or already have, contribute more conversions to your eCommerce store.
This kind of segmentation takes time. In order to divide these valuable customers, you’ll need to collect data from consumer interaction over an extended period of time.
These VIPs should be entitled to loyalty points, personalized attention (packaging, discounts, reference codes, etc.), and exclusive offers. Hence, you don’t need to provide such premium offers to all your customers as you can just give these benefits to your valuable customers.
Collect the data based on:
- How long has a customer been with you?
- How much a few customers have spent on you?
- Are they capable of bringing in new customers?
How to Start Customer Segmentation?
Now that you know on what basis you can segment your customers and why customer segmentation is important, it’s time to start planning how to do it.
To develop a segmentation strategy, you’ll need to follow a few steps:
Step 1: Set goals
When you’re developing your customer segmentation strategy – ask yourself why you’re investing so much time in creating these strategies and what outcome do you expect to derive from them?
Set goals and estimate in what ways you’ll be able to grow your eCommerce business. Based on these goals, you can start designing the rest of your customer classification strategy.
You need to be mindful of the fact that “one size fits all” isn’t going to work. Hence, create different goals for each customer segment you design.
Step 2: Create groups of your choice
As mentioned above in this article, you may have understood in what ways you can do customer segmentation.
Customer segmentation depends from niche to niche. You need to come up with the groups that best relate to your eCommerce business type and can help grow your online store.
You can do segmentation based on age, gender, value, personality traits, etc.
For example, if you want to increase eCommerce sales from Southern states, then you may segment your customers geographically to run ads and target the audience of that particular region.
Step 3: Determine the size of your groups
Once you’ve set goals for your customer classification strategy, it’s time you start dividing your customers. You may notice, after the broad segmentation, that some groups include a higher percentage of your consumer base than others.
These varied segments will help you decide which segments are most important to focus on. The larger the segment is, the more your focus should be on it.
At the same time, you’ll have to focus on increasing the size of your smaller segments too. These may include VIPs and irregular buyers.
For example, if you’re dealing in fashion, you may notice that the segment of female customers is larger than that of men.
This means that you need to come up with a few marketing strategies that can expand your smaller group.
You’ll have to keep a check on these segments and analyze what strategies are making these segments expand and decrease.
You may also realize that you need to shift these segments from one group to another.
Step 4: Evaluate your customer quality and value
At this point, you’ll have to evaluate how much revenue and how much sales are being made within each group. The answer to this question will determine each shopper’s actual value and potential to your eCommerce business.
This has nothing to do with the size of your customer segmentation. It might be possible that your small sections are spending much more than your larger section.
As we talked about the example of male and female buyers, it might be possible that men are spending much more than females. This means that you need to give more value to your male customers and treat them in a way that they keep spending more.
You need to create a balance between your different approaches towards different customer segments. The value-based analysis will help you create premium offers that you need to share with all your audience (that you might be doing before) and focus on your marketing campaigns.
Step 5: Understand how these groups connect
You can’t define your customers with one single trait. They might fall under various segments at one time. This may seem obvious, but by getting more detailed about each consumer group, and dissecting how many of these sections intertwine, you’ll be able to get a clearer idea of who your consumers are and what they really want and need from your business.
You female customers might be mothers belonging from a technical education background, earning an average income, and highly interested in only Instagram and not any other platforms.
All of these traits change how your marketing strategy should behave. So, take time to analyze how many categories you want each customer to fall into and improve your customer segmentation strategy.
Step 6: Start Personalizing and targeting
By this time, you can start personalizing your content and strategies. Create the content and share it with those segments that are likely to get engaged with it the most.
Basically, you’ll be marketing based on particular customer pain points, interests, demographics, and the factors you’ve evaluated. Just that not all your content will be reaching all your customers but only the most relevant.
This implementation of customer segmentation makes sure that you’re targeting your potential audience in a way that is likely to drive sales to your eCommerce business.
Customers will always appreciate and respond well to a personalized approach that is beneficial for them.
Study shows that the visitors who are exposed to personalized content had doubled the conversion as compared to those who don’t.
6 Customer Segmentation Tools
There are many tools that you can use for segmentation your eCommerce customers like:
Customer segmentation is a great way to increase your eCommerce sales as it allows you to understand your customers in a much better and broader way.
Customer segmentation strategy works effectively for both small as well as large-scale eCommerce businesses. It aids in business expansion and long-term eCommerce business growth.
This article gives you a complete insight into what customer classification is, why is it useful, and how you can use the customer segmentation strategy model to grow your online store.
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