The Guide to Successful Customer Segmentation

Customer segmentation is a vital task that determines and cohort the customers into specific groups such as age, location, devices, gender, purchase history, etc. It is the key to making sure that the understanding of your customer comes through in your marketing. We see a lot of business failing when it comes to boosting customers’ reach and this is where customer segmentation models come into action. 

The necessity for customer segmentation is that it allows a business to precisely reach a consumer with particular needs & wants. Going ahead, this benefits your eCommerce brand since the consumer is able to use corporate resources more effectively and make better strategic marketing decisions.

We have mentioned below some intrinsic ways to segment your audience for your eCommerce brand.

Best ways to segment your audience

1. Psychographic Segmentation

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Psychographic segmentation divides the customer market on the basis of personality traits, values, attitudes, interests, and lifestyles. This allows for better development and marketing of your products since there is a more precise match between the product and consumer.

Analogy

As we know, people have different interests. Some people take the environment very seriously, while other people don’t. Some people are very fitness and health-conscious while others are foodies. Psychographic segmentation is when you break your market down as per these interests and attitudes so you can promote an appropriate product to each segment of the market.

Some Examples of Psychographic Segmentation

Products such as baby food, other baby products, are targeted towards married individuals, who are expected to buy these products. For instance, Nestle Cerelac always carries out an atmosphere of a cozy family house, where both parents nurture their child and feed him. Another example where, President of an automobile company decides to segment his market into consumers who are interested in luxury, consumers who are interested in practicality, and others who are interested in the environment. He focuses his product design and marketing of luxury sedans on one segment, SUVs on another segment, and EV hybrids on the environmentally-conscious customer segment.

2. Geographic Segmentation

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Geographic segmentation is when a business divides its market on the basis of geography. There are a handful of ways through which a market can be segmented on the basis of geography such as:

Dividing the market by areas, such as by city, country, state, region, country, or international region. One can also divide the market into rural, suburban, and urban market segments. And, a market can also be segmented on the basis of climate or total population in each area.

Analogy

Geographical segmentation is a perfect approach when it comes to companies with large national or international markets since different consumers in different regions of the world have different needs, wants, and cultural characteristics that can be targeted. Small businesses with a restricted budget can focus on a specific area and not spend needlessly on marketing ill-suited for their target geographic segment. Since it is relatively easy to break your market down to geographic segments, this can work well in different areas of population density. Consumers in an urban environment often have different needs than people in suburban and rural areas with cultural differences as well.

Some Examples of Geographic Segmentation

Let’s say a clothing company divides its market based upon climate between the Southern Hemisphere and the Northern Hemisphere. It will focus its marketing seasonal products, such as coats and winter gear in the Southern Hemisphere and swimwear and beach attire for the Northern Hemisphere.

Another perfect example of geographical based customer segmentation could be, Products that have a market based upon different needs and wants of people living in rural and urban areas their segmentation conveys their message to potential customers. For instance, a detergent company will promote its low-cost detergent product in rural areas because of substantial fungibility and on the other hand, in urban areas, customers prefer their detergent products to be of high quality, fragrant and have other similar qualities even if they cost a bit higher. Thus companies market their low-cost products towards areas with low purchasing power and their high-cost products towards areas with high purchasing power.

3. Demographic Segmentation

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Demographic segmentation is based on calculations of age, race, religion, gender, family size, ethnicity, income, and education. Demographics can be segmented into several markets to help an organization target its consumers more accurately. With this type of segmentation, an organization can categorize the needs of consumers. A target could be a particular group of people you want to reach with your marketing message. They are the people who are most likely to buy your products or services, and they are united by some common characteristics, like demographics and behaviors.

Analogy

Demographic segmentation makes the information you need readily available. You can extract data to understand who, where, and how you want to market your products. Demographic segmentation helps with customer retention and loyalty. For, When an organization spends time focusing on its customers and their wants and needs, customers will typically always come back for repeat business and will also recommend your unmatched services to their friends & family.

There are always two sides to a coin and hence, there are disadvantages to this one too; One of the main disadvantages of demographic segmentation is it can make an organization vulnerable to competitors. Your organization may spend all of its time and efforts on a specific demographic only to find out its efforts were wasted on the wrong section of the market and the competitors may further try to use the same marketing techniques potentially take away your customers in the future.

Some examples of Demographic Segmentation

One of the most comprehensive examples of market analysis and customer segmentation based on demographics would be that of Mc Donald’s. The corporation illustrates how Gender, Age and LifeCycle Stage impacts the product to be offered. 

Another example would be that of industries that do not miss out on the growing market by providing employees who are bilingual to work with their customers. As we see now how very common it is to see business, TV, and newspapers in English as well as other regional languages.

Now,  Before you fully invest in catering to any specific customer segment, Harvard Business Review editor Gretchen Gavett recommends evaluating the opportunity based on six criteria.

Evaluating customer segments based on six criteria

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1. Identification

There are clear and easy defining traits and reactions of your selected customer segment, to certain marketing campaigns and their purchasing behavior. 

2. Substantiality 

It is expensive to cater to each customer segment, so make sure any group you focus on has enough members who can drive meaningful revenue. Management consultants at Bain & Company recommend, “Determine the profit potential of each segment by analyzing the revenue and cost impacts of serving each segment. Invest resources to tailor product, service, marketing and distribution programs to match the needs of each target segment.” and also, should justify the costs of developing a separate marketing mix.

3. Accessibility

There should be clear ways to communicate with the customers, whether it is over email, social media or display advertising. Splitting your email list based on the customer lifecycle is easy, however, sharing targeted posts with your fans on Facebook can be hard without using the company’s marketing automation tools.

4. Stability

The definition for your customer segments should not change frequently. Dynamic customer segments tend to negatively impact the performance of your marketing campaigns.

5. Differentiable

Each of your customer segments should have distinct communication preferences. Marketers may want to integrate segments that share the same communication preferences and needs.

6. Actionable

The organization should be able to design products the chosen segment of customers want and execute promotional campaigns that actually interest these buyers to take action.

In your hustle of segmenting customers for your eCommerce business organization, you will encounter these five sales-oriented customers. six ways to think of your customer list with the application of lifestyle marketing for your eCommerce business.

6 ways to think of customer lists for eCommerce business

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1. All Customers (a.k.a. Everyone)

Begin with your full customer list. Store all of their contact information in one place.

Types of emails to be sent: Holiday promotions, new product offerings, company announcements.

Recommended schedule: Only when necessary, and no more than twice a month.

2. Potential Customers (a.k.a. Prospects)

These customers have demonstrated interest in your product but they are not yet ready to commit to a purchase. They have either submitted their email as part of their entry for a contest or giveaway, signed up for your email newsletter or created a shopping account and abandoned their cart before completing checkout. There is a chance that they are reluctant to buy from you because they want to become more familiar with your brand first. A combination of strategic branding, targeted coupons, and product education should work well to engage this type of customer.

Types of emails to send: Welcome emails, newsletters, satisfied customer testimonials, first-order only coupons.

Recommended email schedule: A welcome email should be sent immediately after capturing their email, once again after 72 hours, then weekly.

3. First-Time Buyers (a.k.a. One-time buyers)

These are customers who have only completed a single purchase with you. Your goal should be to turn them into repeat buyers. However, there are several reasons why they have not yet made another purchase. For instance, some of them only needed your product for a very specific time. Others feel your product insufficiently met their needs. Many may think your current prices are too expensive. A few may have simply forgotten about your business and need a quick reminder.

Types of emails to send: Order confirmation, new product offerings, re-ordering forms, product advice, product recommendations, customer satisfaction surveys & product review requests.

Recommended schedule: The order confirmation email should be sent immediately after they have placed their purchase. Of course, you may want to wait until after their order is delivered to send them product advice, customer satisfaction surveys and product review requests. A month or so after their purchase, you may prompt them with a re-ordering form.

4. Repeat Customers (a.k.a. Loyal customers)

Bundle shoppers who have made two or more separate purchases. These are customers who enjoyed your product enough the first time to return and place another order. Cherish these users as there is still a chance they may stop patronizing your store or that they may become brand evangelists who are loyal and regularly refer friends to your business. Respond quickly to customer service requests and experiment with ways to encourage them to place additional orders. To maintain their loyalty, consistently raise the bar on product innovation. Invite them to be a part of the brand-growing process by asking their opinion and mobilizing them to promote your business for you.

Types of emails to send: Order confirmation, new product offerings, re-ordering forms, product advice, product recommendations, refer-a-friend prompts, customer satisfaction surveys, product review requests, exclusive coupons for repeat customers.

Recommended schedule: Up to three times a week.

5. At-Risk Repeat Customers

A warning flag should be raised when a customer takes an unusually long time to return and place another order. At-risk repeat customers are characterized as shoppers who have made multiple purchases in the past but have let more time lapse since their last order than the average time all of your customers. However, these are not yet considered inactive customers until the time since their last purchase has lapsed more than three times the average that other customers spend between orders. This is an opportunity to get back on your customer’s radar, share updates about positive changes to your product or business, incentivize them to make another purchase with a coupon, or ask them why they have not purchased from you in a while.

Types of emails to send: Win-back surveys, time-sensitive coupons, “We miss you” emails, customer service-related updates.

Recommended email schedule: You may already be on thin ice with these customers, so stagger your email frequency by sending no more than once a week and slowing down your pace if the customer does not respond positively to your email with a purchase.

6. Inactive Repeat Customers (a.k.a. Idle, lapsed and latent customers)

Sometimes good things come to an end, It is inevitable. You may lose touch with some of your most loyal customers. Either their needs change, your brand and product change, or they simply forget about you. Whatever the case may be, it is your job to reignite the relationship. Inactive customers are shoppers who have placed multiple orders with you before but they have not placed another order for more than three times the average time customers spend between orders. Inactive customers can be unpredictable as any number of factors may have caused them to go idle. Feel free to be creative since there is only an upside in experimenting with different approaches; many of these customers have valid reasons for why they have become inactive and there might be very little chance for you to win them back unless you make major changes to the way you do business.

Types of emails to send: Major company or product announcements, big discounts, “How can we help?” questionnaires.

Recommended email schedule: At this point, you should be prepared to send your customers a series of emails with messages being delivered no more than once a week for a month.

Once you’ve collected as much data about your customers as you possibly can, you’re ready to start figuring out how you can use it to improve your company’s performance.

Conclusion

You want to segment your previous buyers out of new buyers, as you will be engaging differently with different sets of people based on the relationships you have already built. Your segments can be differentiated based on buying patterns and even the types of products they’re purchasing. The key will be to anticipate their future needs so that you can show them what they need before they even really realize it.

The goal of segmenting your customers and learning as much as you can about them is to provide service that makes them feel right at home when engaging with your brand. When your customers feel as if you exist solely to cater to their needs, it’s almost certain they’ll continue to rely on your services indefinitely.

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