Blog

Customer Segmentation for E-Commerce Stores

Blog, Ecommerce

Companies often divide their market into segments – either by geography (East/South/West) or by demographic (cultural/spending power). The reason they do this is simple. Your market is not a monolith, which means that it is made up of thousands or millions of unique individuals. A time-effective way to address unique individuals’ issues is to segment them into groups based on shared similarities. Customer segmentation is a valuable tool that all eCommerce businesses should be incorporating, given the ease of application for an online business.

 

There are multiple types of market segmentation and schools of thought on it. Broadly we can say that there are 3 types of market segmentation: 1) a priori segmentation 2) needs-based segmentation 3) value-based segmentation.

 

A priori segmentation is based on easy-to-find characteristics and doesn’t need market research to determine the segments. These would be characteristics such as geographical location, age, income, or heavy/light usage. A priori is commonly used, but shouldn’t be the only type used for an eCommerce business. 

 

Needs-based segmentation is based on validated needs that customers have expressed for a certain product or service. In this case, the company will need to do some market research to identify and validate the needs before creating those segments. This is a very important segmentation for eCommerce businesses to use, as it is much more comprehensive than a priori and can directly lead to revenue.

 

Value-based segmentation is done by differentiating customers by their economic value to your company. This then creates different segments that you can target your product to, and is valuable for SaaS companies that often change and fine-tune their product depending on the size of their client company.

 

For eCommerce businesses, we’d recommend a blend of a priori segmentation and needs-based segmentation. It is a fairly cost-effective method of customer segmentation and can help you target different groups with promotions and recommendations. We’ll show you an example of how to do this through customer quizzes/surveys.

 

Take this screenshot of our selfie quiz, which is live on cosmetics company Carlucce’s website. The purpose of these questions is to segment customers based on needs. Needs-based segmentation is achieved here based on asking what this customer’s skin is like. Using this information, the company can create a couple of groups based on dry skin or hyperpigmentation needs.  Along with that, you can collect information such as the person’s age and gender to create broader segments.

 

These segments are useful for targeting recommendations and promotions. It also helps tell you what you should be focused on next. If you notice that you have a burgeoning group of customers aged 40-60 with an interest in products surrounding the need for “wrinkles”, you may want to introduce new products that serve that need or complement it. Simple quizzes or surveys that are engaging are the #1 way for eCommerce businesses to gather valuable first-party data on their customers.