Companies often divide their market into segments. It’s 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. It consists of millions of unique individuals. A time-effective way to address the issue of dealing with unique individuals is to segment them into groups based on shared similarities. Customer segmentation for E-commerce stores is a valuable tool. All eCommerce businesses should incorporate this, 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. And these would be characteristics such as geographical location, age, income, or heavy/light usage. A priori is commonly used. But it 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. Firstly, the company will need to do some market research to identify and validate the needs before creating those segments. Secondly, this is a very important segmentation for eCommerce businesses to use. Because it is much more comprehensive than a prior. Lastly, it can directly lead to revenue.
Value-based segmentation is the segmentation when you differentiate 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.
What should be the type of customer segmentation for E-commerce stores?
For eCommerce businesses, we’d recommend a blend of a priori segmentation and needs-based segmentation. Because 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. You get a needs-based segmentation when you ask about the customer’s skin type. Using this information, the company can create a couple of groups based on needs such as dry skin or hyperpigmentation. Also, you can collect information such as the person’s age and gender to create broader segments.
These segments are useful forretargeting through 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.