Customer segmentation is an important part of Ecommerce business.
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.
What is Customer Segmentation?
Segmentation is an ecommerce technique that groups customers together. This makes it easier to create offers and calls for action . Personalized marketing is about being relevant to your customers and responding appropriately to their actions.
eCommerce customer segmentation simply means that you divide your clientele into groups according to their needs and expectations.
You can segment your customers based on criteria such as age, generation, gender and occupation.
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 Ecommerce customer 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.
Also read how these DTC beauty brands segment their customers.
Priori segmentation is a method in which segments variables such as income or age are first selected and customers are then classified accordingly. Post Hoc Segmentation, on the other hand, uses data from existing customers to create segments based upon similarities and differences.
A process by which markets are divided on the basis of assumptions, hunches or custom. This is not done by marketing research.
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 the process of identifying groups based upon their shared experience with a particular problem or needs.
Why should you do need-based customer segmentation?
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 customer segmentation focuses on evaluating groups of customers based on the revenue they generate and their costs for establishing and maintaining business relationships. This segmentation also allows companies to determine which segments are most profitable and adjust their marketing budget accordingly.
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.
This type of customer segmentation covers all costs that could be assigned to a customer. It does not only include those that the sales department has control . The value-based segmentation does not rely on just the price; it often includes input about the strategic importance of the customer and credit risks.
Our recommendation for customer segmentation in E-commerce
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(TM), 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 for retargeting 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 Zero-party data on their customers.