Learning how to do retail customer segmentation for eCommerce Stores is important if you want to get your online business to the next level…
…And that’s because it’s with personalization and making it feel you are speaking to a customer, they become your “best friends forever” (aka bff’s) with your brand.
This means defining and going after your target audience with zest.
In this guide, I am going to show you how to segment your customers for your email marketing campaigns so that you can learn the foundations of how successful eCommerce stores make their fans loyal and trust them by segmenting them properly.
So let’s get started.
What’s Retail Customer Segmentation
Retail customer segmentation is subdividing shoppers into distinct groups based on their shared characteristics by retailers.
This grouping helps you provide a way to identify each group’s unique needs and deliver them the relevant promotions that they want.
So when you segment the customers based on their behaviors, it enables retailers (aka you) to avoid guesswork by showing them the stuff that they care about.
So What Are The Benefits of Retail Customer Segmentation for An eCommerce Store?
- Increased conversion rates: Proper retail customer segmentation helps you deliver relevant marketing messages to customers. This means the more relevant the messages are to your target audience, the more likely the customers are going to buy from you.
- Higher customer retention and satisfaction: Segmentation helps you build more personalized connections with your customers and improves their satisfaction. Just like every business owner knows, satisfied customers will stick with your business for a loooong time.
- Enhanced competitiveness: Understanding your specific customer needs and delivering tailored solutions to them gives you an edge over your competition.
- Increase in revenue: Since acquiring new customers is quite costly, focusing on increasing the lifetime value of each customer is necessary for long-term profitability (just think of Amazon.)
15 Retail Customer Segmentation for eCommerce Stores
There are various classes of retail customer segmentation based on different factors, so let’s go over them to give you an idea of what to focus on.
Demographic segmentation
Demographic retail customer segmentation divides the market into smaller categories based on their stage at the societal level and then groups them into factors like age, gender, income, etc.
1. Age
This is the most basic variable in demographic retail customer segmentation that many people use, especially for paid ads…
And it makes sense.
This is because nearly all advertising campaigns target audiences of specific ages since consumer preferences change with age. For example, a college student would probably be more excited for the next “Ultimate Beer Pong Table” than a 60-year-old guy with health problems (unless he’s actually a secret frat star…)
Taking this into consideration, it’s essential to come up with marketing campaigns that target an age-specific audience for best results.
You can look at this from the life-cycle stage, such as:
- Babies
- Children
- Adolescents
- Adults
- And Seniors…
To even generation-based like:
- Millennials (lol Tik Tok)
- Generation X
- Baby Boomers
- Etc.
Members of each of these groups have a lot in common in personality traits and thinking processes. Targeting these different groups with the same offer will probably not work as well.
Besides having different buying habits, different age groups and generations also respond differently to advertising.
That’s why when you want to focus on improving your advertising, you want to build age-based segments so you can tailor your products or services that appeal to a distinct age group, as this will help improve your conversion rates. This is the most important reason why we need to focus on the right retail customer segmentation to get the most bang for your buck.
2. Gender
Men and women differ in terms of preferences, dislikes, and thought processes (unsurprisingly…)
This means that using the same marketing campaign for both genders won’t work as well because you will lose sales if your target customers’ expectations don’t match with what they see.
That’s why when you are considering doing your retail customer segmentation that you should see what type of gender you are trying to focus on.
There are gender (*upcoming trigger word coming up*) “standards” for various products, including perfumes, clothing, shoes, and even automobiles, which manufacturers are fully aware of and try their best to meet their demands.
That’s why Victoria Secret mainly has models of females to tailor to women, even though I know I can rock that white-laced underwear set (just saying…)
It’s important to tailor campaigns that resonate with the needs of each gender for higher conversions, which you can easily do in your email copy.
It’s also simple if you’re a clothing store to segment your audience based on the products they buy… (it can even be as simple as asking them if they are male or female…)
3. Socio-economic status
For e-commerce stores, segmenting consumers based on their income is also pretty helpful.
This is especially effective when you want to deal with both premium and normal products.
The way you do this is by grouping people based on their comparable annual or monthly earnings together. When you can target someone’s income bracket, you are one step closer to stepping into their perspective and helping you create better advertisements to address their needs.
For example, you wouldn’t target luxury products like Versace to people with no money since they wouldn’t be able to buy it whether or not they want it.
So when you segment your audience based on income, it lets you determine the buying power of your audience and promote relevant brands, deals, and stuff for customers who live and breathe in that area.
4. Marital status
The next step you want to have for retail customer segmentation is putting them under married, couples, and single.
Usually, couples are more conscious of their finances and usually want to strike those fancy couple deals…
While also have to consider their expenses such as mortgages, children, cars, and schooling.
And we’re going to talk about being “in general” (like very general) but…
Usually, married people focus on spending the essentials and saving for emergencies, while people who are single may not consider the future and may splurge more.
Of course, you always need to do research on your specific audience instead of generalizing and making assumptions (like what I just did…)
5. Religion
Religion is also another retail customer segmentation you should consider for your product.
Each religion has people who have a different culture and different perspective on life, so it’s important to take that into consideration when trying to sell your product to people with different religions.
That’s why you want to take it seriously if it goes against or compliments a group’s religious views because that’s where you will polarize.
And sometimes, polarizing can make the people who love your product become loyal fans forever or hate you forever.
Understanding your customers regarding their beliefs and preferred products can give you a competitive advantage.
So be sure to know exactly what you’re doing if you are going to segment based on this since touching people’s beliefs is very sensitive.
6. Occupation
Occupation is a retail customer segmentation that should be considered, depending on the amount of expertise required for your product.
For example, you are going to want to segment your audience if you are selling professional software for accountants vs. ordinary people.
When you get to the nitty-gritty of this type of segmentation, it makes it easier to show them that this product is for them, not for everybody.
Which… in most cases, helps bring in the cash.
Another example is with doctors and farmers.
Both of them may need soap, but you can address them differently. For example, a doctor would probably consider how many bacteria it kills while a farmer wouldn’t care as long as the soap doesn’t affect their produce…
And it’s addressing the benefits to their occupation which can make the biggest impact.
While targeting a specific job function, it’s important to keep seasonality in mind and what will genuinely catch the attention of those clients. This way, you will develop highly targeted campaigns that appeal to them for optimal results…
Cause you never know… doctors might just need lots of hand soap during the winter.
Psychographic segmentation
The psychographic segmentation classifies customers based on their shared likes and dislikes. It also looks at hobbies, your lifestyle, values, and social class.
1. Lifestyle
This type of segmentation entails gathering information about potential customers’ preferences and habits, then grouping them based on how they spent their time, what they value, and what’s in their environment.
Lifestyle retail customer segmentation places the market’s potential customers into different groups of people with common lifestyles.
Customers consider how your products match or fit in their lifestyles before buying. That is why it’s important to consider this to ensure that your brand personality fits in your customers’ lifestyle.
In sales, lifestyle segmentation is critical, as it allows you to include aspects of your customers’ lifestyles into marketing messages and sales dialogues. This helps establish a common ground and build a rapport essential in guiding more clients in your sales funnel.
Using lifestyle segmentation data will not only help you build new customer relationships, but maintain the current ones as well.
2. Hobbies
Hobbies is another type of psychographic customer segmentation where it categorizes people based on their interests or activities they enjoy engaging in.
Customers’ hobbies and interests differ and understanding this can help you market much more effectively. The recreational activities and hobbies of your target audience can help you gain a deeper understanding based on their preferences and products that appeal to them.
By identifying what your potential customers enjoy doing for leisure, you will tailor advertisements and send relevant offers, products, and discounts to them.
Then you can determine your target audiences preferred products, features, and services based on their chosen activities, hobbies, and interests and develop marketing tactics to cater to them.
Many businesses are aware of the activities that resonate with their target audience’s lifestyle and craft promotions that show how their products or services fit. They target their advertising messages around these specific activities or hobbies.
For example, you will not sell guitars to someone who doesn’t play the guitar and vice versa.
3. Values and attitude
Values and attitude are another retail customer segmentation to consider marketing for your eCommerce store effectively..
Most people already have ingrained values and attitudes towards different products, and taking this into consideration from your customer’s perspective can give you an immense advantage.
Different customers have different attitudes and worldviews guided by their backgrounds. Consumers show a preference for goods and services from brands that share values similar to theirs. They also shun buying from those with dissimilar beliefs.
Value and attitudinal segmentation recognize that attitudes drive and impact purchasing behavior, and it responds by grouping these audiences and targeting them in the most effective way possible.
Targeting customers based on their principles, what they believe in and care for is a sure way to gain their loyalty, which will improve your customer retention rates.
4. Personality
Personality is another important retail customer segmentation where you can group similar traits together.
For example, people can be emotional, opinionated, introverted, extroverted, creative, friendly, extravagant, go-getters, and easy-goers based on their personality.
Customer personality and purchasing habits usually go hand in hand. That’s why you need to make sure that you design your products that your most valuable customer would purchase based on their personality.
Businesses can boost their sales and consequently their revenues by using this type of segmentation to develop products that satisfactorily suit customers’ personalities.
Understanding your audience’s characteristics can also help you in developing the proper brand personality for your firm and communicating the same through your products.
When building marketing campaigns and targeted commercials, you must consider your customers’ personalities, as this affects how they view your adverts.
Undoubtedly, it pays for a business to group together similar buyer personas and market similar products and brands to them.
5. Social class
Social class has a significant impact on how and why people spend money and is something important to consider for your retail customer segmentation.
Every socio-economic class has its own product preferences. This makes social class a critical variable in psychographic segmentation. For example, their social class dictates directly people’s eating habits and dressing choices.
Customers belonging to the high societal class have preferences for unique products that reflect luxury, style, and class. Middle and lower-class customers place a higher value on functionality over class or style.
Of course, I’m just generalizing here, but it’s important to consider these things that most people take for granted.
To target a specific market segment, you need to first learn about the socio-economic classes there and adjust your product to deliver value.
The secret is fully understanding that your product may cannot appeal to all social classes, no matter how great it may be.
Behavioral Segmentation
This involves grouping customers based on their behavior while interacting with a business website. This means it groups shoppers with similar online buying behavior together.
Behavioral retail customer segmentation eliminates the guesswork involved in figuring out what customers want and what they’re most likely to purchase. The variables used in this type of segmentation include:
1. Abandoned carts
Abandoned carts are among the biggest concerns for e-commerce stores, as they represent lost revenue. A survey by Barrilliance in 2019 revealed that the average cart abandonment rate was 77.13% which is pretty high…
However, most retailers report that abandoned cart emails can help recover between 12-15% of customers.
Shoppers can abandon carts for various reasons:
- They might be interrupted
- they may no longer want the product
- Or they just wanted to analyze your abandoned cart email (which I am guilty of sometimes…)
Whatever the reason, the first step towards successful recovery is identifying the problem.
Recovery from abandoned carts is crucial because those who have abandoned their carts are already several steps into your funnel. They’ve clicked on an ad, visited a product page, and converted by adding a product into their cart. This then makes them more valuable, as they have already showed their intent to buy, unlike fresh customers.
To recover those lost orders, it’s best to customize messages for higher chances of conversion.
And… the way to do this is to segment cart abandoners by their product or category of interest.
Guided by the interest shown in a particular product or type, you can add various related items to give them variety. After all, what matters is getting an order irrespective of the product, right?
2. Top purchasers
This retail customer segment comprises repeat customers who have many interactions with your business, placing multiple orders besides high revenues. This implies that they have stuck with you for a long time, shop frequently, and spend a lot in your business. They are your most valuable customers as they bring in consistent revenue flow.
Do you remember the Pareto Principle?
It’s only 20% of your users that bring in 80% of your revenue. It’s therefore essential that you guard the 20% as they are what keeps your business going.
This group of customers trusts your store and has a high affinity for your products which means they can become your brand ambassadors by recommending your products to their families and friends. Ensure you have referral programs with a suitable reward system for this.
To keep these crucial segments, develop innovative ideas to keep them engaged and happy.
You can offer them exclusive access to mega sales, early access to specific products and discounts, involve them in product creation and request for feedback, come up with loyalty tiers for the segment, design a reward points system, or send unique pop-ups greetings whenever they visit.
3. Idle customers
This retail customer segment comprises customers who had previously placed several orders but have not placed another for quite a while.
These shoppers have a reason for their inactivity. Their needs may have changed, your products or brand have changed, or they have simply went silent on you. Whatever their reason may be, it’s your responsibility to follow up and bring back the relationship.
Find out why they stopped purchasing from you and develop creative pop-up ways to entice them back to your business.
So why is this important?
This group of shoppers has high recency and monetary value but low or diminishing frequency. This means making a reconnection is a sure way to boost your revenues.
Let them know you are fully aware of their needs and give incentives to encourage them to come back to your online store.
These are some ways of re-engaging inactive customers:
- Request for feedback on products based on their order history
- Plan personalized limited-time sales using wish lists
- Offer a new model for a product they purchased
- Send them an informational piece on a product they bought
- Use queries to lure them to new product categories and offers.
4. One time buyers
These are the customers who have completed only one purchase with you.
They have their reasons for not coming back even if you did proper retail customer segmentation. Maybe they needed your product for a particular need at that specific time, or your product didn’t meet their demand satisfactorily.
Others may feel your prices are too high, while several of them may be unfamiliar with your other product offerings. Some may also have forgotten your site and only require a quick reminder.
Despite their reason, aim at converting these into repeat customers. You should, therefore, find out the cause and define ways to win them back.
To get repeat sales, you can:
- Create and share content to keep your brand in mind
- Request for review of their first purchase and offer a discount on the second one
- Ask for feedback on their experience with the first purchase
- Use seasonal changes to offer new collections
Repeat sales are the backbones for businesses and they can be exponentially increased with the right retail customer segmentation.
5. Indecisive customers
This segment groups customers who spent a considerable amount of time on your website taking no action. I bet you have noticed a few people like this whether or not you paid attention to your retail customer segmentation.
Although these shoppers may have constant chats with your live service or by abandoning carts, they can’t seem to make up their minds on making a purchase. Unfortunately, this causes you to lose on these orders.
This segment requires further help or motivation to purchase. You can use conversational marketing strategies to engage them.
After identifying this class of customers, you can create a chatbot to help in learning about their likes and offer suggestions.
Some strategies you can use to make them convert include:
- Provide extra information on products, including images from varied perspectives, size, and videos showing the use
- Include all relevant information, such as delivery, refunds, and exchanges.
It’s these little things that can help boost your sales with the right retail customer segmentation.
Conclusion
There you have it, different methods you can use retail customer segmentation for more effective and targeted marketing.
You can group them based on their stage in the societal level, character traits, or their behavior on your website.
However, note that segmentation is not a one-off activity, but a continuous process. Therefore, even though all the segments outlined in this article are essential, you shouldn’t attempt to implement all of them at once.
Instead, identify your most profitable and most influential segment and track its performance.
Let me know in the comments on how you segment your eCommerce stores.