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In e-commerce today, the concept of customer segmentation offers marketers a powerful means of dissecting their audiences and connecting with consumers on a more personal one-to-one level.
When you leverage data insights and personalization, you can make the customer feel like they are understood. This personalization also allows you to present them with tailor-made solutions to their pain points.
Over time, customer segmentation makes it possible to reach the right customer, with the right message, and the right time.
In this guide, we’ll explore this strategy in-depth, showing you how to implement customer segmentation to understand the customer journey – and how to leverage the insights for more significant gains.
The marketing approach you opt for depends on your campaign goals. Typically, you will either predefine your targets or else you will start with a broad scale, before refining your targeting to specified groups afterward.
Mass marketing is advertising a product or service to a full, varied audience. Not everyone who receives the message may be interested, so it isn’t great for pushing sales. Ideally, it should only be used for brand awareness, as companies can broadcast mass marketing messages to reach a lot of people in a short space of time.
Traditionally, mass marketing belongs to the realms of newspaper, television, and radio, rather than in digital marketing.
Niche marketing is when a defined subsect of the market targets specific products or services, which are closely aligned to the needs and interests of that audience. Niche marketing is all about relevant content and honing in on the customer’s needs, and it is a cornerstone of virtually all digital marketing in the modern era.
Increasing market competition drives companies to improve customer segmentation so that they can further define their niche to cater to their customers on a more personal level.
Nowadays, people expect a seamless user experience from one touchpoint to the next. This experience allows for their specific needs to be addressed the content, offers, and brand messaging they receive are directly related to their interests.
Companies can do this by using personalized marketing, which is based on data analysis of consumer trends, browsing behaviors, and purchasing history. As you gather more data, your marketing team can get a better understanding of prospects. This allows them to tailor their marketing efforts to engage people in ways that are more likely to result in a conversion.
Research indicates that 59% of online shoppers believe personalized marketing has a significant influence on their purchasing decisions.
The real challenge is maintaining effective personalization as your business grows. While you may already have a niche audience, your content can still be too generalized when it’s delivered to a larger, more diverse audience. This can lead to a drop in audience engagement, and so, customer segmentation becomes essential.
Customer segmentation is the process of creating defined target groups of people within your customer base.
Modern consumers have a vast array of options available, with intense competition and constant innovation providing marketplaces with an embarrassment of riches. With so many products and services to choose from, customers have the luxury of choice, forcing companies to go the extra mile if they are to keep people interested.
As your business – and your audience – grows, you can use customer segmentation to analyze and categorize your customer base. This involves grouping them by shared interests or behaviors, such as:
With every visit and digital touchpoint, you can gather more data to paint a clearer picture of each customer, their needs, and their interests. This paves the way for better e-commerce personalization, as you can serve targeted content to each segment, in the form of personalized content, emails, and product recommendations.
You can achieve a high level of personalization and relevance by creating small segments. However, having too many groups is undesirable as each group will require a certain amount of time and effort to develop and market content.
Ideally, you should strike a balance between the size of each segment, attribute diversity, and the total number of segments.
Customer segmentation makes it easier for marketing teams to run targeted campaigns. With the tactic of divide-and-conquer, marketers can tap into the raw potential of data analysis to boost engagement metrics. Ultimately, this helps align their marketing funnel with the customer journey so that they can achieve a higher return on investment (ROI) in their campaign efforts.
Let’s see how you can implement customer segmentation in B2B (Business-to-Business) and B2C (Business-to-Customer) business models.
In B2B, companies will segment their customer base – other businesses – by using attributes like:
For example, in a vertical business model, the marketing segment is focused on a specialized product or service. As a result, segmentation will make marketing efforts more relevant to areas linked to these products and services.
By comparison, the horizontal business model marketing segment focuses on job roles in diverse companies or industries. SAP and Cisco are two examples of B2B brands.
Typically, the firmographic attributes used in B2B segmentation won’t be enough for planning marketing and budgeting. Therefore, we have other segmentation schemes available that provide a more detailed overview of customer businesses.
B2C is when a business sells direct to the end-user, which is also known as the sales model. In this model, we segment customers based on human-centric attributes, such as:
Each segment can be influenced and further defined by considering attributes like social class, technological knowledge, and preferences. Amazon and Google are two good examples of the B2C business model.
Generally speaking, customer segmentation is done on either the B2B or B2C model. The segmentation bases and approach depends on the business model that attracts customers to the business.
The following approaches to segmentation are there for companies to experiment with, and they can mix and match several of these depending on their business, product, and services.
The approach you take to customer segmentation will depend on many integral factors, including business domain, data volume, and time applicability. You must also think about the resources and knowledge that marketers have to perform segmentation.
A Priori segmentation is the easiest, most cost-effective method. Although it focuses on public data, it leans more towards intuition, and so the segments don’t always have an excellent marketing context.
As such, a priori segmentation is best used for mass marketing. As it doesn’t use any need-based attributes, this approach isn’t practical or deep targeting.
Post-hoc segmentation is based on underlying customer intentions – derived from data insights. This data-driven approach considers consumer trends, data patterns, and behaviors.
Because of this, these segments are more meaningful for marketing content, and this approach provides a more targeted, focused marketing campaigns.
Usually, this type of analysis works by generating clusters on multiple attributes, as larger customer data volumes offer better insights.
This approach is all about identifying customer needs and using customer segmentation to group people with shared or similar needs.
Need-based segmentation is valuable because it helps create defined segments, and shows you how much that segment has already been served.
The major challenge here is discovering customer needs, which may focus on price, quality, or service. Doing this requires thorough market research and study, and you must then align the company’s vision, messaging, and products to cater to the needs of the market.
When it comes to making purchasing decisions, price is a crucial metric for customers. When businesses use value-based segmentation, they assess customers on their economic value, and group customers with similar economic value into one segment. This approach looks at a prospect’s worth not only as a customer but also as an influencer and a loyal brand advocate.
While it requires detailed customer interviews and reviews, value-based segmentation is product-centric. Whereas need-based segmentation doesn’t explore the pricing and profit from a business perspective, value-based segmentation helps businesses create multiple categories that consider varying profit ratios from one customer segment to the next.
During customer segmentation, data analysts and marketers must identify the key attributes that will allow them to categorize customers. These attributes form the basis for customer segmentation. Here are several common types of segmentation base in use in digital marketing today:
This divides people into groups depending on demographical attributes, such as:
Demographic segmentation is a popular choice where businesses consider customers who have similar lifestyles, interests, and purchasing behaviors.
Many social media platforms will provide easy access to this type of data, and it is also widely available as census data. Therefore, if you use this segmentation base, you can expect stiff competition as many other businesses will also be using it.
A caveat to demographic segmentation is that it tends to assume that all customers in one segment will have similar needs. This “One size fits all” approach never yields optimal results, especially with larger audiences.
Geographic segmentation groups customers based on predefined geographical locations. This technique is excellent for location-based marketing, as it reduces wasted spend on advertising in irrelevant or unwanted areas.
When you take the location of your customers into account to focus on specific countries, cities, or regions, you can dramatically improve your marketing ROI.
Furthermore, you can customize products or services according to the language, cultural variations, or average income of an area.
Geo-Demographic segmentation is an advanced strategy that combines demographic segmentation and geographic segmentation.
First, you group customers by geographical location and then segment them further depending on demographic attributes. The more demographic characteristics you use, the more complicated this technique becomes.
While it isn’t as straightforward as other methods, geo-demographic customer segmentation enables highly-accurate targeting.
Psychographics segmentation groups customers by personality traits, including lifestyle, communication preferences, attitudes, beliefs, and values.
When you get a better understanding of your customer’s thought process, your marketing team will be able to create more engaging content relevant to customers’ needs and interests.
Unfortunately, this method can be a challenge to apply as it requires credible psychological surveys, analysis, and studies of your customers.
Behavioral segmentation examines behavioral patterns that customers exhibit whenever they were interacting with your site, products, or services.
For example, you can consider people in the product awareness stage who make queries about the product features, its price, or any availability loyalty programs.
By analyzing onsite browsing behaviors like navigational patterns, product pages viewed, etc., we can develop a keen sense of what customers are interested in buying. When using this type of segmentation base, you’ll need a lot of time, data, and experience to maximize its value.
Socioeconomic segmentation looks at the social status and income of customers. The income level offers insights into the buying power of customers, and also the markets, products, and services they are interested in targeting.
In a similar way to demographic segmentation, this approach adopts a “one size fits all” attitude, which assumes all customers in one economic group will have related needs and desires.
The last on our list is relatively new. This dynamic technique isn’t limited to any specific attributes, as it extends to situations that arise.
Marketers consider specific situations where their product or service may be useful, and they also consider the needs of the customer. By mapping out ways of bringing the customers and solutions together, companies can use this segmentation to discover new ways of selling their products to customers.
Businesses are changing their development practices and marketing strategies to become more customer-centric. As this happens, customer segmentation also needs to become customer-centric.
The segmentation process should always consider the customer’s needs, demands, and preferences to produce the most customer-centric segments as possible.
While businesses are steering toward becoming more customer-oriented, they’re still running their service or product-focused campaigns. This means the added value for customers comes in somewhere down the line.
These days, however, customers expect businesses to make offers based on their needs – without having products thrown at them. Customers want to be understood at an individual level.
This means this directional shift should be made from campaign-based marketing to customer engagement oriented marketing while covering the full customer life cycle on all the channels they prefer.
On top of personalized products and services, businesses are veering towards the customer experience.
As Jamie Brighton explains, “Whether you’re a retailer trying to anticipate what customers will need next or a broadcaster hoping to upsell existing subscribers on a new service, traditional targeting isn’t enough anymore. People do not want to feel targeted; they want experiences that feel tailored to their needs. That’s what separates modern companies that know how to put customers first from those businesses that can’t look past their products and services.”
Customers’ interactions are mainly coming from campaigns. The context and intent of these interactions will define their requirements, willingness to choose the brand and overall loyalty.
This form of modern marketing that is now vital.
Customer interactions at any stage are exceedingly important since these interactions reveal the customers’ needs and intent.
With every interaction cycle, more data is produced, and the content becomes even more precise. As soon as the context holding datasets are analyzed, marketers are given rich insights which are geared directly towards customer-orientation.
Through machine learning and artificial intelligence advancements, learning such insights is becoming much more refined – and accurate as these context-focused systems anticipate customer needs.
By now, you should understand that the fundamental goal of customer segmentation is to group customers based on their needs.
Arguably the most effective way of understanding the needs of your audience is to consider their intent and the context. You should think about where your prospect is in the customer journey, and try to understand what they may be thinking at that point.
The customer journey begins with brand awareness, moves to consideration, then leads to conversion. When you’re marketing team is taking the right approach, the customer journey continues to become brand loyalty.
With this journey in mind, we can use customer segmentation to focus our marketing at four distinct stages. This is known as customer journey stage-based segmentation.
Brand Awareness Segment
The initial stage looks at consumers who have just discovered the brand. Data may include a lot of traffic that is irrelevant, and therefore will not convert. By segmenting customers here, you can define leads that are worth nurturing a relationship with, and also recognize which consumers are of little to no value.
Customer Engagement Segment
After brand awareness, interested consumers will begin engaging brands on their website and social channels. They may be new customers or returning ones, and at this stage of the customer journey, they will want to learn more about the brand, its product, services, and values.
Using customer segmentation in this phase helps your business see which products attract the most interest and queries. You can also see the peak times and days where your prospects are most active and engaged.
Conversion/Sale Segment
Traditionally, the most vital step in the customer journey is conversion. By using segmentation, you can discover the efficacy of each of your channels, and learn more about which locations, times, ads, etc., are contributing the most to your overall conversion rates.
Loyalty Segment
Getting the sale is just the beginning. When you convince customers to return, you get the chance to build a lasting relationship that delivers more value for your business.
Customer segmentation helps you target previous customers with special offers and loyalty benefits so that you can sell to them again.
A lot has changed in the digital era, but the customer is still king.
While marketplaces are thriving with intense competition, and consumer interests are diverse and somewhat unpredictable, businesses have a wealth of marketing technology and techniques to give people what they want.
By experimenting with various customer segmentation strategies, your company can engage people with more personalized marketing, and align your marketing funnel with the customer journey.
Over time, with more data, practice, and patience, you can offer a seamless user experience across multiple channels, ensuring you make the right offer at the right time. Done right, you won’t just win customers – you’ll earn loyal brand advocates.
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