Ecommerce Marketing is all about personalization these days. Your customers want to feel welcomed and that your company cares about them. Therefore, you must take the time to understand your customers' needs and values, and how they impact their buying habits.
But how do you do that for every customer?
You don’t. You only cultivate the customers who are most likely to purchase. By segmenting customers, you can understand who those customers are and how to reach them.
Customer segmentation is breaking down your customer base into groups based on their behaviors. This is a data-driven approach, part of Smart Selling practices to scale your business online.
This can get overwhelming. There are seemingly endless ways you could break apart your customers into segments. Here are the most common segments used by businesses:
Finding the right segments for your business will take a little trial and error. You will continue to learn more and more about what content interests each segment with each iteration. Over time, your marketing team will be able to develop consistent messaging for each segment, taking you from inefficiencies to insights.
The main challenge behind customer segmentation is deciding on which formula two use. Depending on your situation, you may go with either a target market or more customer-centric groupings. Each form has its pros and cons.
Target market segmentation focuses on your potential customers. With it, you segment your customers based on their demographic potential to buy your products or services. You can then further divide them based on their needs and desires.
The type of segmentation helps you focus your marketing efforts on these specific groups, creating more effective campaigns. For instance, you can place your advertisements in the right publications to see the most returns on your investment. However, target marketing can obscure the reasons behind your failed marketing efforts from the lack of feedback.
In contrast, customer-centric segmentation focuses on your existing customers. With it, you attempt to understand who actually buys your products and services. This understanding then becomes the contextual framework for your targeted marketing efforts.
You can use both types of segmentation to maximize your returns, provided neither stray too far from the other. Any imbalance can lead to lost opportunities with your existing customer base. Your business may also lose its mission focus as it tries to be everything to everyone.
As such, you want to base your e-commerce marketing primarily around your customer segments. Target markets force your organization to react to market trends, leading to only small short-term gains. Meanwhile, customer segments help you see the trends before they happen, letting you capitalize them for greater returns.
Customer segmentation improves the efficiency of your marketing. It not only saves you time, but also your customer's time. Customers do not want to spend their days reading advertisements about products not relevant to them. They just want to know about that exact product they want and need. With customer segmentation, that’s possible.
Customer segmentation focuses on the core customer base. For example, you may create one segment of customers who spend large amounts of money at your business infrequently, and another segment of customers who spend small amounts of money at your business frequently. These are both groups of core customers, but the messaging to each group needs to be very different.
Customers who buy frequently want more frequent communication and engagement. However, customers who buy infrequently might be more likely to increase their spending frequency when they see a sale or an expiring coupon. Breaking core customers into segments allows you to analyze data from a group based on past behaviours, to find out what will best convert them to a new or first-time sale.
By segmenting your customers, you can provide personalized messages to each group of core customers. This approach allows for customer cultivation and it's a great way to nurture the relationship of these core customers with your business.
Personalized customer service retains customers and increases loyalty to your business. A personalized offer encourages customers to buy more products because the offer meets a need they already had.
After all, customers don’t want to spend any extra time deciding what to buy or fixing their issues. They want you to use what you know about them already to streamline the process. Customer segmentation can help you with that.
Businesses can use customer segmentation to increase their ROI by leveraging data on current segments to cultivate higher-value core customers.
Data is the basis for all segmentation strategies. Every business already has one data point to start from customer purchase history. You also might have data from emails sent out as part of marketing campaigns, including open rates and click rates. In the beginning, there is no need for high-tech, complex, and expensive machine-learning software. You can start small and get more complex as it fits your company’s needs.
Starting too big or too complex is the quickest way to overwhelm yourself and stop before you even get started. Start with one essential metric, such as either:
Your marketing strategies will then be directed by the metric you choose. Using an iterative approach, start with one campaign for each group. For core customers, reward them with premier offers that let them know how much you value their business. Maybe you give them exclusive access to new products or offer them discounted shipping. For low-value (non-core) customers, encourage them with promos and discounted shipping. The goal for each campaign is to encourage more sales.
Make sure you are measuring your campaigns with additional metrics that you can use not only to see if they worked but also to learn more about your customers. This will help you segment even further.
Once you have a good flow of basic segmentation, it’s time to dig even deeper and it starts with planning. Proper segmentation requires a complete understanding of your customers and how they relate to your business. It then requires producing content and strategies that maximize your marketing efforts with those customers.
The efforts are not small, but with the help of an advanced and efficient solution, you can scale your online business much more easily.
Your customer segmentation strategy must reflect the needs of your situation and customers. Because of this, these strategies can vary between industries, products, and brands. Fortunately, there are some key steps you can take to get things started.
Set Customer Segmentation Goals - These clearly defined goals should detail your desired outcomes and the reasons to achieve them.
Customer segmentation models help you split your customers into easily targetable groups. They allow you to produce products, services, and messaging that best suit the needs of these groups. However, their effectiveness largely depends on how detailed you can make them.
With that said, there are only 3 types of customer segmentation models. Each of these models defines the needs, behavioural, and characteristic foci for your customer groups.
Some customer segmentation models will be more suitable for your business than others. Therefore, your most important consideration should be choosing which models best match your customers and your specific requirements. As such, you should choose your segmentation model based on the following criteria.
You must know your customers before you can split them into categories. However, your customer data often comes in different forms from multiple places. Therefore, you should include customer segmentation tools among your management tools and solutions.
Customer segmentation tools employ powerful AI-based machine-learning algorithms to collect, analyze, and split your customer data into actionable segments. You can then use these customer segments as is or process them further to improve their effectiveness.
An e-commerce and retail solution is a necessary tool for your e-commerce management. Be sure to select one that delivers you with all the features you'll need to achieve customer segmentation, customer cultivation and overall smart selling tools.
As such, these tools automate the process so your employees can concentrate on other more important tasks. However, not every tool will be useful to you. Each one has its specific features and benefits, and you want the one that best matches your needs in the following areas.
The RFM Framework is a segmentation model that has been used for decades internationally. RFM stands for recency, frequency, and monetary. In other words:
How long has it been since a customer made a purchase or engaged with the business?
The RFM framework can also be used alongside any metric. For example, recency can be the time since a customer has opened an email; frequency can be the number of times a customer visits the page for a certain product or type of product, and monetary can be the value of items in an abandoned cart. Overall, the purpose is to identify high-value customers that will give you the highest ROI. Using a data-driven customer segmentation approach, you can make customer cultivation an integral part of your company’s strategy, across all departments.
When you’re ready to expand your customer segmentation practices, consider conducting a buying behavior analysis. More on this later. 
Let’s take a look at how you can apply the RFM framework with some of the customer segments we discussed earlier.
Low-value (non-core) customers. Customers who spend relatively little and not very often. Using the RFM framework, you will find that these customers are not fit for long term relationships. They will come and go based on sales or promos.
The most you can do for this group of customers is to have great customer service. Beyond that, they typically are not worth the effort of a costly or time-intensive marketing campaign.
Potential Core Customers. Customers who show promise of becoming core customers. They are the ones that are likely to give you a higher ROI on marketing campaigns. The RFM framework shows the potential these customers have for becoming core customers.
When cultivating New Customers, be sure to focus on an onboarding strategy rather than a simple welcome campaign. The difference is that instead of telling them about your business and convincing them to make another purchase, you are showing them that you value them as a customer with or without another purchase.
When cultivating Promising customers, decide on what qualifies customers to fall into this group. For example, if your products are a one-time buy with add-ons, then a second purchase could be a sign of a promising customer. But often we advise businesses to go beyond just a second purchase. Perhaps you want to only include customers who have made at least 3 to 4 purchases. Or maybe you have a referral program and focus on customers who have made at least 1 referral. However you do it, make sure you go beyond just a one-time return to really focus on this group of customers.
Core Customers. Here is your bread and butter, the core customer segment. These customers are purchasing more recently, more frequently, and with higher-value purchases than any other group of customers. These are the basis for increasing revenue, are brand promoters, and give you a higher ROI per purchase. Core customers don’t just purchase, they also promote. They rave about you bringing in additional customers through word of mouth, public reviews, and personal content. Using data from real businesses, we know that core customer are actually worth up to 10 times their direct spending amount.
Core customers will require the most care in your marketing strategy, but they can also be the easiest to automate. Since they engage often, these customers offer a lot of data to fine-tune your marketing strategy.
For example, if they are given personalized emails and promo codes, then you can know the exact value of each campaign. These customers buy frequently so you will know relatively quickly if the campaign was successful. This can be more difficult with other groups where they may see the campaign and forget about it before it expires. It wasn’t that they weren’t interested, they just weren’t interested enough to act within the expiration window. But core customers are more likely to jump on an offer and at least.
Just remember with these customers to make your strategies data-driven to ensure you are giving them the value they really want.
Customer segmentation is not a one-time ordeal. It requires constant updates and revisions to keep up with the ever-changing customer demand and behavior. As such, you must conduct regular and in-depth analyses of your efforts to know when and where to change them. This customer segmentation analysis will also help you better understand your targeted customer segments.
A good and effective customer segmentation analysis functions as a 3-part cyclic process:
You can perform this analysis using a variety of analytic tools and methods. Though, you will get the best results with a method that fits well with your current operations, preferred data collection methods, and the size of your customer groups.
Traditional retail market segmentation focused on the characteristics of the local community surrounding each physical store location. However, the nature of retail changed drastically over the past decade or two.
Modern customers want personalized products that meet their individual needs and expectations. They also expect to receive this personalization through various online channels, forcing retailers to face global competition.
To survive this new business landscape, retailers must adopt a more personalized customer-centric strategy. Luckily, they also have a wealth of new data at their disposal. They can use e-commerce customer segmentation to deliver targeted experiences to multiple micro-segments.
Besides the traditional segmentation categories, retails can create relevant, timely promotions around other shared attributes such as:
With the right customer segmentation tools from such vendors as Cetrix, your retail company can see a 200% increase in conversions just by implementing a segmentation strategy. All of it because your marketing team would know what emails, promotions, product recommendations, landing pages, product pages, and push notifications to present to your customers.
Another aspect of the RFM framework to consider is the retention spectrum: Active, Drifting, Churn-risk, and Lost. This spectrum can help you prevent core customers and potential core customers from being lost over time.
Active. This is where you want to keep your core customers. But it doesn’t always have to mean they are actively purchasing. Businesses often keep their customers active with value-based products rather than endless buying pressure. Let’s be honest, when a company sends you promo after promo or reminds you constantly to make a purchase, it can sound a bit desperate. Offering customers value-based products such as educational videos, articles on popular topics, or a community platform can help them feel like they are getting more than they paid for. The goal is to have customers feeling like they got 10x more than they spent. Almost as if you are paying them!
Drifting. These are customers who are still aware of your brand but are no longer actively engaging with it. They made a purchase recently enough that they haven’t forgotten about you but could use a nudge to return to your site. This is not the group that needs all-hands-on-deck. A simple reminder of the value of your business and a nudge to return to your website should do the trick.
Churn-risk. At this point, it’s time to start introducing offers. These customers have been out of touch with your brand long enough to lose touch. This is when many businesses send out the famous “We miss you!” emails. The most effective strategy at this stage is to have consistent messaging over time and end with an expiring offer. Take some time to experiment with what works best as far as messaging and promotions. Do some A/B tests and the like to gather data on what these customers respond to.
However, be careful not to over-promo. Customers in this category can easily become low-value customers if they are only looking for the next sale email. Send out a few offers, but after they churn a few times with the same result, it might be time to burn that bridge.
Lost. Customers who have not made a purchase in a while will need significant incentives. They left or simply didn’t return for a reason. Sometimes it can be helpful to reach out to these customers after a new product is launched or a new value is being promoted for your product. Maybe new research has come out indicating an unexpected benefit for your product or service. Beyond anything significantly new, these customers might be simply lost. Some companies implement a last-ditch effort when customers have moved into the lost category. But other companies like to leave lost customers as lost. It really depends on the company and industry.
How long is too long will really depend on your product life cycle and customer habits in the general market? It’s helpful to consult an expert to help you decide when to place customers into each of the buckets above.
Buying behavior analysis, as developed by our partners at Unific, compares the behaviors of your actual customers to the general population to compare your business to the larger industry. It allows your company to:
A buying behavior analysis can help you attract, cultivate, and retain customers. By understanding what key segments exist in your customer base, you can find out:
It can also help you find out if your revenue is concentrated in too few parts of your customer base. Maybe there are customer segments you didn’t even realize existed.
The most common segments that can impact your marketing strategy include:
The analysis generates a segmentation report to help your business understand who are the core customers, potential core customers, and low-value customers.
Core customers. These customers can be broken up into the following groups:
Potential core customers. These customers can be broken up into the following groups:
Non-core customers. These customers are also known as low-value customers.
Using these new groupings of customer segments, your company can focus marketing techniques on the groups of customers who are most likely to buy frequently and make high-value purchases to improve your ROI.
To get started on your buying behaviour analysis, follow these simple steps:
This analysis currently supports Shopify, Magento 2.x, BigCommerce, and WooCommerce. For any other carts, send us a message using the chat feature on the bottom right corner of your screen. Or you can visit our Get in Touch page for more ways to connect.
Customer segmentation is a launching point for a scalable customer cultivation strategy. In order to cultivate your customers, you must deliver to them the value that they are seeking. The problem is, not every customer will be seeking the same value. By dividing your customers into segments, you can better understand what value each segment is looking for and develop targeted marketing strategies.
Using customer segmentation will elevate your customer cultivation by:
For a little inspiration, here are some campaign ideas from Unific to get you started:
Prospects → New Customer
New Customers → Promising Customers
Promising Customers → Loyalists or Big Spenders
Loyalists or Big Spenders → Champions
Reengage Drifting Customers
Recover Churn Risk Customers
While customer segmentation is considered an advanced marketing technique, you can take your efforts even further. New methods, best practices, and strategies pop up constantly and a few of them may even improve and optimize your segmentation efforts.
Some of these advancements just improve existing models and strategies. Others offer new ones to take advantage of the latest marketing trends.
For instance, grouping your customers based on their decision-making status is especially useful for B2B companies. It also works wonders if you sell children's merchandise, letting you better focus your efforts on the parents.
Other popular advance segmentation models include customer loyalty and support interactions. These models can reveal your power users, brand advocates, and difficult tickets.
Finally, you can use artificial intelligence (AI) to mine your customer relationship management (CRM) platform for relevant customer data. You can then funnel the data into your customer segmentation solution automatically.
You can also use AI to alleviate some of the complexity associated with modern customer segmentation. Your customers demand and expect high-level personalized experiences that can put each customer into a self-contained segment. AI helps you manage these individuals by generating behavioural-based persona groups.
Once you have the personas, you can use AI to automate your analytics and modelling techniques. Through machine learning, you can access trends and insights that you may otherwise overlook.
Some notable other benefits your business may see from using AI-based customer segmentation include:
Many people mistakenly believe customer segmentation and e-commerce personalization are mutually exclusive. However, in reality, segmentation forms the foundation that lets you build great personalized content for your customers. It also reveals your company's adaptability to your customers, improving your customer relationships in the process.
This is because e-commerce personalization uses segmentation to provide appropriate responses to customer behavior. It never tries to change your customers' habits. Instead, it aligns your goals with your customers so you can better serve them based on their online activity and interactions with you.
As an application of customer segmentation, e-commerce personalization requires producing custom, personal experiences for any customer who visits your e-commerce platform. These personal experiences can include:
Generating this personalized content often requires advanced artificial intelligence and data collection tools with an extensive understanding of your customers. However, the effort is always worth doing for the benefits your organization can receive from an e-commerce personalization strategy.
These benefits can vary based on the strength of your personalization strategy, but most successful companies can enjoy:
Because you must tailor your e-commerce personalization to your customers, applications can vary wildly between brands, platforms, and locations. Your best bet is to offer content that best resonates with your customers, but here are a few examples to get you started.
Effective e-commerce personalization requires the right tools that can generate your customer personas and automate much of the process. These tools also help you collect the data you need to create proper customer segments while revealing the patterns and clusters in that data. The right e-commerce personalization tool can even identify customer pain points and then offer viable solutions.
However, not every e-commerce personalization solution will work for you. These tools come with different combinations of features that make them in some situations and not in others.
These personalization features include:
Ideally, you want an e-commerce personalization solution that offers all these features. However, such tools can get costly for smaller operations. As such, you want something similar to Cetrix's cloud-based solution that let you leverage only the features you need. You can then take advantage of the other features as they become relevant to your situation.
Customers want a personalized experience with your business. They don’t want to feel like a number or a price tag. At the same time, your business doesn’t want to waste time, effort, and financial resources marketing to leads that won’t convert. That’s why customer cultivation is so essential. Finding out what customer segments are truly worth the effort and focusing on them can save you and your customers from disappointment.
Ready to start segmenting? We are here to help. Cetrix works with analytics and AI software systems from IBM, Google, Cloudera and Salesforce to give our customers the most advanced decision-making tools of our age. Using these tools, we can help you design the most effective marketing strategy through focused customer segmentation.
Contact us anytime using the chat feature, or email us at info@cetrixcloudservices.com