Customer segmentation: The key to personalizing your ecommerce marketing

Your customer list is a gold mine. That is, of course, as long as you use it properly. Customer segmentation — the process of grouping customers in your list by specific parameters or characteristics — helps you make the most out of your customer base. Use this blog as your guide to what customer segmentation is, the different types, and how to implement the process in your own ecommerce business.

What is customer segmentation?

Customer segmentation is the process of splitting your customer base into groups. You can use any number of parameters and characteristics to do this. It will ultimately come down to what you find most valuable for your ecommerce business.

All types of ecommerce businesses use customer segmentation to create a more personal experience for their customers. Have you ever dealt with a brand that sends you the same message repeatedly? It’s never different; they never adapt it, so you stop paying attention.

Segmenting your customer lists helps you avoid that. You can deliver engaging, appropriate messaging to everyone in your customer base. You can base these messages on where they are in the customer journey, previous items or services purchased, and holiday or birthday promotions. Targeting specific subsections of your list also enables you to take advantage of new ecommerce trends or sudden shifts in buyer behavior. 

Types of customer segmentation for ecommerce

While customer segmentation strategy can vary from business to business, there are four basic types you can use to split your list:

• Demographic segmentation: This involves splitting up your customer list by characteristics customers have in common. This could be by age, location, marital status, income, occupation, education, or gender.
• Behavioral segmentation: This entails segmenting customers based on their behavior, like their response to marketing campaigns, usage patterns, purchase history, and brand loyalty.
• Psychographic segmentation: This segmentation method works off emotion. Businesses can divide their lists based on customers’ attitudes, values, lifestyles, and interests.
• Geographic segmentation: This segmentation technique separates customers based on different location parameters, such as country, region, city, ZIP code, or neighborhood.

Benefits of customer segmentation for ecommerce

It’s no secret that segmenting your customer list takes some extra work. You might ask yourself, “Why take the extra time to do this? What will customer segmentation do for me that’s so great?”

Here are just a handful of the benefits you can expect to experience from customer segmentation: 

• Increased sales: Customer segmentation allows you to hit your target audience with the right message at the right time. A generative AI merchandising solution can present your most loyal customers with the things they routinely buy or might enjoy based on what they’ve already bought. Leaning into this type of customer segmentation analysis will increase the lifetime value of each customer and improve your sales numbers.
• Improved customer retention: A popular customer segmentation example is targeting customers who have already bought from you. This helps build your relationships with them, and you can offer them products you already know they’ll like. By making the shopping experience easier for them, they’re more likely to come back — and drawing in repeat customers is much less expensive than attracting ecommerce customers.
• Reduced churn: Churn is the percentage of customers who stop purchasing your products or services in a given period. Customer segmentation, by definition, reduces churn because your audience feels like they’re receiving a more personal shopping experience — increasing the odds they do business with you again. This can also lead to customers engaging more with your brand since they get messaging and promotions that resonate with them.
• More effective marketing campaigns: Ecommerce businesses can also see the return on investment (ROI) on their marketing campaigns increase through customer segmentation. Sending the same marketing to your entire list is like throwing spaghetti against the wall to see if it sticks. Segmenting your list allows you to craft more targeted and intentional messaging for each customer, which can increase open rates, engagement, and, more than likely, conversions.
• Increased customer satisfaction: Online shopping is all about a personal experience. Customers must feel like your store caters to them and only them. Using segmentation to show customers the products they like or may like makes them feel as if you understand and care for them. This increases customer satisfaction and will even start to strengthen brand loyalty.
• Better understanding of your customers: Testing various customer segmentation models and examining the data can give you unparalleled insight into your customer list. You’ll see trends showing how your audience prefers to engage with you, what customer profile is your biggest spender, and learn what type of marketing or messaging resonates most with them.
• Better decision-making: Data is at the root of customer segmentation — meaning you need data to segment your list, but once you start, you’ll begin to see much more data in your system. You can analyze these data points and key performance indicators (KPIs) to make better inventory, marketing, and sales promotion decisions to help you keep up with the top trends in ecommerce.

How to implement customer segmentation effectively

Step 1: Collect customer data

To leverage the data, we first must collect the data. There are tools you can use as an ecommerce entrepreneur to help manage this information, and we’ll get into those below. But what should you be tracking?

Naturally, the more information, the better. You want the basics, like contact information (email, phone, address, etc.), but you’ll find more value the deeper you go. 

It may be challenging to get customers to divulge more privileged information like their income, occupation, gender, or marital status. The best way to do this is to incentivize them. Offer a coupon or promotion for filling out a customer data survey. 

Step 2: Analyze customer data

Once you start to amass complete customer profiles, you can start analyzing this data pool. Look for commonalities in age, interests, occupations, or anything that might identify a trend.

Unique identifiers that your customers share will eventually become the parameters on which you base your segmentation. Obviously, customer segmentation models based on behavior may take a while to develop, so you may not be able to use those right off the bat. Start small with the basics and scale toward more advanced targeting from there.

Step 3: Identify customer segments

The commonalities in your list will start to identify certain customer segments you can use. One segment may be “customers who’ve bought before.” Another may be “Customers 35 and over” or “Customers with an abandoned cart.” Once you have identified these segments, you can split your list up accordingly.

Step 4: Create marketing campaigns for each segment

Messaging that resonates with those who’ve already bought from you isn’t going to land the same with customers who’ve abandoned their carts. Most business owners don’t take the time to segment, so both segments receive the same message.

You can use email marketing software to segment your list and serve each segment a different marketing message. People who bought already can receive follow-up with recommendations for future purchases, and your abandoned cart crowd can receive a “Hey! Where’d ya go?” message.

Leveraging targeted marketing like this is how the pros like Amazon do things. It’s a tried and true method for getting the most revenue out of each and every customer. Don’t forget to split-test your marketing components to see exactly what works best for each set of customers. But that’s a story for another time. 

Step 5: Track the results of your campaigns

You can’t improve what you don’t track. You’ll need to track the results of your marketing campaigns to see which are working the best. This is especially true when you split-test different components of your marketing.

Since we’re talking about ecommerce, we’ll look at email marketing. For an email campaign, you’ll want to track the number sent, number opened, click rate, and conversions.

Divide the number of emails opened by the number sent, and you’ll get your open rate, an important number for email marketing campaigns. But conversions might be your most important campaign metric. This is the number of new sales — and new revenue — from a particular campaign. Fortunately, there are tools we’ll discuss later to help you track and organize these important marketing numbers. 

Step 6: Refine your segmentation strategy over time

The longer you use customer segmentation, the more data you’ll collect. Keep analyzing this data and see where you have room for improvement. Your customer list is your gold mine, and you’ll never perfect your marketing. So, keep testing, tracking, and trying new things.

As you collect more data, you can drill down your list even deeper. Instead of only targeting by age, you may be able to segment based on age and location or age and interests. It may seem like you’re limiting your sales by doing this, but your marketing actually becomes more powerful and successful the more targeted it becomes — allowing you to keep up with the future of ecommerce as it unfolds. 

Tools for customer segmentation

As promised, here are some tools ecommerce entrepreneurs can rely on to make their customer segmentation process easier:

• Customer relationship management (CRM) software: These platforms track your customer information (names, contact info, birthdays, etc.). Consider this the “raw data” you’ll use when beginning to segment your list. CRMs can also keep track of conversations you’ve had with each customer, and some are customizable to help you track all the important information you need from customer to customer. For ecommerce businesses, using a retail CRM software solution ensures more precise segmentation and personalized marketing. Popular examples include Creatio, Salesforce, HubSpot, and Monday.
• Marketing automation software: Marketing automation software helps you manage marketing campaigns, send automated follow-up emails, and track where each customer is in your sales funnel. These platforms also have analytics dashboards so you can carefully track and analyze the performance of all your campaigns. Some examples include Mailchimp, Klaviyo, and Constant Contact.
• Data analytics software: This software helps ecommerce businesses by taking your raw marketing data and compiling it into visual representations like charts and graphs. Some more advanced platforms may even use AI to help you spot trends and patterns you can use to inform future business decisions. Examples include Splunk, SAP, and Oracle.

Key metrics to track for customer segmentation

Once you start running marketing campaigns and implementing customer segmentation, you’ll have a lot of data to wade through. Determining which numbers are important and which aren’t can be challenging. Here’s a list of the numbers you should be tracking to get an idea of your ecommerce marketing campaign performance:

• Sales conversion rate: The percentage of people who received your campaign and made a purchase.
• Average order value (AOV): The average amount of money a customer spends in your store (across all customers).
• Customer lifetime value (CLV): How much a customer spends with your brand over their lifetime. 
• Customer retention rate: The percentage of repeat customers continuing to make purchases at your store.
• Churn rate: The percentage of customers your store loses after their first purchase.
• Shopping cart abandonment rate: The percentage of customers who abandon their carts before checkout.
• Return on investment (ROI): The amount of revenue made off the financial investment of a particular marketing campaign. Calculate ROI by dividing the profit earned from the investment by the cost of the investment.
• Net promoter score (NPS): Measures your brand’s customer experience.

Whether you’re new to ecommerce or just need a refresher, you can find more key ecommerce terms and statistics like these in our ecommerce glossary.

Final thoughts

Customer segmentation is a critical component of growing your ecommerce business. You may see a few sales here and there in the beginning with broader marketing, but eventually, you’ll need to segment your customer list to compete with the big guys like Amazon.

These big stores make customers feel like the shopping experience is just for them. How do they do that? Through segmentation. Once you start implementing the process in your business, you’ll stay relevant, and your customers will also benefit. 

Liquid Web is here to help you grow your ecommerce business. We can provide ecommerce-friendly hosting packages and help you with tools, plugins, and vendors to enhance your customer segmentation. Contact us today to partner with the pros and see where your store goes.