The Ultimate Guide to Ecommerce Customer Segmentation

2. What is customer segmentation?

According to management consultants at Bain & Company, customer segmentation is: ““The subdivision of a market into discrete customer groups that share similar characteristics.” And its advantages lie in the fact that:

“Customer Segmentation can be a powerful means to identify unmet customer needs. Companies that identify underserved segments can then outperform the competition by developing uniquely appealing products and services. Customer Segmentation is most effective when a company tailors offerings to segments that are the most profitable and serves them with distinct competitive advantages. This prioritization can help companies develop marketing campaigns and pricing strategies to extract maximum value from both high- and low profit customers. A company can use Customer Segmentation as the principal basis for allocating resources to product development, marketing, service and delivery programs.”

For Marketing Donut Andrew Gerrard explains customer segmentation as a marketing solution.

“It enables you to develop a deeper understanding of your customers and discover what makes them tick. When you are communicating a message, it will be more effective if the recipient of the message finds it relevant. Segmentation is simply a way of arranging your customers into smaller groups according to type. These distinct sub-groups or segments should be characterized by particular attributes. Now you can target specific, relevant marketing messages at each group. And it’s not just about what you say. How you communicate is also vital, and segmentation often requires a carefully structured marketing mix. That’s because some customers may prefer the direct approach, such as telephone marketing, while others respond better to a local advertising campaign.”

But, for scrappy store owners, customer segmentation does not come naturally. Entrepreneurs are traditionally taught to treat customers like the individuals they are. And when scaling from one to 100 orders, that is manageable. Yet, things become increasingly complex as your business grows, making it difficult to sustain highly personalized customer service and marketing efforts. When brands begin servicing hundreds of customers at a time, store owners start to take a blanket approach to promoting their products, with a universal message, targeting a single sort of consumer. And while this is a very natural progression, it is a huge mistake. With hundreds of paying shoppers, you can start to group your overall audience into different segments to better market to and service each. Despite the fact that our most recent survey shows most business owners do not use customer segmentation, we hope to influence how you allocate future marketing resources so that you prioritize personalized marketing campaigns for your unique customers.