The Ultimate Guide to Ecommerce Customer Segmentation

5. Potential discoveries from customer segmentation

A thorough analysis of who your customers are allows you to identify common themes among distinct segments. This tells you what specific groups of customers want, and how to best service them. What that also means is you may find new opportunities to cross-sell and upsell your products to specific segments, fire groups of bad (or problematic) customers and revamp your product development priorities.

Here are several examples of things you may discover:

• • Upsell opportunities. While customer segmentation can reveal patterns in an individual’s purchasing behaviors, you may also start to notice trends that apply to multiple customers. For instance, a men’s grooming company may notice that 80% of customers who purchase their high-end razors (as oppose to their low-end razors) also commonly buy their shaving soaps. So, what about the remaining 20%? As a store owner, this is an opportunity to upsell those shoppers on the very same shaving soaps that your other customers seem to love.

Some customers are prohibitively costly to retain. Your most loyal customers make frequent purchases and few — if any — returns. Problematic shoppers, on the other hand, are taxing on your customer service resources, make frequent complaints about your product’s quality and regularly return or exchange their orders. Be prepared to “fire” them as customers; attempting to salvage the relationship may be one of the worst investments you could make.

• Certain products are bad for business. With better data on your customers’ purchasing behaviors, you may find that some products are simply bad for business. An online sneaker store may notice that carrying cheap shoes attracts the wrong type of customer such as buyers who never return for repeat purchases. Furthermore, having a lot of cheap shoes on inventory may alienate other buyers who only shop from stores that stock shoes from reputable brands. Thus, you may want to consider sunsetting products that are not very profitable for you so that you can reallocate your resources — energy, money and time — towards promoting items that help you grow your business.
• Old, passive customers are low-hanging fruit. There is a widely held belief that it can cost anywhere between four and 10 times more to acquire a new customer than it would to retain an existing one. And although store owners do spend a lot of money and time engaging repeat customers, few ever give idle and inactive customers much attention. According to our 2016 customer segmentation survey, we found that roughly 54% of store owners believe that their most profitable customer segment is repeat buyers. 25% think it is first-time customers. 6% assume it is potential customers (also known as “new prospects”). 1% are convinced their most profitable type of customer is the inactive and idle customer who has made multiple purchases in the past but has not returned to place another order in a while. 14%, though, are unsure of which type of buyer is their most profitable. When given the same choices and asked about which type of customer they would label as “most important,” 42% chose repeat customers, 28% selected first-time buyers, 16% decided it was new prospects, 1% agreed it was inactive and idle customers, whilst 12% responded, “I don’t know.” Unfortunately, idle and inactive customers are not often on the top of a store owner’s priority list. However, reactivating old customers can easily become one of your biggest growth opportunities since most already like your business and have a demonstrated need for your product.

One of the earliest frameworks for customer segmentation comes from economist Vilfredo Pareto’s theory commonly known as the 80/20 rule. When applied to businesses, the general assumption is that 80% of your sales come from 20% of your customers.

The question then is: Do you know which 20%?