How to do Market Segmentation on Your ECommerce Store for Better Customer Retention
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Customer retention — keeping the right customers is valuable. A 5% increase in customer retention can help grow profits by 25% to 90%.
In our previous blog, we’ve discussed, in detail, what customer retention is and why it is important for your eCommerce business.
But to get started with eCommerce customer retention, you need to know who your customers are.
More importantly, which segments of customers are most valuable and retained.
But does market segmentation matter so much for customer retention? Let’s deep-dive into this aspect.
How does Market Segmentation Matter for eCommerce Customer Retention?
It helps improve customer satisfaction
Being a business, you want to take care of your customers and make them feel good about your brand experience.
But what happens when you don’t know what they like, their preference, what they’re not interested in, or their personal details such as age, gender, etc.?
You treat all your customers equally — share the same messages, offers, product recommendations, etc. It’s obviously not going to be relevant to all the customers.
Instead, what if you knew your customer’s demographics, dis/likes, interests, etc.?
You’d be able to provide different customers with experiences that are relevant to them. The result: more engagement and more customer satisfaction.
87% of customers say personally relevant branded content positively influences how they feel about a brand.
In short, segmentation leads to improved customer insights and tailored solutions to targets.
It boosts customer loyalty
If customers like your brand, they’d stay loyal to it. Conversely, if they have bad experiences on your website, they might never return to it.
One in three customers leave a brand if they have an unpleasant experience.
So, how can you ensure they have good experiences with your brand?
Well, you have to consider many different factors. Such as, are you offering personalized experiences? Does your site have what they like? Are you tailoring communication to suit their preference?
All these are possible and are much easier when you segment your customers into different groups. Address the needs and preferences of each segment individually.
It builds customer engagement
When you segment your customers, you can plan your marketing strategy to target each segment separately — craft tailored communication, offer relevant product recommendations, personalized incentives, etc. All this helps boost engagement.
Consider these statistics:
- Personalized product recommendations influenced 92% of shoppers to make purchases
- Segmented email campaigns saw 101% more clicks compared to non-segmented
When you approach your marketing strategies through customer segmentation, it can help you target specific groups better. When brands understand their customers better, they can drive their actions and have more control over situations.
Hence, market segmentation for customer retention is a must-have strategy for eCommerce brands.
Improves customer lifetime value
When you understand what your customers need, want, and prefer, you can target them with more relevancy. You won’t be shooting in the dark. Instead, you’ll be offering them exactly what can add value to them.
What is more, it can help you recommend products and services in the future, as well. You could analyze their buying patterns and changes of preference over time and consistently offer them what they’d appreciate.
The more customers buy from your store over time, the longer they’ll stay loyal and the more their customer lifetime value will be.
Improves marketing efforts and ROI
Marketers can segment customers based on their marketing goals. Conversely, they can strategize their marketing plan based on the different segments.
For example, you can segment customers and create highly targeted campaigns for each group.
Say you segment customers based on the type of product they like. Then, you create promotional campaigns for each product and send them to the relevant segment only. This way, every customer segment will receive promotional communication for one product only. But because your message is targeted to specific people, you’ll see better results.
Similarly, you could segment customers based on their communication channel preference. Say one segment prefers email, the other WhatsApp, and the other something else. You send them marketing messages on that channel only. The result: better open and clickthrough rates.
Discover opportunities and challenges
The activity of market segmentation for customer retention can unlock many opportunities you would not have imagined before starting your segmentation process.
Here’s how that works: when you segment your customers, you can understand each segment more deeply. Based on your knowledge about each segment, you can discover their challenges and find ways to address them.
Similarly, you can discover opportunities and align them with how you can make the most of them.
For example, if you find a segment of customers that is interested in a specific type of product that you don’t have, you could introduce that new product in your store.
Thus, turn an opportunity into profits.
Segmentation Models you should be Focusing on for Retention
Demographic segmentation is based on customers’ basic information such as age, gender, income, marital status, profession, education, etc.
Companies catering to customers that cover a wide demographic must carry on a demographic segmentation for their marketing activities.
For example, say you sell medical equipment on your eCommerce site and want to promote a new walking stick. A 30-year old might not be interested in this product. But a senior citizen would be.
You can create marketing campaigns specifically for those groups to whom the product is relevant.
You can segment customers based on geography. For example, based on their location, country, city, climate, culture, urban, rural, language, etc.
Geographic segmentation can help brands cater to customers in local and international locations.
For example, say you have a new collection of woollen wear and your customers are located in different countries. It would make sense for you to target customers in cold regions/countries only. This is when you could use your climate or country-based segments and run a campaign for this segment only.
So, how does geographic segmentation help you?
- To run localized campaigns targeted at customers in a specific location
- In curbside pickup strategies
- For drop shipping businesses
- To improve your campaigns’ relevance
- To combine online and offline marketing strategies
Psychographic segmentation considers customers’ personalities, interests, activities, culture, lifestyle, etc. For example, you could segment customers based on their social class, personal values, attitudes, interests, activities they engage in, etc. In short, psychographics explain why customers buy something.
All your customers are going to be different from each other. For example, some may love traveling and spend a lot on travel accessories. Others might be more interested in music-related merchandise, etc.
Once you segment your customers and group them based on these psychographic factors, you can create campaigns tailored to specific segments.
For behavioral segmentation, you have to collect data about your customers’ behavioral patterns. For example, what they do on your website, what time do they make purchases, specific periods during which they spend more, etc.
Behavioral segmentation is defined as a form of segmentation based on patterns of behavior displayed by customers when they interact with brands or make purchase decisions.
This kind of segmentation can help you:
- Address customers’ specific needs
- Discover opportunities to optimize their customer journey
- Create different offers for different segments of customers
- Use past behavior patterns to predict future patterns and run marketing campaigns accordingly
- Monitor changes in purchase patterns over time
Recency, frequency, monetary value (RFM)
Another way to segment customers is by understanding their purchase patterns and purchase power.
How often do different customers buy from your site? What’s their order value? Which customers make purchases back to back?
RFM segmentation can help brands cater to customers who fall in different monetary value brackets.
For example, you might have a new collection of products that are of premium value. And you know that all your customers won’t be interested in that collection. This is when you could specifically target your high-value customers with high purchasing power.
So how does it help to segment customers based on recency, frequency, and monetary value?
- To identify customers with high purchase power to run targeted marketing campaigns
- To run campaigns for high purchase power segments to offer higher value products to improve your revenue
- To identify customers with lower purchase power and offer them special discounts to drive sales
- To market new products to the right segments based on the price of the products
Customer Segmentation Examples
Gender-based segmentation example
Customers’ shopping behaviors, interests, and purchase decisions vary based on their gender. By following gender segmentation, you can craft and design different campaigns, engage men and women differently, and boost sales and your eCommerce customer retention rate.
Geographic segmentation example
Brands that sell seasonal products in different geographies, such as food, clothing, shoes, etc., can benefit greatly from geographical segmentation. Such segmentation can help you craft the right message and share it at the right time with the right people.
Luxury brand customer segmentation
Segmentation is key for high-end luxury brands. Luxury brands must create segments based on interest, spending power, etc.
This way, they can target their segments differently and bring in the element of exclusivity for their top-tier customers. For example, there’s a difference between a luxury bargain hunter and an exclusivity seeker customer. Both buy luxury products, but both are different.
How to Choose the Right Segmentation Model
Choosing the right segmentation model is important. You do not need to create all kinds of segments. The segmentation model/s you need would depend on your marketing goals.
Here are the steps you should follow in choosing the right segmentation model for your business:
- The first step is to have a good sense of your marketing goals. Your marketing goals will define which customers you’d need to target.
- The next step is defining which customer segmentation model would help you group those customers.
For example, say you’re trying to get customers to sign up for an exhibition you want customers to visit. In this case, you could choose geographic segmentation (based on the location of your exhibition).
You could also choose demographic segmentation (based on the theme of the exhibition and the kind of customers who’d be interested).
By following the above points, you can understand the strength of the data you already have and the gaps you need to fill. For example, if you want to increase your eCommerce subscription sign ups, you should choose the RFM segmentation model.
Should you Follow Segmentation for Customer Retention?
eCommerce customer retention is easier said than done. And as we read in this blog, segmentation can help improve customer retention.
Customer retention requires a lot of effort across many different touchpoints along the customers’ journey.
And so, it is important to move strategically. This is where segmentation can help. When you know who your customers are and what they want/ are going to do, you can build a stronger retention strategy.
Engaging customers, interacting with them, and driving them to take favorable actions at every touchpoint will not be possible manually. You will need automation capabilities for that.
And that’s where LimeChat.ai comes in — to help you automate live interactions with customers across your communication channels.
Explore LimeChat.ai for your eCommerce business now!