5 Ways to Segment Your Customer Base

Ecommerce businesses need to understand their customers. But it takes time and money to attend to each customer individually. The best strategy is to segregate the customer base into common attributes — called “segments.” You can then target each segment with specific marketing campaigns and promotions. Defining these segments requires careful analysis of your customers and your products, using your site analytics. The segments need to be reviewed and refined at frequent intervals — usually six months or less — for your site to stay fresh and appealing.

This article describes five segmentation strategies that have proven effective, based on my experience consulting with large ecommerce firms.

Interests and Preferences

When customers register or purchase products on your site, ask them about their interests and preferences. You can also survey them, using a commonly-used tool for customer segmentation called VALS — “Values,” “Attitudes” and “Lifestyles.” Once you’ve captured their interests and preferences, segments can be defined. For example, a site selling jewelry can conduct a survey that helps understand if customers are price-sensitive, prefer a certain stone, and purchase frequently. This information can then be used to target these customers with the relevant marketing campaigns, personalize the site for them and offer them related promotions.

I’m aware of a leading sporting goods site that uses segments based on customer interests. Customers that are interested in baseball, for example, are sent promotional emails related to baseball products. The site has a separate landing page for baseball that lists all the baseball products along with promotional offers. The site goes a step further in segmentation by asking the customers to identify their favorite teams. It then emails customers when it introduces new products related to their teams.

Reward Loyalty

Repeat customers generate recurring revenue and serve as marketers for your business. Your site’s order history can help you identify these repeat buyers. You can further analyze if their purchases were triggered due to a promotion or a price reduction.

You then have two segments of repeat customers. Those that buy from your site without a promotion, and those that buy with one. To target even more specific segments, identify repeat customers who buy from your site because they like the products, like the customer service, or like the return policy — using the surveys mentioned above.

Expedia has its “Expedia Rewards” program that lets travelers accrue points when they make a reservation. These points can then be redeemed for free travel without any black out dates. This is an effective way to reward loyalty and bring in extra revenue. It also helps Expedia stand out in the crowded online travel industry where almost every site offers the same flights and hotels, at virtually the same price.

“Expedia Rewards” is a loyalty program that allows repeat customers to accrue travel points.

Referral Sites

If you advertise on sites that are related to the products you sell — such as Babycenter.com for baby products — or if your site is linked from other related sites, segment your customers based on these referral sites. Customers coming from these sites are more likely to buy versus customers coming from a search engine. Tools such as Monetate, webTrends’ Optimize and Adobe’s Test & Target allow you to configure the right rules on your site to offer promotions to customers coming from related referral sites. These tools will direct the customer to the right landing page based on the referral link. Small changes like this can make a big difference between selling the product, or not.

For example, I’ve seen large electronics retailers use the tools mentioned above to customize the user experience based on the affiliate or referral site the user is coming from. A retailer that sells phones and laptops could check if the user is coming from a phone site like AT&T or a computer store like CDW and present a landing page that displays the proper promotions for that segment.

Inactive Customers

It’s more expensive to acquire new customers than selling to existing ones. Customers who have bought from your site in, say, the last three months but have not returned since then are dormant-revenue opportunities. Target this segment with the proper set of promotions and campaigns, such as offering a discount for sharing feedback on the product they purchased three months earlier. That feedback can add to the product review section if your platform supports that. Importantly, avoid spamming these customers as that could lead to losing them forever.

Several retailers I work with favor this strategy, as the success rate is very high. The retailers use a variety of promotions to lure back the customer, such as offering a hefty percentage discount, free products with a purchase, and free shipping. The catch is to make the promotion a one-time offer, so the customer understands he or she will not get the same offer again.

Browsing Devices

Using your analytics package, identify the devices used by your customers to access your site. If they use a mobile phone, for example, they are — most likely — about to make an impulse buy, or they are comparing your products. This is a good opportunity to offer a related promotion to these customers.

I’ve seen a high-end clothing retailer create multiple segments based on the device used to access its site. Consumers using the latest smartphones (iPhone, Android) or the latest tablets (iPad, Nook) are classified as “younger shoppers who are willing to spend more on a product.” Customers using BlackBerry devices or Kindle tablets are classified as “value customers who are relatively older.” Other, older mobile device users are categorized as “browsers, or consumers looking for a great deal.” After making these segmentation changes, the site has increased its revenue by more than 100 percent — within a 3-month period.

Conclusion

Use a combination of the above approaches to determine the right segmentation strategy. The more you segment your customer base, the higher the potential of improving your conversion rate. But, you must monitor and service each segment. “Orphaned” segments will result in lost customers, and lost sales.