Customer segmentation in e-commerce – how to do it right

Anna Meller

arket segmentation involves dividing a market into smaller parts, within which consumers have similar characteristics and behaviours. The aim of effective segmentation is to meet the needs of consumers in the most precise way and to select the offer more accurately. 

Market segmentation – the key to successful marketing

The e-commerce market is made up of buyers who differ from each other in many aspects, such as age, material status, place of residence, lifestyle, outlook or ways of purchasing products and using them. These differences can be precious variables for market segmentation, making marketing activities more effective. 

Market segmentation involves dividing the market into smaller slices called segments, within which consumers share a similar characteristic or set of characteristics. Its purpose is to distinguish groups of customers who, due to internal similarities, expect similar communication styles, sales strategies or products. Identifying such patterns helps retailers to more accurately tailor their message and offer to new customers. For example, if 9/10 of the customers who regularly order protein nutrients from a sports shop have also bought dumbbells in the past months, it is worth recommending dumbbells also to a new customer who has ordered protein nutrients from the shop. 

Main objectives of customer segmentation in e-commerce

The overall objective of market segmentation is to increase sales through better-tailored sales strategies and product recommendations. A part of the segmentation process is an analysis of the needs of the customers that make up a given market is carried out. The indirect objective of segmentation is to position the product (i.e. to give it specific characteristics that distinguish it from the competition) and to apply effective communication with the market. Segmentation also makes it possible to determine the percentage share of different customer groups in sales and to identify the most active ones, which allows more relevant brand communication.

The effects of a well-executed segmentation

  • more effective communication with the market (tone of voice, content, channel),
  • increased sales through more relevant recommendations,
  • improved consumer satisfaction (product adaptation and sales strategies).
Market segmentation objectives

Segmentation criteria

A key success factor in the market segmentation process is the definition of relevant criteria. In practice, this means selecting the essential characteristics that differentiate a segment and are important in the purchasing process. 

The choice of specific criteria is determined by the characteristics of the brand and the market, i.e. the industry, the type of products, the size and scope of sales and the number and diversity of consumers. 

Market segmentation examples

Demographic segmentation

This type involves dividing customers into groups based on variables such as age, gender, education, occupation, marital status, household income and income per family member, race, religion, nationality and ethnicity.

Example: youth adverts focus on the theme of adventure and time spent with friends, adverts aimed at an older target group often exploit reflective and more sentimental themes, and segmentation by gender makes it possible to send campaigns for Women's Day and Men's Day or to recommend products that are more frequently used by a particular gender, e.g. shaving gel for men, menstrual cups for women. 

Demographic customer segmentation

Geographical segmentation

Geographic segmentation involves the division of consumers based on their location. It can relate to country, region, place of residence, size of locality (city, countryside), place of work, language used or preferred (e.g. in multilingual countries), means of transport used, climate (occurrence of seasons, dry seasons, rainy seasons, temperatures, precipitation, etc.), political system, etc

This segmentation is applicable when a company has at least two locations on a macro (in different countries, regions) oSr micro (in the city itself) scale and for cross-border sales.

Example: Promote local products, restaurants and services, and analyze data on the needs and lifestyles of residents in different regions, such as summer clothes in hot regions and winter clothes in cold regions.

Geographical market segmentation

Psychographic segmentation

Segmentation based on psychographic variables involves segmentation by unique personality traits, attitudes, values and interests. This is because lifestyle in its broadest sense influences purchasing habits and decisions. Taking into account the beliefs and activities undertaken by consumers, which are based, among other things, on their lifestyle, interests or personality, makes it possible, for example, to tailor words for SEO and product descriptions. 

Example: mineral water in 1.5-litre bottles for home and work, and 0.75-litre bottles often purchased by athletes. Brands that support sustainability are more likely to be chosen by customers who seek to reduce their environmental impact.

Psychographic market segmentation statistics

Technographic segmentation

In technographic segmentation, the market is segmented based on: type of device (smartphones, laptops, tablets, etc.), use of mobile applications, software used and browser. In the mobile commerce era, this segmentation is particularly important. The aim of technographic segmentation is to optimise the purchase path by defining the source of the potential consumer's acquisition and how they take in information. 

Example: The option to pay in a Rossmann shop via mobile app without going to the checkout with a 5% discount for this segment or a shorter shopping path for mobile customers.

Technographic market segmentation

Behavioural segmentation

The aim of behavioural segmentation is to group customers according to their interaction with the brand and their general purchasing habits. Behavioural segments are created based on: actions and attitudes towards the brand, buying habits, product perceptions, user experiences, ways of purchasing and using the product, type and quality of relationship with the shop (e.g. shopping tourist, new customer, loyal customer, potential brand ambassador), website activity, actions taken on the shop website, reaction to a newsletter or last interaction with the company.

Example: Promoting sales through loyalty programs or recommending complementary products, e.g. a bicycle helmet when buying a bike.

Behavioural market segmentation

Segmentation based on needs

Needs-based segmentation groups customers according to the defined needs they have and declare in relation to the products, services and customer service offered. The starting point here is the consumer-product interaction. Knowledge of individual customer experiences and motivations allows the product to be better tailored and its benefits to be effectively communicated to the segment. 

Example: Colgate's introduction of a few kinds of toothpaste with different properties tailored to consumers' needs: whitening, gum care, natural extracts, etc. 

needs-based market segmentation

Segmentation based on RFM analysis

RFM analysis is conducted based on the economic value that customers bring to the company, both in terms of realised and potential sales. Value-based segments are created due to: satisfaction scores, average or maximum shopping basket value, number of purchases, frequency of purchases. 

RFM analysis determines the value of a customer based on three factors: time since the last conversion (Recency), conversion frequency (Frequency) and the purchase value of a given customer (Monetary Value). The aim of segmentation based on RMF analysis is to optimise spending and marketing activities in a given market segment and to estimate future profit. Underlying this approach are the following assumptions: 

  • Customers who have recently made a purchase are more likely to make another purchase in the same place. 
  • The more customers spend in the shop, the more likely they are to make larger purchases in the future.
  • Customers who have bought more frequently from a particular e-commerce site will be inclined to buy more frequently in the future. 

Example: Yves Rocher offers gifts of different values depending on the value of the shopping basket. 

RFM analysis statistics

Segmentation in the service of customer needs

At the heart of segmentation is the need to better understand consumers. How potential buyers think, how they perceive products, what they need, what channels they use to get information, what is important to them, what they fear and what they want and can afford. 

The key to successful segmentation is to meet consumer needs in the best, most precise way possible. Only by gaining an in-depth understanding of the consumer in the various aspects of his or her journey in the commercial space will you be able to increase satisfaction, build loyalty and improve the experience, and ultimately – better results for your shop! 

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