arket segmentation is today a prerequisite for success in modern marketing communication. Done well, it results in increased customer engagement and a higher conversion rate. In this article, we will discuss how to plan a segmentation strategy and put it into practice.
Effective segmentation in the e-commerce market
In the previous article, we discussed types of customer segmentation. This time we will focus on planning a segmentation strategy. Why focus on better personalisation of offers and communications?
Companies that have chosen to segment their market have seen a 10% increase in profits over 5 years compared to companies that have not implemented a segmentation strategy (Bain and Company, 2006). Mailing campaigns targeting segments based on customer interests have an average 74% higher click-through rate than generic campaigns (Mailchimp, 2017).
Market segmentation – how to do it right?
Successful market segmentation must meet several conditions:
1. The ability to select a given group of customers based on a selected variable by analysing the data in terms of objectives and expectations.
2. Obtain information on those consumer characteristics that will determine the appropriate market segmentation criteria.
3. Select the most attractive customer groups for which separate marketing solutions are implemented. This includes group size, shopping cart value, number of transactions, retention rate, product interest and responsiveness to marketing communication.
4 Develop unique communication sales strategies for each segment based on data analysis and customer behaviour.
Market segmentation – step-by-step guide
A well-planned customer segmentation strategy will allow you to develop the potential of your business, strengthen consumer loyalty and optimise your marketing budget. We will now discuss this process step by step.
Step 1: Set expectations and goals
The first step of any strategy is to define your company's expectations and objectives. Analyse your company's current situation, market context and long-term growth plan, and then decide where segmentation can be most useful to you.
Step 2: Identify potential segments
The next step in developing a segmentation strategy is to define potential customer groups. This process involves analysing demographic, psychographic, geographical, behavioural data (more about the types of segmentation here) in order to identify similarities and segment customers appropriately. The basis at this stage is analytical data, which you can obtain by integrating your shop with analytical tools or built-in panels that monitor customer data. This information will allow you to identify who your most active customers are and to whom you should target your communications and offerings.
Companies can segment customers based on purchase history, interests, devices, purchasing decisions, location, gender, etc.
Step 3: Data analysis and segment evaluation
By targeting high purchase value segments, companies increase their chances of generating higher revenues and strengthening their market position. The basis of effective segmentation is to identify those customers who buy a lot and frequently and are loyal to your brand, and then highlight their common characteristics.
The evaluation of segments is done by analysing RFM, i.e. retention rates, purchase frequency and single order value. Also important is the length (current and projected) of the customer's relationship with the shop and the customer acquisition cost, i.e. the value of the money your company had to invest to bring them to the shop. Analysis of key metrics should be performed regularly to verify changes in customer behaviour and preferences. For more information on key metrics in e-commerce, see this article.
Step 4: Create shopping personas
Modern segmentation presupposes a precise understanding not only of the customer's needs themselves but also of his or her worldview and mindset, as these also influence purchasing decisions.
In advanced segmentation, shopping personae are created on the basis of data analysis, i.e. models or templates of customers who are most receptive to a brand's messages and products. In other words, a buying persona is the most stereotypical representative of a segment described as accurately as possible.
Step 5: Develop a sales and communication strategy
Once you have identified the market segments that are most attractive from your brand's perspective, it’s time to develop a sales and communication strategy. It requires tailoring marketing activities and product offerings to each segment's unique needs and preferences. Its aim is to effectively engage consumers in the product message and ultimately in the purchase of the product.
As part of the strategy, customer communication channels (social media, newsletters, etc.), messages (format and content), product recommendations, and sales techniques (discounts, cross-selling, working with ambassadors) are defined. An experienced e-commerce agency will provide valuable support in designing the purchase path to the requirements of a specific segment.
Market Segmentation in Google Analytics
A gold mine of knowledge on the potential for customer segmentation is the free Google Analytics (GA) tool.
Thanks to the rich functionality in GA, it is possible to analyse the behaviour of people at different stages of the sales funnel without the need for advanced options and custom segments.
In the "Custom" tab, you can create segments yourself. A good way to start your segmentation adventure is to become familiar with the ready-made solutions provided by Google Analytics users in the form of reports and segments.
Market segmentation using Adobe Shop (Magento) as an example
Interesting segmentation solutions are provided by Adobe Shop (Magento), the market leader among e-commerce platforms available for B2B and B2C brands. Implementing a shop on Magento in the Commerce version with a full range of functionality allows you to use a number of unique segmentation features to personalise the customer experience and differentiate your marketing activities for each segment.
Market segmentation through marketing automation
E-commerce and the automation of company sales processes offer particular opportunities for market segmentation. Demographics such as gender, age or household specifics play an increasingly minor role, as they have relatively little impact on the consumer's relationship with the brand and conversion rates.
In modern marketing automation systems, market segmentation is carried out on the basis of other variables: recurrence and frequency of purchases, their total value, average cart value, customer loyalty, identification of premium customers (spending big) and economic customers (interested in low prices). A popular segmentation model to diagnose customers based on predicted value to the business is the RMF, which includes three dimensions: Recency – last date of purchase, Frequency – number of transactions made, and Monetary – total money spent.
Market segmentation is a must-have for successful sales
Knowledge of the target group is used to build effective sales funnels, which is why effective marketing strategies based on market segmentation are the basis for building competitive advantage. They help to better understand customers and, as a result, to design better offers, communications and sales strategies for them.
Implementing segmentation is worth outsourcing to an experienced e-commerce agency designing online shops, which will help to plan the strategy and implement solutions tailored to the selected groups.