WHAT IS CUSTOMER SEGMENTATION?
“You can’t wait for customers to come to you. You have to figure out where they are, go there and drag them back to your store.”
This quote by Paul Graham from Y Combinator nicely synthesizes an important truth about e-commerce today. You must be proactive. You must engage and retain customers in order to drive sustainable growth. However, there is one thing I would add to this quote.
“You have to figure out who they are and where they are, go there and drag them back to your store.”
If you are an online retailer, the odds are that you are facing fierce competition from thousands, maybe millions of online stores. Still, you have one key opportunity to succeed. And this is building a long-lasting relationship with your existing customers.
Customer segmentation is about understanding your customers and communicating with them accordingly. It is the opposite of sending one and the same message to your whole customer base. Through the use of elaborate customer data, retailers can create homogenous groups of customers who share common traits and behavior like location, gender, purchase history, websites visit patterns, etc. Segmenting your customers in this way will allow you to get to know your customers, understand their behavior and fine-tune your marketing communication with them.
WHY AS AN ONLINE RETAILER YOU SHOULD DO CUSTOMER SEGMENTATION?
Higher conversion rates
Your customers or your website visitors are much more likely to buy from you and connect with your brand if you make them feel special. They will respond to your marketing campaigns much more positively if they feel their interests are being specifically addressed and that they are getting a relevant message. For example, I buy tennis equipment regularly and I usually buy from a handful of online stores, which I know. But as most tennis players I am only interested in one tennis brand, which I related to and simply identify as my brand. Now, as you can imagine, I often receive promotional emails offering discounted or new products from what-not brands. One and the same message sent to all. Well, I am simply not interested. Send me offers related to my brand and then I am most definitely on board. It might be tempting to just blast your whole customer base with the same message. However such campaigns not only convert poorly but also risk alienating some of your customers.
Better customer retention
As the saying goes, “Make new friends, but keep the old. One is silver, the other gold.”
Acquiring new customers is important but retaining them is equally vital to your business. Just like old friends, existing customers have a lot more value than new ones. And keeping existing customers is much cheaper than acquiring new customers. If this is not enough reason for you to do your best to retain your customers, you should also know that only roughly 18% of all companies have a greater focus on customer retention vs. customer acquisition. So you have an opportunity to use this otherwise obvious strategy to out-compete your rivals. If you segment your customers and make your marketing campaigns contextual you will be able to increase the lifetime value of each customer and drive long-term profitability.
For example, if you know that a customer of yours did not visit your website in the last few months, you should follow up with them and see if anything is wrong. Maybe they moved over to the competition. If they share such feedback with you, they would most certainly expect an offer from you and you have a real opportunity to bring them back and turn them into loyal customers. And loyal customers, those who have made more than a certain number of purchases, do expect special treatment. They will be awaiting your VIP offers and coupons. In return if you retain their loyalty they will recommend you to others, some will even want to become your affiliates. Here I have given an example with two very popular customer segments, sometimes referred to as Sleepers and Big Spenders/Loyal Customers. But the different segments that you can extract from your customer base are numerous and are only limited by the specifics of your business and your strategy. With Storakle for example, you can build any customer segment, because Storakle keeps the full details of every customer journey and allows you to combine these details in any way possible.
Tailor existing products and service and develop new ones
Visualizing certain customer segments and studying their activity and performance will provide you with important insight about your products and services. You will be able to see what is working and what is not and this will allow you to adjust your strategies going forward. For example, imagine that you develop and sell themes for Shopify and that you have released your latest and greatest theme a month ago. But the theme is not selling as expected. What you can do is find all your customers who visited the theme’s page and bounced. Study these customers, go through their activity timeline on your website, view their existing purchases and try to see why they are not interested in your new theme. Maybe they all have several of your other themes and this theme is simply not offering anything new. Even if you can not spot a pattern, through Storakle you can immediately send them a message and ask for feedback. In this way you will be able to adjust your existing and future products.
Although still in its nascent beginnings, the adoption of customer segmentation in e-commerce has been steadily on the rise in recent years. If you are an online retailer who truly invests in customer segmentation, you stand a great chance of success. Even the smallest efforts to segment your customer base can have a hugely positive effect on your bottom line through higher conversion rates, better customer retention and improved product and service offerings. The good news is that with tools like Storakle, you can perform effective customer segmentation easily. You can even put most of it on auto-pilot.
Ready to get started with your first customer segmentation campaign? Check it out in Storakle!