Top Ten Benefits of Customer Segmentation for E-commerce Brands

benefits customer segmentation ecommerce

Mass media and advertising have radically changed in the past few decades. Although there are many old-school advertising strategies you can continue to use to engage your audience, the emergence of ecommerce and social media has revolutionized how people shop.

In the old days, brands would spend their marketing budget on print ads, TV spots, brochures, and other media to try and reach their target audience. Although the price of Super Bowl commercials continues increasing, expensive and general marketing campaigns have largely fallen out of fashion.

Today’s brands rely on targeted ads, search optimization, or social media to engage with their audience. They dive deep into their marketing analytics and try to find ways to further optimize their messaging to resonate with shoppers and move them down their conversion funnel. When it comes to ecommerce, one of the most effective tactics you can use to boost sales is customer segmentation.

Shoppers expect a personalized experience and flock to marketplaces offering curated recommendations and messaging tailored just for them. If you want to increase revenue and compete with Amazon and other big retailers, you must start to think about practical customer segmentation solutions.

What is Customer Segmentation?

what is customer segmentation Customer segmentation is the process of dividing customers into groups based on a shared factor and creating tailored experiences and messaging specifically for each segment. The more customer segments and buckets you can place customers in, the more granular and specific you can engage with each prospect. Some of the most common ways you can segment customers for ecommerce include:

  • Geographic and demographic factors: Age, location, gender, income, profession, etc.
  • Psychological or Behavioral: How they like to shop, marketing communication preferences, when they are most likely to purchase, etc.
  • Visitor Profiles: Repeat vs. first-time shoppers, account vs. guest users, premium members vs. basic members, subscribers, etc.
  • Purchase Behavior: High vs. low average order value (AOV) customers, single item vs. bulk shopping, card abandonments, inactive shoppers, subscriber reengagement, etc.
  • Source of Visit: Shopping device (desktop, tablet, smartphone, etc.) or initial touchpoints from a brick-and-mortar location, social media platform, or search engine, etc.

Why Customer Segmentation is Important

Customer segmentation is important for ecommerce companies because it helps create messaging, offers, and content that align with each visitor’s unique persona to create an elevated user shopping experience. Optimize your marketing messaging and offers by categorizing visitors based on specific traits or behaviors. This approach will allow you to make the most of your budget and achieve tangible results and a high return on investment (ROI) from your marketing efforts.

10 Benefits of Customer Segmentation

10 benefits of customer segmentation Don’t let your audience data go to waste. Leverage customer segmentation to turn first-time visitors into loyal customers. Some of the top benefits of customer segmentation include the following:

  1. Improved Customer Retention
  2. Stay Competitive with Big Retailers
  3. Turn Shoppers into Loyal Brand Enthusiasts
  4. Find the Right Price and Offers
  5. Stop Wasting Time Trying to Reach Cold Audiences
  6. Discover How Your Audience Wants to Be Engaged
  7. Riches are in the Niches: Identify Your Big Spenders
  8. Better Marketing Messaging that Makes an Impression
  9. Improve Inventory Management and Merchandising
  10. Gain Audience Insights to Guide Product Development

1. Improved Customer Retention

Segmentation should be at the top of your customer retention strategy. Retaining existing shoppers is cheaper than finding new ones. Repeat customers already have a shopping account, and you can continue to nurture the relationship through email or other touchpoints since you have their contact information. Segment customers based on the most engaged and loyal segments rather than trying to reengage with one-time shoppers who have opted out of your pipeline. Reward your most-active and frequent shoppers with coupons, exclusive offers, or loyalty points. Spend more effort rewarding your best shoppers and encourage them to leave valuable five-star reviews.

2. Stay Competitive with Big Retailers

Customer segmentation is essential to stay competitive with big retailers like Amazon and Walmart. They invest billions of dollars to create a superior ecommerce experience for visitors, and customer segmentation tactics are crucial to retaining their shoppers. You can deliver comparable experiences using customer segmentation strategies to reach their audience. Tailoring content and marketing messages to each visitor’s interests will keep them engaged in your sales funnel, without resorting to spammy and ineffective offers. Create positive customer experiences through customer segmentation and keep your shoppers coming back.

3. Turn Shoppers into Loyal Brand Enthusiasts

You can use customer segmentation to create deeper connections with your audience, leading to loyal brand ambassadors. Segmenting customers based on similar demographics, product interests, or stages in the buyer’s journey will help you deploy stronger messaging and offers that improve click-through rates and engagement. Whether it’s personalized recommendations, exclusive offers, or relevant content recommendations, your goal should be to turn visitors into repeat customers. Improving shopping experiences through the use of data can help you build stronger relationships with your audience. This, in turn, increases the likelihood of them sharing positive reviews, mentioning your brand in relevant online forums, comment sections, and social media groups.

4. Find the Right Price and Offers

You should constantly experiment with product listing and retail pricing strategies to find optimal price points that convert customers. Do bundle offers increase purchases? Should I increase the price of the product so I can offer free domestic shipping? Customer segmentation will help you answer these types of questions. Once you start segmenting customers, you can examine which audiences are converting and which ones are walking out the door. Utilize your customer data to gain insights into the spending habits of your visitors. Identify the thresholds you need to overcome in order to increase average order values by identifying optimal price points or product recommendations.

5. Stop Wasting Time Trying to Reach Cold Audiences

Customer segmentation will help you divide your visitors into cold, warm, and hot audiences. You’ll quickly identify your top-performing shoppers so you can allocate more time to craft compelling content and offers to keep your big spenders spending. Find cost-effective strategies and stop wasting your team’s efforts on cold audiences. Once you gain insights into disinterested customer segments, you can experiment with stronger offers and discounts to see if you can finally turn them into loyal shoppers.

6. Discover How Your Audience Wants to Be Engaged

Are your customers glad when they receive a push notification for a new product or are they annoyed? Are those daily emails helping or hurting your bottom line? Marketing is crucial to keep customers engaged and informed, but sometimes, it can hurt a brand. Discover how to communicate with different audiences using segmentation. Learn which channels are helping past shoppers return so you can stop wasting your time on marketing collateral that isn’t resonating with your audience. Create tailored messaging based on visitor behavior and uncover the best channels to reach your customers for better engagement, open rates, and, most importantly, conversions.

7. Riches are in the Niches: Identify Your Big Spenders

Most brands have a highly varied audience. Each visitor has unique interests, buying habits, and how much they are willing to spend. Customer segmentation will help you deploy marketing collateral specific to each shopper. As you start to bucket shoppers into groups based on their behavior and user profile, you can gain insights into each niche marketing segment. For instance, you can bucket customers in colder climates and deploy email offers with discount codes on winter essentials, like coats and gloves. The further you segment audiences based on their behaviors, the easier it will be to develop marketing collateral that aligns with what drives them to make purchases.

8. Better Marketing Messaging that Makes an Impression

Once you start segmenting your audience, you can craft more effective marketing messages that align with each customer’s profile. Generic email and marketing campaigns often yield low engagement rates and can create the wrong impression on potential shoppers. By fine-tuning your messaging based on the preferences and needs of each customer segment, you can generate positive impressions and lower customer acquisition costs. Personalized messages are key to impressing your audience and achieving better marketing results with fewer expenses. With customer segmentation, you can obtain higher-quality leads, increase ROI, and enhance each shopper’s lifetime value.

9. Improve Inventory Management and Merchandising

Utilize customer segmentation to make informed merchandising decisions and ensure your best-selling products are always in stock. By grouping your audiences based on shared demographics, interests, or behaviors, you can gain a deeper understanding of product performance and inventory management. Customer segmentation also provides valuable insights on how to display products in ways that appeal to specific segments, allowing you to make data-driven decisions on inventory stocking. This approach enables you to buy in bulk to save costs, increase sales, reduce operating expenses, and create better customer experiences.

10. Gain Audience Insights to Guide Product Development

Leveraging customer segmentation is an effective approach to gain valuable insights for product development. By dividing your customer base into smaller groups based on specific criteria, you can discern the product features that particular audiences desire. Reverse engineer customer preferences to create new products that appeal to specific groups or improve existing products based on the preferences of your target shoppers. By developing products that align with the wants and needs of your audience, you can reap the benefits of increased sales, improved customer satisfaction, and a stronger brand presence.

Plug Into Intelligence Commerce and Transform Your Business with our Advanced Customer Segmentation Technology

Customer segmentation has never been easier than with Nogin. Our headless enterprise technology plugs into Shopify Plus, supercharging it with market-leading functionality that outperforms against legacy enterprise platforms. Our dynamic solution features sophisticated research and development built in and our clients can migrate to an enterprise level with no upfront costs in less than 8 weeks. We developed our own customer segmentation technology that automatically divides customers into buyer personas. Our Nogin A.I. analyzes their unique profile and delivers personalized and dynamic content without any complicated analysis on your end. Intelligent Commerce also features superior microtargeting capabilities to automatically assess site and marketing performance to push custom offers and customer differentiation, increasing conversions and lowering acquisition costs. nogin customer segmentation technology Here are some of the other benefits you can expect when migrating to Intelligent Commerce:

  • Nogin’s Commerce-as-a-Service (CaaS) technology is built on Shopify Plus and arms brands with the power of big data to fight big retail.
  • Our headless ecommerce solution features AI-powered customer segmentation, algorithmic merchandising, and smart promotion optimization to enhance your customers’ online shopping experience with personalization tactics that convert.
  • We can handle multiple frontends and multiple backends.
  • Access 40 enterprise-level tools and features that improve conversions and lower marketing spending, shipping, and returns.
  • Replatform to a superior enterprise platform without replatforming fees and go live in just six weeks.
  • Access a comprehensive technology stack and pre-integrated frontend theme called Luminate, which includes the best Shopify apps along with partner integrations and exclusive features developed specifically for Intelligent Commerce. Our dedicated site optimizers are constantly working to improve each integrated app, leveraging tactics gained from managing over 150 brands and $1 billion in total gross merchandise value (GMV) over the past decade.
  • True global enterprise ecommerce to reach and convert international customers.
  • Our 3PL ecommerce fulfillment solution will lower your shipping and return costs.
  • Marketing spend efficiency increases 30% with the CDP.
  • Plug into our enterprise ecommerce platform solution with NO upfront costs!

Nogin is a different approach to enterprise ecommerce, and the results speak for themselves:

  • Conversion rates improve an average of 40% on our platform.
  • Marketing spend efficiency increases 30% with our CDP.
  • Increased personalization drives a 15% increase in revenue.

If you want to recession-proof your business and instantly become more profitable, it starts with a smarter approach. Learn more about the research and data behind a Commerce-as-a-Service business model and download the Coresight Research Reports below, or contact us today:

Customer Segmentation FAQ

What are the criteria for customer segmentation?

You can create a custom segmentation based on any factor of your choosing and that is relevant to your business. Common segmentation criteria include geographic location, demographics, behavioral characteristic, and psychographics factors.

How to choose a segmentation model?

Your customer segmentation model should help you easily identify cohorts of customers based on common attributes. Start with factors like demographics or behaviors, then evolve that model over time. Make sure the model aligns with your business goals and marketing strategies.

What are the different types of segmentation?

The main types of segmentation are geographic, demographic, psychographic, and behavioral. Each type helps you group customers based on different characteristics like location, age, interests, or buying behavior.

What are the core customer segments?

The four core customer segmentations are:

  1. Demographic
  2. Behavioral
  3. Geographic
  4. Psychographic

How do you identify customer segments?

You can identify customer segments by analyzing your customer data, looking at patterns in demographics, purchase behavior, and preferences. Use tools like surveys and data analytics to find common traits among your customers.

What is the value of customer segmentation?

Customer segmentation helps you to understand your customers better, create personalized marketing, and improve customer experiences. 

Free Guide: 6 Strategies for Effective Personalization

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