Segmenting customers in your store improves your marketing efforts and increases customer satisfaction. You can dynamically display content for a specific set of customers based on attributes like customer address, order history, shopping cart contents, etc. The marketing methods can also be optimized with shopping cart price rules for these segments. This article will go through all the different aspects of customer segmentation and how this feature of Adobe Commerce is excellent for your online store.

What Is Customer Segmentation?

Customer segmentation refers to grouping customers into specific subgroups based on certain characteristics and using certain data sources. Some of the deciding attributes are demographic characteristics, engagement characteristics, and interest in your product. E.g., if you are selling books, they prefer fictional or non-fictional books.

You can also reference a pet store in which there are very diverse customers with different preferences and needs. The purchase depends on the type they like, pets’ ages, dietary needs, lifestyle, income, and how they like to interact with the pets. The pet seller will not find any outcome in communicating with all customers in the same way. Here customers segmentation helps, and it will change how you communicate with your customers based on what you know about them. You can also identify the most profitable customers and tailor your offerings to meet their needs. In short, customer segmentation lets you deliver relevant shopping experiences for building brand loyalty.

Importance Of Customer Segmentation In Online Stores

customer segmentation for Online Stores

Not long ago, online stores focused on attracting more and more visitors to their online store through marketing efforts and appealing to average customers.  But it included the wrong audience on the online store, and soon, the marketing experts realized that one-size-fits-all marketing approaches aren’t so practical anymore. Also, targeting wrong customers was not just resulting in wasting marketing costs and higher operational costs associated with product returns, customer service, etc.  Customer segmentation helps you target the right set of customers (with the right messages at the right time). You can give the best possible customer experience and keep them loyal to your store, and you can give them personalized experiences and give them content or product recommendations.

Most Common Types Of Customer Segmentation In Use Today

Finding the customer engagement patterns is very important in e-commerce. Don’t just find what customers are purchasing from your store, but also check what they do after the purchase and what they did before. How many times have they purchased the product? Another major aspect to understand is what types of things they are interested in. This will make sure that you are selling the exact product they want and your marketing efforts are not going in vain.

One of the best outcomes of this analysis is looking at cohort analysis. It lets you look at groups and users’ sections and know their retention and loyalty. You can find if the users visit your online store daily, weekly, or monthly. Cohort analysis helps you determine why certain types of customers are not returning to your store. It is crucial for remarketing and retargeting. Since no two customers are the same, segmenting customers into separate groups regarding how they interact with your store or product is important for marketing and conversions.

Also Read: Magento Review for Ecommerce Stores

Types Of Customer Segmentation

Types Of Customer Segmentation
  • Demographic & Socioeconomic Segmentation
  • Geographic Segmentation
  • Behavioural Segmentation
  • Psychographic Segmentation
  • Social Media Segmentation

How To Do Customer Segmentation?

There are certain steps that you have to follow in Customer Segmentation. These are:

  • Understanding your business costs
  • Identifying your best customers
  • Collecting data from external sources
  • Creating Customer Profiles

Let’s go through each of these in a bit more detail…

1. Understanding The Business Costs

Before segmenting customers, you should know your overall business costs and the cost associated with each customer transaction. Find the cost associated with advertising, customer acquisition, shipping, order processing, and customer service. Knowing the business cost will let you know how much you must earn from each customer transaction to profit. More importantly, you will start linking customer behaviors to profits. This is important to know which customers are worth targeting and which ones are not.

Apart from knowing the business costs, know the customer lifetime value, i.e., average net profit attributed to your brand within a particular timeframe. This will help you know how much repeat business you can expect from individual customers.

2. Identifying Your Best Customers

Do you know that 80% of your business comes from 20% of your customers?

A quick analysis of the purchasing history will let you know who your best customers are and which customers are buying your top-selling products. The most profitable customers are:

  • Frequent Buyers: Those who make repeated purchases from your store respond 40-60% better than single-time customers.
  • High Average Order Value: Customers who make fewer purchases but comparatively higher order value.
  • Few Returns: Customers who made a few or no returns.
  • Provider Reviews: A positive review from a customer is a huge asset in marketing. Always value the buyers who left a genuine review after making a purchase and use social media to tell their friends about the purchases.

3. Collecting Data From External Sources

The more you know about your customers, the more effectively you will deliver a better customer experience to them. For that, you have to look beyond your store database and find external sources from where you can collect data of your customers? Here are some ways:

a) Census Data

With a little extra research, you can collect a range of useful demographic information based on your customers’ zip codes.

b) Browsing Devices

You can also collect helpful customer data by detecting browsing devices for accessing your store site. Earlier customers used to browse the stores from either desktop or laptop computers, but now, with m-commerce, smartphones have become a more significant trend in the e-commerce industry.

c) Surveys and Market Research

You can also conduct independent market research or survey the customers to collect richer data like customers’ lifestyles, attitudes, activities, shopping preferences, etc.

d) Cookies

Cookies track the customers’ behavior when they visit your store and collect information. They can collect browsing history, page views, income, age range, etc.

e) Web Analytics

Many web analytics packages like Google Analytics provide information about the device and other important parameters.

f) Data Aggregator Services

For a fee, data services such as Rapleaf and Spearmint will provide you with a range of information about your customers based on their email addresses.

g) Creating Customer Profiles

You can identify your customers’ needs, mindset, and challenges with profiles. You can incorporate demographic, lifestyle, and behavioral characteristics in the profile to target. You can also identify sub-segments for existing products.

How Adobe Commerce Gives The Best Customer Segmentation?

The Customer Segmentation feature by Adobe Commerce lets you dynamically display content and promotions to a set of specific customers. There are features like showing certain prices to a specific set of customers, giving discounts to target customers, catalog price rule, cart price rule, tier price, related product rule, dynamic block, reward exchange rates, category permissions, invitations, etc.

Customer Groups Vs Customer Segments

 CUSTOMER SEGMENTCUSTOMER GROUP
Catalog price rule ✔️
Cart price rule✔️✔️
Tier price ✔️
Related product rule✔️ 
Dynamic block✔️ 
Reward exchange rates ✔️
Category permissions ✔️
Invitations ✔️
Adobe Commerce

How To Create A Customer Segment In Adobe Commerce

Step 1: Enable customer segments

Step 2: Add a customer segment

Step 3: Define the conditions

Step 4: Review the list of matched customers

Wrapping Up

In this article, we have understood how a feature of Adobe Commerce, “Customer Segmentation,” can play a big role in your store’s marketing and overall growth. Hire the best Adobe Commerce development company with expertise in developing such ecommerce stores from scratch.

Author

I am an eCommerce consultant, a member of the Forbes technology council with a decade of experience in the ecommerce development segment. My expertise can make your business overcome any obstacles while you are dealing with the Magento ecommerce platform!