How to Use Customer Segmentation in Ecommerce

Written by Vicky Greer

Think about all of the irrelevant marketing emails that you receive; the ones that go straight to your trash folder because you just aren't interested. In ecommerce, this is a big problem with a surprisingly simple solution: customer segmentation. By grouping your clients based on their on-site behavior, you can offer them a personalized experience that will keep them loyal to your site. This article will show you how to use customer segmentation in ecommerce to improve your marketing campaigns and overall customer experience.

What is Customer Segmentation?

Customer segmentation uses information about your customers and their on-site purchasing behavior so that you can perfect your off-site campaigns and show your customers a unique shopping experience that will keep them purchasing from your site. Siftmo will help you understand and use customer segments to enhance your marketing actions.

How can I use customer segmentation in ecommerce?

Customer segmentation is a necessity of ecommerce now. By organizing your data like this, you can improve customer experience, conversion rates and visitor engagement. By personalizing the shopping experience by looking at their purchasing history and rewarding them for being a loyal customer, your ecommerce site can make online shopping a friendlier and more positive experience. After all, if a site knows exactly what you’re looking for, why would you shop anywhere else?

Recency, Frequency Monetary Value

The RFM model is used to recognize and organize a company’s best, most profitable customers by considering three different factors:

  • Recency: how recently a customer made a purchase on the site
  • Frequency: how often they make a purchase
  • Monetary Value: how much they spend on your store when they make a purchase. This model will come in really handy for identifying certain customer segments that we'll look at later on.

The Best Customer Segments to use in ecommerce

There are many ways to organize your customers. Some companies choose to group their customers by demographic factors like gender, age and occupation for their personalized marketing campaigns. Here, we'll focus on on-site behavior - how they engage with your brand, how often they visit the site and their purchasing history. Here are some of the most important customer segments in ecommerce.

Active Customers

Active customers include a few different groups of visitors. First of all, there are the customers who have added products to their cart, wishlisted items and added personal information. They may not have converted a purchase yet, but you should keep an eye on them as they are likely to complete a purchase. Emails reminding them that they have left items in their cart are very helpful in encouraging these customers to return to the site and complete their order.

Other active customers are those who frequently visit the website but who haven’t yet purchased anything. You can send them product recommendations and even discounts based on their recently viewed products.

Repeat Customers

Repeat customers are the ones who have already completed a purchase with you and have come back to visit your site. However, they haven't made another purchase yet. They’re very important, as they could become some of your loyal customers. Group your repeat customers into smaller segments based on their on-site behavior. How many times have they come back to your store? Have they returned recently, or has it been a while? Even if it has been a long time since they made their purchase, you can still engage them by offering discounts and recommendations to remind them of the good service they were offered at your ecommerce store.

Big Spenders

This is where the RFM model is most useful. Big spenders are customers who have completed an order recently, who buy from you often and who spend the most money on an order. Basically, these are the customers that you want to come back.

By offering promotions, tips and advice according to their online behavior, you can encourage them to come back and keep engaging with your brand in a profitable brand. Big Spenders are the most important customer segment in ecommerce because they spend much more money than customers who cost the same amount to acquire. Show appreciation when you communicate with them and reward them for their loyalty to your brand. Here are some incentives to keep big spenders shopping on your site:

  • Early access to new products
  • Free shipping
  • Special offers and bundles
  • Discount codes
  • Product advice and recommendations

Loyal Customers

Loyal Customers also fit in with the RFM model - even if they don’t spend the most on single orders, they are loyal to your company and shop frequently. You can also give this segment access to special offers and find creative ways to encourage customer loyalty.

Some websites have their own loyalty scheme where customers can collect points with every purchase, which eventually turn into discounts, special offers or free gifts. This segment can also be ambassadors for your site - give them a good, trustworthy shopping experience, and they can invite friends and family to shop with you. Whether they spend a lot or a little on each order, this is one of the most important segments for your brand.

VIP Customers

You can use the VIP group just in your customer segmentation, to recognize your most valuable customers. But it's a good idea to have a specific VIP program on your site as well, to give customers a greater incentive to reach this status.

Having a VIP program in place is another way to encourage brand loyalty in your customers. Identifying this segment and giving them special rewards will encourage other shoppers to achieve this status and enjoy the benefits. Similar to loyal customers, you can offer VIPs rewards and discounts to encourage them to engage with and recommend your brand. Be sure that your VIP segment targets the most active and profitable customers.

Accepts Marketing

Customers who accept marketing from your website will be willing to hear from you. They will probably engage with marketing campaigns and use discounts and offers. They are also the customers who are the most open to loyalty programs and even VIP programs.

First Purchase Customers

The First Purchase customer segment is one that should be divided into further subsegments looking at whether they are likely to be one-time customers or if there is potential that they will make more purchases from your ecommerce site. For example, if they have signed up to the site or they have subscribed to your email list, they have a higher chance of becoming repeat customers. This way, you can get a really detailed view of your customer, and personalize a welcome email just for them.

It’s also a good idea to track how exactly they found your website and look at what products they are browsing. By continuing to recommend them the products that they’re interested in, they are more likely to sign up to get discounts and rewards. The offer of free shipping for First Purchase Customers is a good incentive. You can also use competitions or offers in exchange for product reviews, and keep sending out relevant content to encourage them to come back.

The goal is to turn one-purchase customers into repeat customers. To do this, you have to look at a lot of variables. Don’t just target those who made a big purchase one time - they won’t necessarily be your most valuable customer in the long term. Use marketing campaigns to keep your brand in mind for them and advertise products based on their initial purchase. Advertise new products and collections to show them what you have to offer.

High AOV Customers

High Average Order Value (AOV) Customers are also a vital customer segment. The more they spend on a single order, the easier it is to make up the cost of customer acquisition. If a customer has a higher AOV than average, they are valuable to the brand. They may cost more to acquire, but they have a high lifetime value so they’re worth the extra cost. We previously looked at order value in our breakdown of essential KPIs for ecommerce.

Low AOV Customers

But that doesn’t mean you can neglect your Low AOV customers. Send them customized marketing campaigns according to their shopping behaviors and offer them a higher minimum spend in return for discounts and other incentives. This way, you can increase their average order value.

Abandoned Cart

Just because a customer hasn’t checked out doesn’t mean that all hope is lost. Abandoned cart emails can help to recover these lost customers. Each abandoned cart doesn’t need an email - make sure to target customers depending on the value of their potential purchase and encourage the customers with the highest potential orders.

At-Risk and Lost Customers

At-Risk customers are trickier than customers whose interest is already maintained. It’s important to keep an eye on this segment and work out why they have lost interest. The main reason for customers leaving a website is simply that they have forgotten about the brand, and less commonly because of price or product dissatisfaction. Lots of brands send out emails to say that they miss the customer, usually offering a welcome back discount to encourage activity.

When deciding whether a customer is lost, it’s key to establish a timeline. Also, consider how frequently the customer usually makes a purchase. If one client hasn’t ordered something in 90 days when they usually buy on a weekly basis, this is a customer that you need to prioritize and consider as an at-risk customer.

On the other hand, if someone only completes an order around the holidays, this is their standard behavior. A good way to maintain this is by advertising holiday offers and marketing your stock to these customers at the right time to keep them shopping at your store.

Multi-Purchase Customers

These customers are very similar to repeat customers, but with an established timeline. These customers have made multiple purchases on the site and are not necessarily considered lost or at-risk. It is important to maintain their interest and remind them of the good services you've offered. Again, it is important to consider the customer’s usual frequency for purchasing. If it's been a while since their last order, then multi-purchase customers can be divided into at-risk customers, repeat customers, or lost customers.

Value Shoppers

It’s important to consider your customers’ values to pinpoint exactly why they shop with you. The obvious ‘value’ here is the price, but it isn’t the only thing to consider. Your customer may be very environmentally aware and tend to choose sustainable products. Perhaps they are loyal to their favorite brands and are unlikely to shop outside of them. You can promote sales and offers for the more money-conscious customers, and personalize product recommendations depending on other values that might affect their shopping habits.

Contacted Customer Support

This segment is different from the others as it takes less to do with marketing and more to do with developing your customer support system. Analyzing customer support data and asking customers for feedback can help you to optimize interactions between brand and customer.

Submitted a Review

If a customer has left a product review on your ecommerce site, they are more likely to become brand ambassadors. Here, you can personally ask them to refer a friend for rewards of their own. They are more likely to spread the word about your brand if they have had a positive experience themselves.

It’s not just customers who have left high ratings; you can turn your attention to segments who have left a lower rating, offering them incentives to re-engage with the brand and change their opinion. Of course, this is more difficult than working with a customer who has had an overall positive experience.

Product reviews can also fit in with your points system - customers could collect and redeem points based on leaving product reviews.

Customer Segments in Ecommerce

As you can see, there are countless ways to analyze your customers on-site behavior to personalize the experience for them and offer them the most relevant marketing campaigns possible. With some careful consideration ecommerce customer segmentation, you can ensure that your customers will keep coming back to your brand time and time again.