Customer segmentation, also referred to as market segmentation, is the practice of segmenting customers into groups of individuals with common characteristics. By gaining a better overall understanding of customers, then grouping them into categories, companies are able to better optimize marketing programs and allocate marketing dollars more effectively. For example, you wouldn't want to advertise beach balls to customers living in the North Pole, but you might offer a specialized promotion to your "best" customers (e.g., those who spend over a certain amount per year).
For online store owners, a baseline segmentation analysis can be accomplished using data points that have already been collected from existing customer registrations, order checkout information, and other sources.
Their can be two approaches to segmentation. The first approach, traditional segmentation, organizes customers by key variables such as demographics. The second approach, value-based segmentation, looks at customer needs as well as the costs of establishing and maintaining customer relationships. A brief introduction to each approach is provided below.
Traditional segmentation
Traditional approaches to customer segmentation group customers based on a number of variables that include:
- geographic variables, such as region of the world or country, country size, or climate
- demographic variables, such as age, gender, sexual orientation, family size, income, occupation, education, socioeconomic status, religion, nationality/race, and others
- psychographic variables, such as personality life-style, values, and attitudes
- behavioral variables, such as benefit sought, product usage rates, brand loyalty, product end use, readiness-to-buy stage, decision making unit, and others
Value-based segmentation
Today, the most successful companies practicing segmentation carefully consider overall customer needs and segment customers based on those needs and overall business value. While this strategy is less scientific than the traditional approach, companies that have been successful at assessing groups of consumers both in terms of the revenue they generate and the costs of establishing and maintaining relationships have been reaping great rewards. See How to Do Customer Segmentation Right? from CIO Magazine.
Software and solutions
Tools used to assist with segmentation analysis can range from multi-million dollar customer relationship management (CRM) software implementations to smaller software packages that can be used to important and analyze data from spreadsheets.
For the online store owner, the practice of web analytics can be a useful resource for profiling and segmenting your customer base.
Note: Also that GoECart's "Advanced Customer Group Module" (available as an add-on module to GoECart) provides features that let the storeowner segment its customer base into different groups. (See the Know Your GoECart section of this month's newsletter for details.)