5 Things You Need to Know About Ecommerce Segmentation

Imagine walking into a store, stepping onto a conveyor belt, and being taken to the exact products you’re looking for - or better yet, didn’t even know you were looking for.

That’s pretty much the idea behind ecommerce customer segmentation. With segmentation, you stop treating every customer the same, and instead, tailor their shopping experience.

While that might sound like a no-brainer, keep in mind that traditional retail basically does treat every shopper the same. You have one storefront window, one flyer, and one store layout for every shoper to navigate on their own. But ecommerce has no walls or limits - bits of code can be rearranged endlessly–which pretty much explains why ecommerce segmentation and personalization has become such a hot topic in the last few years.

In this helpful guide we’re going to break down:

  • What is ecommerce customer segmentation?
  • Why you need ecommerce audience segmentation
  • How ecommerce demographic segmentation works
  • How to get started with ecommerce customer segmentation
  • 5 things you should know about ecommerce customer segmentation

What is ecommerce segmentation?

Ecommerce segmentation involves taking your total customer base and breaking it down into various customer segments. From there, you personalize the ecommerce experience so shoppers are shown products, offers, or user journey flows that are mostly likely to appeal to each customer segment.

How do you define customer segments? That’s really up to you - there are no limits. One of the easiest ways to determine your ideal customer segment breakdown is look at your category pages. How are you already arranging your site experience? That should give you some good ideas.

Some examples of common ecommerce market segmentation might include:

  • Spending behavior (big spender vs. budget seeker)
  • Promotion-related (new shoppers, coupon hunters, etc.)
  • Customer loyalty
  • Geography
  • Gender
  • Age
  • Interests or needs (skin type, physical fitness, etc.)
  • Brand or collection preference

Keep in mind, each of these segments can have multiple elements layered on top of each other. For example, a retailer might have a segment for ‘Loyal Female Shoppers, Aged 18-35’ next to another category for ‘New Female Shoppers, Under Age 18’.

Why you need ecommerce customer segmentation

Remember our conveyor belt example from before? Imagine the same thing, but with one path for all shoppers to follow. Yes you’d get to the products you’d want eventually - but not without taking the, ahem, scenic route. It’d be like being forced to walk through a maze until you get to the specific areas of a store you’re looking for. No thank you, right (ahem, IKEA)?

Ecommerce customer segmentation is a critical part of personalizing the online shopping experience, and as we mentioned earlier, it’s something that’s unique to ecommerce over brick and mortar retail.

Not only that, ecommerce demographic segmentation has big business benefits as well. A more personalized experience shortens the time to value for shoppers, making them feel ‘seen’ as they’re directed right to the products or collections they’re most likely to be interested in anyway.

This means less time spent browsing aimlessly and potentially giving up, and more time getting to the products a shopper is most likely to convert on.

Here’s a few other reasons why segmenting your customers is so important:

  • 84% of consumers say being treated like a person, rather than a number, is very important to earning their business. [Salesforce]
  • 79% of consumers say they're only likely to engage with an offer if it has been personalized to reflect previous interactions they've had with the brand. [Instapage]
  • 31% of consumers wish their shopping experience was far more personalized than it currently is. [Instapage]
  • 44% of consumers say they become more loyal to a retailer that provides personalization. [Netcore]
  • 98% of retailers with personalization see an increase of AOV and 97% see an increase in revenue per user. - [Netcore]

It’s worth noting that while customer segmentation is critical to tailoring the ecommerce experience, it doesn’t always drive the clearest of results. For example, an upsell pop-up app can offer a pretty clear picture of whether it’s working, based on the number of people that view an offer, add it to cart, and check out.

But market segmentation is a long game. It’s about delighting customers in a way that feels completely effortless; in some ways, it’s even about being the unseen magic behind their online shopping experience. The more smooth, quick, and enjoyable the ecommerce experience, the more likely you’re experiencing some form of customer segmentation.

How ecommerce customer segmentation works

The first step to ecommerce segmentation is to understand just what types of categories your customers are falling into. LimeSpot’s Segmented Experiences engine lets you do just that. You create the categories based on any parameters you like, including the ones listed above. From there, these segments start ‘collecting’ customers based on their browsing history, purchasing behavior, or any other criteria you set.

For example, a wine store may create four segments based on customers who browse or buy white, red, rosé, or sparkling wines multiple times, signaling both loyal customers and preferences. Over time, they may see that their repeat customer red segment has a significantly higher proportion of shoppers overall, which may prompt them to create additional segments, based on specific types of wines, growing regions, or price points.

The wine store may eventually find that they’ve attracted a significant segment of Expensive Merlot customers, signaling to them to not only tailor the site experience for those shoppers to spotlight the latest bottles of this variety, but to order more types of Merlot as well.

Apart from the obvious business benefits - the wine store has identified a particularly popular category! - the next step is to take this customer data and make the site as appealing as possible for their high spending Merlot loyal customer segment.

Some examples of on-site segmentation for the ‘Expensive Merlot’ segment might include:

  • Tailoring the home page featured collection to Merlot
  • Reorganizing the new arrivals or red wine collections to lead with Merlot
  • Personalizing product recommendations on PDPs to focus on Merlot
  • Presenting an offer in the cart or at checkout that spotlights a well-rated bottle of Merlot

But the wine shop could take things further, by extending their customer group data beyond the site. For example, they may conduct email segmentation, where shoppers in the Loyal Customers / Expensive Merlot category are enrolled in an email marketing campaign spotlighting the newest Merlot arrivals.

This information can also be used to guide off-site ecommerce marketing strategies. The wine store might prioritize spending on keywords or audiences interested in merlot wine.

How to get started with ecommerce segmentation

Follow these 5 simple steps to start implementing ecommerce segmentation on any store.

1. Select a tool that can capture and act on customer segments.

While many digital experience platforms (DXPs) or segmentation engines carry hefty enterprise-level price tags, LimeSpot’s Segmented Experiences is an affordable way to start understanding shopper behavior on autopilot.

2. Identify what types of segments you’d like to start tracking.

Remember, look at your collections for ideas on what types of customer segments your business is already catering to (men vs. women, straight hair vs. wavy, etc.)

3. Set up your segments and let customer behavior sort them.

Don’t worry if some segments don’t ‘collect’ customers. The aim is to find out which customer segment it makes sense to prioritize personalization efforts on.

4. Understand your top-performing segments and start tailoring the site experience.

Look back at our wine market example. Once it’s easy to understand what types of shoppers are frequenting the site most often, start building tailored experiences that only that segment will see. Remember to consider applying your behavioral segmentation data to other digital marketing channels, like email marketing, marketing automation campaigns, or other elements of your marketing strategy.

5. Delight and inspire customers.

Remember, segmentation isn’t about a quick lift. It’s about providing an amazing shopping experience every time a customer arrives.

5 critical things to know about ecommerce segmentation

1. It’s not just for big businesses

Given the price tag attached to many segmentation engines, it’s not surprising that many smaller to medium-sized businesses shy away from it. But when it boils down to it, segmentation doesn’t have to be complicated - or costly. A good segmentation strategy starts by simply understanding where the bulk of your shoppers lie and tweaking the site experience and marketing efforts to make it feel special for existing customers, and even new ones. Get our ultimate guide to full-site personalization here.

2. Segments can (and should) be multi-faceted

There are some very simple, binary segments that may make sense for any business to look at for segmenting customers. For example, a store that caters to both men and women may want to flip the experience based on the inferred gender (or category of products tailored to a gender) a customer seems most interested in. Of course, your customer base is defined by much more than a single element of their being or personality. Don’t be afraid to test theories about multi-faceted segments - like price point + gender + geography - to more accurately personalize the site experience. Take a look at your Google Analytics to get an idea of which segments are sticking around.

3. Research first, act second

It’s really easy to imagine what customer segments exist, but the more segments you create, the more work is required to tailor the site experience to them. The real goal should be to understand where the biggest groups of customers and opportunities lie. A merchant might see the biggest group of shoppers under ‘Coastal Coupon Hunters’, but a smaller group of ‘Southern Repeat Customers 15x+’ might be the real place to focus efforts based on the revenue per customer. Setting up segments and monitoring where your customer base falls is easy: Prioritizing is where the real work begins.

4. Make the site meaningfully different for each segment

Segmentation only works if it feels genuinely personalized for each customer. 1:1 personalization at scale is possible through tailored product recommendations. But the aim of segmentation is to take other areas of the ecommerce buyer journey and make them feel tailored in a way that hasn’t been fully explored or mined yet by most ecommerce brands. Tailoring site imagery, offers, navigation, and flows are all excellent ways to smooth out the shopping experience for different segments. Ditto, again, for other channels like email marketing. The more you divide up your email list and segment customers, the more likely your shoppers are to respond.

5. It’s not like flipping a switch

Don’t expect AOV or conversion rates to skyrocket the day you start implementing market segmentation. Instead, look at longer-term metrics. Are you seeing an increase in CLTV? Repeat purchasers? What are your Google Analytics metrics saying? Try experiencing the site (or sending a user testing group) as different personas to get a feel for the customer experience flow and how differentiated it feels for each segment to get a taste of just what customers are experiencing and loving.

Learn more about ecommerce segmentation

Interested in diving into ecommerce segmentation? Check out our ebook on the Ultimate Guide to Personalizing Buyer Experiences. Or connect with us directly to talk through segmentation ideas, questions, and strategies - we’re here to help, one personalized conversation at a time.

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