Needs-Based Segmentation: Benefits & How To Use For E-Commerce
Talking about the importance of customer segmentation in eCommerce will never get old and can never be perceived as redundant. It is a topic that deserves a lot of attention and consideration from all businesses, in general, and from eCommerce stores, in particular. So, even if you’ve read a hundred articles about customer segmentation before, be sure that this article will add great value to your knowledge about the topic.
Usually, most discussions are about traditional ways of segmenting customers, such as demographic segmentation, behavioral segmentation, geographic segmentation, and psychographic segmentation. In this article, we are discussing a type of customer segmentation that not many people talk about. It is known as “Needs-Based Segmentation”.
Before introducing the definition of Needs-Based Segmentation and explaining what it means and how it works for eCommerce, let’s have a quick look at the following quote by Annette Franz who is an author and an expert in customer-centric businesses. Franz says:
“You can’t transform something you don’t understand. If you don’t know and understand what the current state of the customer experience is, how can you possibly design the desired future state?”
This saying makes us think about some of the main aims of eCommerce businesses, such as providing solutions to customers’ problems and offering a seamless shopping experience. As an eCommerce business, you want to be able to solve your customers’ problems, right? You want to identify unfortunate situations in which your customers face problems and positively transform these situations with your products or services.
Do you think this can be done if you don’t understand exactly what your customers need? Do you think you can offer a good customer experience if you get confused between the needs of different types of customers?
Based on what Annette Franz says, the answer is: no, it is impossible!
In other words, it can be pretty hard to transform your customer’s state into a better one without properly understanding this state and all the needs that come with it. This can be done through Needs-Based Segmentation.
Keep reading this article to know what Needs-Based Segmentation is, what its benefits are, and how it can be used for eCommerce.
Table of content:
- What is Needs-Based Segmentation?
- What are the benefits of Needs-Based Segmentation?
- How to use Needs-Based Segmentation in eCommerce?
What Is Needs-Based Segmentation?
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Before diving deeply into needs-based segmentation, let’s first discuss one of the very important classifications of customer segmentation. Based on the classification we’re tackling today, customer segmentation is divided into three types:
- Priori Segmentation: Priori is a Latin word that is commonly used in English to refer to something that is based on previous knowledge. It simply means “stuff you already know”. This term may sound unfamiliar; however, believe it or not, you have been using this type of customer segmentation ever since you started doing business. Priori segmentation is a broad umbrella term that encompasses the following types of customer segmentation: demographic, behavioral, geographic, and psychographic, which you should already be familiar with. It refers to the types of data you’ve likely already got on your target customers, such as age, gender, education, country, nationality, social status, lifestyle, interests, job title, buying history, customer journey stage…etc.
- Value-Based Segmentation: It involves grouping customers by their economic value. This type of customer segmentation refers to “financial” value. Therefore, you should not confuse this with the personal values of customers that you use in psychographic segmentation.
- Needs-Based Segmentation: It is the main focus of this article and it refers to dividing customers into groups based on their needs.
So we can say that Priori Segmentation and Value-Based Segmentation segment customers into groups based on visible descriptive data, while Needs-Based Segmentation groups customers based on the needs, pain points, problems, motivations, or ambitions that drive their behavior.
What Are The Benefits Of Needs-Based Segmentation?
Before discussing how needs-based segmentation works, you should have a look at the many benefits that you can get out of implementing this type of customer segmentation. Take it as a form of motivation for you to embark on this road.
- More Realistic. Needs-based segmentation helps you create a more realistic image of your customers. It gives you a better understanding of how to create accurate and effective buyer personas.
- Identify Growth Opportunities. By identifying customers’ needs through needs-based segmentation, you get to discover the growth and innovation opportunities that exist within the market. In other words, needs-based segmentation can help you identify the unmet or underserved needs of your customers. This gives you the chance to exploit these opportunities to your benefit, which can give you an edge over your competitors.
- Better Prediction. Segmenting your customers based on their needs and buyer motivation allows you to better predict their buying behavior in the future.
- Opportunities For Personalization. We all know that personalization is the future of eCommerce. E-Commerce businesses today search for personalization opportunities everywhere, which is something that needs-based segmentation can offer you. To better illustrate, understanding the distinct needs of each customer, or group of customers makes it easier to create personalized customer journeys.
- More Targeted Marketing. Needs-based segmentation allows businesses to tailor and customize their marketing strategies more precisely to the needs and preferences of different customer segments. This can support your conversion rate optimization efforts because customers are more likely to engage with messages that are relevant to their specific needs.
- Better Decision-Making. Needs-based segmentation allows you to make business decisions that are more informative and way more likely to yield positive results.
Overall, needs-based segmentation can be very helpful to eCommerce businesses that are trying to better understand their customers, improve their marketing effectiveness, and increase their profits.
How To Use Needs-Based Segmentation In E-Commerce?
Now that you understand what needs-based segmentation is and what its benefits are, it is time to get to work. Keep reading to learn how you can start using needs-based segmentation for your eCommerce store.
To begin, you should learn two things:
- Needs-based segmentation cannot be the only type of customer segmentation that you depend on in creating customer segments. They have to be combined with Priori segmentation methods. To better illustrate, it is impossible to segment customers only based on needs. Yes, we agreed that understanding customers’ needs is crucial; however, it is of no use to you if it is not preceded by a collection of descriptive data, such as age, gender, marital status, job title, income…etc.
Think of it this way… Imagine you are building a house, can you place the roof without building the walls? Absolutely not.
Well… in our case, the Priori segmentation represents the walls and the needs-based segmentation represents the roof, which is essential but cannot be placed unless the walls are built first.
- There is something called “Jobs To Be Done” or “JTBD”. It is a theory that you have to understand if you want to use needs-based segmentation for your eCommerce store. The JTBD theory stipulates that customers do not buy products, they hire products to do specific jobs for them. The idea of the importance of understanding customers’ needs is inherent in this theory, which is why you should always have it in your mind to guide you through your needs-based segmentation efforts.
Once you make sure that you perfectly understand the two points that we just discussed, you can start using needs-based segmentation for your eCommerce store through the following steps:
1- Conduct Research And Collect Customer Data
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The first step in needs-based segmentation is to conduct thorough research and collect data on customer behavior, preferences, and needs. Collecting data about customers' needs requires a combination of quantitative and qualitative methods. It is important to use a variety of data sources and analysis methods to gain a comprehensive understanding of customer needs and preferences.
E-Commerce stores can gather the necessary data for needs-based segmentation through a variety of sources, such as customer surveys, focus groups, customer feedback, website analytics, sales data, competitor analysis, and others.
- Customer surveys: Conduct surveys to ask customers about their needs, preferences, and opinions. Surveys can be conducted through email, social media, or on the eCommerce store's website.
- Focus groups: They can be conducted in-person or online and can provide deeper insights into customer behavior.
- Customer feedback: Monitor customer feedback channels such as reviews, social media, and customer service interactions to understand customers' needs and preferences.
- Website analytics: Website analytics tools will help you track customer behavior on your eCommerce store's website. Analytics can provide insights into what pages customers visit, how long they spend on each page, and what products they purchase. This can give you a more clear idea of what they need.
- Sales data: It is another way to identify patterns in customer behavior. Sales data can provide insights into which products are most popular, which customer segments are the most profitable, and what pricing strategies are most effective.
- Competitor analysis: Analyze competitors' websites, marketing messages, and product offerings to understand how they are meeting customers' needs and preferences.
Speaking of customer data, Converted.in offers you a marketing automation tool that will gather all your data in one place, like a hub, with a 360-degree customer view.
2- Organize The Collected Data And Analyze It
By organizing the collected data, we mean that you have to clean, sort, and organize it. This involves removing duplicates, correcting errors, and standardizing data formats. The main aim behind this is to be able to identify patterns and trends in the data so that you can start creating customer segments based on their common needs and preferences.
3- Develop Buyer Personas And Create Needs-Based Customer Segments
You must put a human face on all of the data about customers to capture the living essence of the distinct needs-based segments. Buyer personas are fictional representations of ideal customers based on research and data collected from actual customers. Imagine how strong and effective your buyer personas will be if you use data about customers’ needs when creating them.
In other words, the data you get from needs-based segmentation will make your buyer personas look more real, and, in turn, your buyer personas will help you better serve your needs-based customer segments.
4- Personalize And Customize
Once you have developed customer personas, you can then start customizing and personalizing your marketing messages and strategies to the specific needs and preferences of each needs-based customer segment. The personalization opportunities that needs-based segmentation can open for you are endless. When you personalize based on customers’ descriptive data is something and when you personalize based on customers’ needs is something else entirely. It becomes more engaging and way more appealing to customers.
Personalization for needs-based customer segments can appear in your marketing messages, advertising strategies, product offerings, pricing strategies, and many other things.
5- Monitor And Optimize
Just like customers’ descriptive data changes over time, their needs do too. Therefore, needs-based segmentation requires regular monitoring so that you can regularly adjust and update your needs-based segments, buyer personas, marketing efforts, and everything else accordingly.
You are now aware of how powerful needs-based segmentation is for eCommerce stores. As we discussed, eCommerce stores can use this type of segmentation to better understand their customers and create a more targeted and personalized shopping experience, which is what any business aspires to do. Ultimately, needs-based segmentation allows eCommerce stores to stay competitive in a crowded and constantly evolving digital marketplace.
If you want to start using needs-based segmentation for your eCommerce store but don’t know how to start, you can use the automation tool offered to you by Converted.in. In addition to gathering your data as we said before, it can conduct the entire customer segmentation process for you. Book your demo now to see how that happens!