4 Main Types of Customer Segmentation and How to Use Them in Your Targeting
In marketing for e-commerce, no single tactic will ever fulfill all your marketing objectives. There’s no one-size-fits-all.
In fact, as tech advances and more payments, options, and benefits emerge, the sizes begin to grow and vary.
So how can marketers and e-commerce business owners meet these diverse needs and help their customers find and remember them?
It’s by using segmentation. When you segment customers into groups, you begin to see similarities and opportunities. You uncover the different types of customers that buy from you and those that aren’t really your customers.
But before you learn how to use segmentation or create a customer segmentation strategy, you’ll first need to understand the different types of customer segmentation.
Keep reading to uncover the 4 main types of customer segmentation and the importance of creating customer segments. We’ll also show you how to use segmentation and create a customer segmentation strategy.
What is customer segmentation?
Grouping customers based on similar needs, habits, or criteria is called customer segmentation. Using these groups, your marketing will be more targeted towards your customers.
How often have you seen ads that are not related to you in any way and thought ‘Why am I seeing this?’
These are advertisers who use broad criteria to target customers.
For example, I recently saw one of the e-commerce stores I buy from show me ads for car accessories. I don’t recall buying car accessories (myself) in at least 5 years! So why was I seeing this ad?
If you look at the criteria for ad targeting, you’ll find that you fit the bill of gender, country, and age. But what about interest?
This is where this business could have made a “sale” but instead got a “hide ad” request from me.
Had they chosen to segment me in the group that prefers to buy books for example, they’d have at least gotten me to add a few books to my cart.
You know how marketers create customer personas? Segmentation is a close idea of personas. It’s like profiling them. And by doing so, you’ll be taking the first step in understanding your buyers and their patterns.
4 main types of customer segmentation
Now that we’ve clarified what segmentation is, let’s review the 4 main types of customer segmentation and how to use them in your strategy.
1. Demographic segmentation
Dividing your customer based on demographics means you can group them in terms of age, gender, education, language, marital status, and income. Job type also falls under customer demographics.
Let’s say you own a toy store and want to use demographic segmentation to increase your sales.
But if your store sells women’s accessories, your main target audience will be women. Based on your pricing and the type of accessories you sell, you’ll want to segment your customers based on their age and income.
2. Geographic segmentation
As its name suggests, geographic segmentation relies on the where your customers are. This can be a country, city, or an entire region.
Some businesses cannot afford to ship internationally, while others don’t have the luxury of providing their products in nearby cities.
When these stores run online ads, they’re main target will be customers in their city or at most their country.
Further reading: 9 Ways to Create Effective Ads and Prevent Ad Fatigue
Let’s take the toy store example again. If the store only has branches in California, shipping products to Europe will be quite costly.
That’s why the store is more likely to focus on selling in the state of California and, based on shipping prices, might opt to deliver products to nearby states.
3. Behavioral segmentation
Segmenting based on behavior is called behavioral segmentation. This can include buying patterns, certain preferences, and habits.
By looking at how and when your customers buy products from you, you can begin to predict their buying behavior and patterns.
You can use that to provide personalized services or offer to remind them when it’s time to make their monthly purchase.
Online grocery stores have a good opportunity to use behavioral segmentation to drive their sales. If they know that a certain group of customers makes a weekly purchase of milk, they can opt to remind them or deliver emails, pop-ups, or ads on specific days of the week.
4. Psychographic segmentation
Last but certainly not least in the main types of customer segmentation is psychographic segmentation. Albeit, it’s the hardest to use and target.
Using psychographic segmentation, you can target customers based on their interests, attitudes, values, beliefs, and their personality.
However, using this method of segmenting customers is harder because of the variety in interests and how you'll get customer data.
Mega international brands like Apple and Nike use psychographic segmentation in their marketing and ad targeting quite well.
More ways to segment customers
While demographic, behavioral, geographic, and psychographic segmentation are considered the basic forms of segmentation, there are many others that fall under them as sub-categories or that are a variation of them.
We’ll handle both in this article.
Depending on the product or service you provide, you may choose to segment customers based on the type of device they use.
Technographic segmentation allows you to group customers based on mobile or desktop-use, apps, or certain software.
For example, if you’re selling a product and want to segment customers who only use iPhones, then you’d be segmenting them using technographic segmentation.
Another way to segment your customers is by relying on the economic value of certain customer groups within a business.
“Identifying subgroups in a market guides marketing and sales decision-making and thereby makes the marketing and pricing process much more effective,” explains Marketing Insider.
Using value-based segmentation, you can divide customers into groups and charge each group differently. This is not easily applicable and unlikely to be seen in e-commerce. It’s more of a business-to-business (B2B) or enterprise pricing strategy.
A company that has hard-to-serve or costly-to-serve customers is likely to charge them higher than it would customers who are easier to serve. The same may apply to customers who are insensitive towards price.
Another type of customer segmentation is needs-based segmentation which relies on the must-have products or services for certain customer groups.
What is RFM segmentation?
Another way to create customer segments is to use RFM segmentation. RFM stands for recency, frequency, and monetary value.
To a great extent, RFM segmentation combines behavioral and psychographic segmentation.
You can target – or retarget – and segment customers based on their recency, which is when they last made a purchase from you.
For example, if you’re targeting people who a purchase from your store in the past 7 days, you’d use RFM segmentation.
You can also target customers based on their frequency, which is how often they visit your online – or physical – store. By looking at frequency, you’ll be grouping customers based on buying or activity patterns and behavior.
Then there’s monetary-value segmentation. This is a type of transaction segmentation where you group customers based on how much they’re spending.
If you have a line of high-end products, you’ll want to display their ads on social media to customers who spend the most.
Where can you use segmentation?
Customer segmentation is a great way to understand your customers, provide them with their needs, and keep them loyal.
But where can you use segmentation to build a relationship and increase your conversions?
Here are a few options:
- Email marketing
Companies, small businesses, and even solopreneurs can get lots of data and maximize their interactions with customers using segmentation.
For starters, you segment customers based on the type of products they buy from you or based on the needs.
For example, a clothes store can segment customers based on gender and send relevant emails based on products and sales.
Customers find it annoying when they get irrelevant emails.
How often have men received emails about women’s beauty products, only to delete them? How often have women received emails about electronics and car accessories they don’t need only to delete them?
By segmenting customers across your email list, you can ensure higher email open rates, click-through-rates, and conversions.
Learn more about the The Top 45+ E-commerce Vocabulary, Metrics and Biz Terms
If you’re selling via your website or mobile app, pop-ups and notifications are great ways to inform customers about new products, discounts, and benefits.
With segmentation and pop-ups, you can group customers based on gender, buying habits, pricing, and more and send them relevant updates and notifications.
Be sure not to overdo it though.
- Cart abandonment
Though cart abandonment falls under both email marketing and pop-ups, we’ve included it separately here because cart abandonment emails can benefit from segmentation.
You can segment customers based on how long they haven’t returned to their cart or based on the value of their cart. If one customer has $15 worth of products in their cart while another has $150, you may want to segment customers based on their cart value.
Note: This will be a time-bound campaign once the customer completes the purchase or moves their products to their wish list.
Another area where segmentation can help you as an e-commerce store is using average order value (AOV).
AOV is an e-commerce metric that tracks the average value a customer spends each time they use your website or mobile app.
- Ads and retargeting ads
Segmentation forms the basis of any ads strategy. You can segment customers using one or more of the main segmentation types or other criteria.
By segmenting your customers, you can ensure better targeted and retargeted ads and a higher return on ad spend (ROAS).
Why customer segmentation is important
Grouping customers based on similarities comes with a number of benefits. Chief among those is better targeting.
Better targeting means you can get more insights about your customer and their buyer’s journey.
But that’s not all.
Here are some of the top benefits of using customer segmentation and improving your ad targeting:
- Higher customer lifetime value
- Better personalization
- Build customer loyalty
- Improve your ROAS
- Lower customer acquisition cost
- Increased conversions and sales
How to create your customer segmentation strategy
Which type of customer segment you choose to target will depend on the type of product you sell.
If you’re the toy store from the example above, technographic segmentation may be useless to you. However, if you’ve noticed that iPhone convert better than Android users, then it’s good for your marketing and segmentation strategy.
This brings us to the importance of creating a customer segmentation strategy.
What is a customer segmentation strategy?
A customer segmentation strategy is a plan within your larger marketing strategy. It focuses on how dividing your customers into groups and marketing to them based on those segments or groups.
Different customers have different behaviors and reasons for making a purchase, which means that nearly every customer journey is different.
Combining customer demographics with location and behavior patterns can go a long way in bringing you a targeted following and customer base.
This makes customer segmentation essential for your greater marketing strategy. It also helps you increase your customer lifetime value, generate a higher ROAS, which means higher revenues and sales.
Further reading: 8 Customer Acquisition Metrics You Need to Start Tracking Today
Use Convertedin’s customer segmentation tool for higher revenues
If you want to explore the benefits of customer segmentation in action, then explore Convertedin. But Convertedin isn’t just about segmenting customers.
It’s about segmenting customers into various segments and using those segments to automate your ads creation.
In other words, it’s a recipe for better targeting, saving time, and money.
Using Convertedin’s customer segmentation software, you can customize how your customer segments whichever way you see fit.
Here are a few examples of customer segmentation we highly recommend:
- Top-spending customers
- Low-spending customers
- Customers who make weekly purchases
- Customers who have completed 5 or more monthly purchases
- New customer segment
- Loyal customers
- Customers with AOV of $100+
- Customers from US/Canada/Germany/UAE [add country or region of choice]
In other words, if you’re wondering how many segments there are when it comes to customer segmentation? With Convertedin, the answer is: Unlimited!
Wrapping it up
Creating customer segments and using them in your marketing comes with many benefits.
You can expound on these benefits by experimenting with the different types of customer segmentation in your ads campaigns and see which works best for you.
With segmentation you can uncover your top customer segments, learn more about your customers’ buying patterns, and save time and money by creating effective and personalized ads.
You can even save more by exploring Convertedin’s customer segmentation software and ads automation platform. Start your 14-day free trial today (no credit card required!)
Further reading: The Ultimate Guide to Ads Automation