What is Market Segmentation?
Market segmentation is the process of dividing consumers into smaller groups, allowing for more effective communication with an audience. In ecommerce, creating customer segments makes it easier to speak to the needs of your shoppers, leading to greater personalization and increased conversions.
Why is Segmentation Important?
Like any form of communication, effective marketing relies upon building a rapport and connection with an audience. In order to address an audience effectively, the communicator must understand the makeup of the audience and connect with as many people as possible.
Segmentation is important in all forms of communication; you probably use it all the time. We naturally adapt our communication style to suit the needs of an audience, such as when we’re talking with our friends vs. a stranger.
Likewise, market segmentation strategies allow your campaigns to more effectively reach consumers and promote your products or services.
While we can create segments based on numerous factors, there are 4 main types of market segmentation. Each of these segmentation strategies gives us a different way to group consumers and understand consumers.
The 4 Types of Market Segmentation
1. Demographic Segmentation
2. Psychographic Segmentation
3. Behavioral Segmentation
4. Geographic Segmentation
When most of us think about segmentation, the demographic type is often the first to leap to mind. Demographics, which group people by basic physical characteristics, have been a mainstay of marketing from the beginning. Some of the most basic demographic characteristics are:
- Family size
Why is Demographic Segmentation Helpful?
Demographic segmentation offers marketers a baseline understanding of a consumer’s identity. It can also offer a glimpse into what they value, and whether or not they’re likely to purchase a product.
Demographics are frequently used in the process of television media buying. For instance, an ad for Denture Cream would be unlikely to do well on a channel targeted mostly at children. Likewise, ads for baby formula may not perform well on a channel targeted towards older adults.
Applying This to Ecommerce
When a shopper enters a site, we rarely know much about the demographics of individual users. However, you probably do know the audience that your site is attempting to target. Thus, when you’re planning marketing strategies, consider what forms of communication and offers will work best for your target.
For instance, if your target audience is younger people, consider putting more emphasis on your mobile and SMS strategy. Research shows that Gen. Z and Millennials prefer texting to any other form of communication. They’re also more likely than Baby Boomers to make a purchase on a mobile device.
Meanwhile, if your target audience is mostly older adults, you’ll want to focus on building up your desktop and email strategies.
At an even more basic level, ensure that the images and copy used in your strategies reflect the preferences of your target audience. If your audience trends older and female, the messaging of your campaigns may look very different from one targeted at teenage males.
While demographics are frequently very useful, they’re merely the tip of the segmentation iceberg. Since people within these groups tend to have very different world views and behaviors, we have to dig deeper to truly understand potential customers.
While demographics look at physical traits, Psychographic Segmentation looks at the non-physical traits that drive actions. This type of segmentation looks at shopper motivations and aims to offer a deeper understanding of your target audience.
Some common psychographic characteristics include:
Why is Psychographic Segmentation Helpful?
While demographic segmentation has been a mainstay of marketing for well over a century, psychographic segmentation was not introduced until the 1980s. Though it’s often used as a tool for initial market research, it can offer valuable insights into the minds of consumers within your target audience.
To put it simply, psychographic segmentation seeks to answer the question of “why” behind certain consumer behaviors. However, it can be significantly more difficult to gather psychographic data than the other forms.
First and foremost, psychographic data is highly personal. Gathering it can be labor intensive, there’s no guarantee that the subjects you choose will be representative of a larger population. In addition, some consumers may not even realize they hold certain values or opinion, making it difficult to gather the data.
For that reason, one of the most common ways to utilize Psychograhic Segmentation is to theorize the mindsets of typical consumers to get in touch with what they value, and how you can best communicate with a group. When combined with rigorous testing,
Applying This to Ecommerce
Psychographic segmentation has a huge number of applications in ecommerce. While we don’t have time to go into all of them, let’s take a look at using psychographics in PPC placements.
To start, try making a list of 5 sites you believe your average customer would visit. For instance, if you operated a sporting goods site, your average customer might frequent athletics blogs, the sports sections of major news sites, and youtube videos related to highlights.
Through careful testing, you can narrow down your educated guesses to a few high performing placements that yield the best results. This same process can be used for virtually any business. Simply create a list of sites your theoretical customer would visit, test placements, and repeat.
This is just one of the many applications of psychographic segmentation in ecommerce. Many companies find it helpful to create full customer personas that represent a variety of different customer segments. While we haven’t written in great detail about this topic yet, look out for more information on psychographics coming soon.
Behavioral segmentation divides users into groups based on specific behaviors, whether on or off-site. This form of segmentation has become increasingly important to ecommerce over the years, as it has the potential to drive huge growth across campaigns when executed well. Some examples include:
- Cursor movement
- Pages viewed
- Time on site
- Emails opened
- Stage in funnel
Why is Behavioral Segmentation Helpful?
Behavioral segmentation allows sites to more intelligently engage with specific members of their audience. By accounting for individual behavior, sites can build fully customized experiences that address the needs and desires of shoppers in real-time.
Behavioral segmentation also helps marketers understand what sorts of campaigns do and don’t motivate shoppers on an individual level, allowing them to use targeted strategies, rather than utilizing a one-size-fits-all approach.
Applications in Ecommerce
Behavioral segmentation one of our main focuses at UpSellit. Whether you realize it or not, every shopper that enters your site exhibits a number of behaviors that are telling of their intentions, feelings, and likelihood of purchase.
For instance, by examining certain on-site behaviors, artificial intelligence can indicate the odds of an individual shopper abandoning the site without purchasing. This allows sites to intelligently engage users who are likely to leave, without disrupting shoppers who are likely to purchase a product.
You can also use factors such as items viewed and categories visited to create customized product recommendations that increase both customer satisfaction and average order value.
Likewise, we can apply behavioral segmentation to users offsite to. After a customer abandons, you can use the data collected about the shopper to generate personalized remarketing emails.
For instance, if a user abandons early on in the funnel, we can send customized product recommendations that re-engage the user and drive them back to the site. For example, if they abandoned at the checkout stage, we can assume a higher level of intent and win them back by recreating their cart and possibly offering an incentive.
UpSellit’s AI-powered software continuously analyzes hundreds of individual behavioral triggers to find patterns and intelligently launch personalized strategies that improve both the user experience and the retailer’s bottom line.
Geographic segmentation uses physical location to help provide a better experience to users of a certain area. By taking into account particular factors of each location, sites can better utilize resources and create more effective campaigns.
Some examples include:
- Local climate
- Current weather
- Regional preferences
Why is Geographic Segmentation Helpful?
As we’ve discussed before, geographic segmentation is an often-overlooked but extremely important tool for better serving users. By considering each user’s local area, you can ensure that the content you’re serving is relevant, helpful, and effective at engaging and converting users.
While location obviously never defines a person, a person’s locality can offer us clues to help more effectively personalize the user experience.
Applications in Ecommerce
One of the most important applications of geographic segmentation is ensuring that you display your content in a language that the user is likely to understand. Research indicates that even if a user can understand English, they’re far more likely to do business with a site that displays in their native language.
While country is an important factor, approximately 350 languages are spoken in the U.S. Many parts of the U.S. have pockets where other languages are common, such as Los Angeles, where nearly 40% of the population speaks Spanish. Likewise, while English is spoken in much of Canada, the official language of Quebec is French.
By considering the user’s location, you can make the user feel more comfortable and ensure that a language barrier doesn’t inhibit a sale.
Another key application of Geographic Segmentation is in creating more intelligent product recommendations. For instance, let’s say that Portland, Oregon is a strong market for Nike. Meanwhile, while San Francisco is a stronger market for Adidas. By using the visitor’s geolocation, we can recommend products to each brand in the area where it’s more popular.
Market Segmentation in Ecommerce
Segmentation creates huge opportunities for more effective marketing, better customer experiences, and increased conversions. A great market segmentation strategy helps brands create an experience unique to each visitor and address the needs of heterogeneous audiences.
To learn more about Geographic and Behavioral Segmentation, be sure to check out these articles. Or, if you’re looking for more ways to increase your conversion, download our free ebook, “27 Attributes an Effective Email.”