When it comes to e-commerce, a one-size-fits-all approach simply won’t cut it anymore.
The modern customer wants product recommendations, offers and promotions to be tailored to their unique wants and needs. Failing to meet these demands can result in squandered opportunities, lower customer satisfaction and losing out to the competition.
On the other hand, effective segmentation can help you optimize your product offerings and marketing messages, ultimately increasing sales.
While traditional user segmentation based on demographics such as age, gender, location, etc. is certainly helpful, it doesn’t always tell the whole story. Sure it’s important, but it only lets you know the who—not the why.
A more robust approach to user segmentation is to use action-based segments, which are based on actual consumer buying behavior. This technique allows you to create complex maps of users based on how they interact with the product, make purchasing decisions and increase overall engagement.
Common actions that are examined
First things first. Which specific types of customer actions are analyzed with this technique?
Some of the more common ones include:
- Stage in the customer journey – Are they at the top, middle or bottom of the funnel?
- Engagement level – How you define engagement can vary, but it broadly means communication or correspondence with your company.
- Frequency of interactions – How many times have they visited your e-commerce store or looked at a particular page?
- Interest level – Which products have they viewed or purchased?Spending patterns – How much have they spent? How many purchases have they made? How frequently do they buy?
- Timing – Are they likely to make purchases at a certain time of the week or year? Can you promote additional products after an initial purchase is made?
- Customer satisfaction – Have they been pleased overall with their purchase and your customer service?
- Customer loyalty – Are they a repeat customer? If so, how long have they been a customer?
These are all factors that contribute to action-based segments and provide you with an all-encompassing vantage point of customer behavior. The more data that you have on these actions, the more leverage you have.
With that being said, here are some key reasons why you need action-based segments as an ecommerce seller.
It aids in personalization
Personalization is everything these days. Personalizing your offers, promotions and marketing messages is critical for eliminating much of the friction of the online shopping experience.
A 2016 report from Accenture Interactive sheds light on just how big of a difference personalization can make. According to their findings:
- 56 percent of consumers are more likely to shop at an online store that recognizes them by name.
- 58 percent are more likely to make a purchase when an e-commerce seller recommends options based on their past purchases or preferences.
- 65 percent are more likely to shop at an online store that knows their purchase history.
- 75 percent of consumers are more likely to buy from e-commerce sellers that provide any of these three services.
Those are some eye-opening numbers!
Tailoring your efforts to the unique needs and wants of individual consumers can have a dramatic impact, and three out four are more likely to buy. Just think of the long-term implications.
Digital analyst and author Brian Solis expounds on this in Forbes saying, “Extreme personalization is the new personalization.” He mentions that it’s essential for effectively engaging all customers and converting them into top customers. He explains, “Customers now expect more than personal engagement, they also demand engagement at the right time, on the right device, with the right message.”
Action-based segments are one of the best ways to achieve this level of personalization that consumers so desperately crave. Why?
They allow you to target hyper-specific groups based on actions like engagement, spending patterns, etc. so that your product offerings and marketing initiatives are both relevant and timely. In turn, consumers are being exposed to products that they’re genuinely interested in and you’re addressing their unique pain points.
It helps identify up-selling and cross-selling opportunities
In the book Marketing Metrics, the authors discuss how much easier it is to up-sell and cross-sell to existing customers than it is to sell to a new customer period. According to their research, “The probability of selling to a new prospect is 5-20 percent. The probability of selling to an existing customer is 60-70 percent.”
That’s a dramatic difference and shows why up-selling and cross-selling initiatives can be so fruitful.
But, of course, you don’t want to offer upgrades, add-ons or more expensive products at random. They need to be strategically selected to reflect a customer’s specific interests and preferences.
Action-based segments are perfect for this because examining certain actions can help you identify optimal up-selling and cross-selling opportunities. Here’s an example.
Say that you segment customers by their level of satisfaction. Those that have exhibited signs of high customer satisfaction would be prime targets for up-selling and cross-selling because they’ve already proven to be happy with their previous purchases. On top of that, they’re more likely to trust your brand and be open to suggestions.
The next time they’re at the checkout page of your e-commerce store, you’d want to make them aware of upgrades, add-ons or other high-priced products that would add value to their purchases.
On the other hand, you may want to avoid up-selling and cross-selling to a segment of customers that have exhibited signs of low customer satisfaction. This would likely be ineffective and could potentially be detrimental to your relationships with these customers.
The more relevant the product, offer or marketing message, the stronger the likelihood of making a conversion. So it only makes sense that action-based segmentation would result in a higher conversion rate. By fully understanding user behavior, you can fine-tune virtually every aspect of e-commerce selling to maximize the number of conversions you make.
Note that this is primarily due to the level of personalization that action-based segments can facilitate. By matching customers with highly-relevant offers, the odds of them buying rises significantly.
Neustar Marketing performed a case study involving the computer manufacturing company Lenovo to see how big of an impact personalization could have. What Neustar did was segment Lenovo’s visitors into profiles based on a variety of household data such as the TV shows they watched, the types of media they consumed as well as where and how they shopped.
After compiling this data and dividing customers into segments, they showed them a specific homepage banner that was targeted toward their unique preferences.
Lenovo experienced a 40 percent increase in conversions on their US website and a 25 percent increase in revenue per visitor. That’s dramatic!
While this isn’t to say that every brand that utilizes action-based segmenting will have the same results, it certainly gives you an idea of how powerful this technique can be. If your conversions aren’t currently where you’d like them to be, this is definitely something worth experimenting with.
When you break it all down, this type of segmentation helps your business in two main areas—planning and coordinating your marketing and sales strategies more effectively. This is huge because you only have so much money to invest in these areas.
Smaller businesses in particular need to be cognizant of how much money they’re spending and where it’s going. Action-based segments help shape your marketing and sales strategies so that you can reach a certain segment at a time and through a medium in which they’re most likely to buy.
It’s the polar opposite of antiquated “spray and pray” techniques that involve trying to reach a massive customer base with a generic message, often with only a tiny percentage actually converting.
By fully understanding users and what drives them to purchase, you can fine-tune your marketing and sales strategies in a way that allows you to get the absolute most from every dollar you spend. This inevitably translates into improved ROI and, in the long run, increased profitability.
Matching your customers with the products they want
Modern customers have much higher expectations than their predecessors. They don’t want to be bothered by irrelevant recommendations or have to work tirelessly to find the product that’s right for them.
Instead, they want brands to do the work and help them find products that meet their wants and needs. And they want it to be seamless.
Why do you think Amazon has been so successful? They’re one of the first companies to offer recommendations based on browsing history and prior purchases.
This is a trend that’s spreading like wildfire with more and more brands jumping on board.
While traditional customer segmentation based on demographics is helpful, action-based segments take things to a whole new level. Utilizing this strategy grants you a tremendous competitive advantage and puts you in a position to thrive as an e-commerce seller.
Have you experimented with any form of customer segmentation in the past? If so, what were your results like? Leave us a note with your experiences in the comments below: