Six (6) Valuable Customer Segments for an eCommerce Brand
Segmenting your target audience is a great way to improve profitability. Every segment of your customer base behaves and responds to stimuli differently, so defining, identifying, and marketing to these segments in highly-tailored ways improves your ability to keep customers happy and active with your brand. In this article, we cover six customer segments:
The high spenders
The cart abandoners
The coupon lovers
The low spenders
Market Segmentation: the process of dividing a customer base into different groups based on demographics, behavior, or other characteristics
Customer Behavior: how different customers interact with your store
Customer Lifetime Value (CLV): the total dollar amount a customer spends with your store over the duration of the relationship
Average Order Value (AOV): the average dollar amount customers spend per order — calculated by dividing the amount of revenue by the number of orders. For example: $1,000 in sales from 100 orders would have an AOV of $10
Pareto Principle (also known as the 80/20 rule): 80% of observations tend to be driven by 20% of causes
Core Customer Segments for an eCommerce Brand
#1. The High Spenders Every store has certain customers that account for the largest portion of their revenue. These customers — the high spenders — either make exceptionally large orders, shop with you frequently, or both. Quite simply, these are your best customers, and you should do everything you can to keep them coming back.
How to Identify: Identify your high spenders by filtering your customer base by revenue. A popular benchmark for high spenders is any customer who has spent more than your store’s average customer lifetime value. This segment can be made more exclusive by increasing the threshold for high spenders (for example, consider the top 20% of revenue-generating customers).
Marketing Strategy: Once you have identified your high spenders, create offerings that continually entice them to return to your store and make new purchases. Consider:
Early access to new products
Incentives on shipping
Free perks (gift wrap, custom packaging, etc)
Bonus complementary/mystery items
Ultimately, these are your best customers — following the Pareto principle, this segment should receive the bulk of your efforts. Test and measure different tactics to see how your high spenders react.
#2. The Cart Abandoners Cart abandoners are customers who begin the purchasing process but do not complete it. This can happen for a variety of reasons: they were interrupted during their purchase, they saw an extra charge in shipping/handling, they decided they did not want the product, etc. The good news is that these customers have shown an intent to purchase, and, with some encouragement, are likely to buy.
How to Identify: Identifying cart abandoners is straightforward: look at the customers who added items to their cart but did not convert. To be effective in targeting, you need to subdivide them into different segments. For example, on which page did they abandon their cart? If it was the shipping page, then you can deduce that the shipping fee was likely the reason for their cart abandonment. Segment these customers by product, category of product, and on which page they abandoned their cart.
Marketing Strategy: You should test different tactics against cart abandoners to determine what is most effective. For some, just a simple reminder email may be enough to get them to complete their purchase. For others, discounts on shipping or suggesting similar yet different products may be the direction. A few common tactics include:
Sending a reminder email about their purchase
Offering a discount to complete their purchase within a short timeframe
Offering free shipping if they complete their purchase within a short time frame
Suggesting similar products to the one in their cart
Keep in mind that cart abandonment rates are often 70% or higher — converting even a small percentage of this segment can make a big difference for your store.
#3. The Coupon Lovers If coupons are a common sales strategy for your store, then it is likely that some of your customers only make a purchase with a coupon. While this isn’t necessarily ideal, these customers are still making profitable purchases, so they deserve some attention.
How to Identify: Identify coupon lovers by filtering your order history by the number of coupons a customer has used, paired with the number of orders they have placed (1 coupon, 1 order; 2 coupons, 2 orders; etc). This should exclude anyone who only uses coupons occasionally.
Marketing Strategy: The way to keep coupon lovers happy and coming back is obvious: keep giving them coupons. It is important, however, to offer coupons judiciously — this will help to preserve the value of your products and, by extension, your brand.
When defining the coupon lovers segment in your database, it is important to remove customers who only use coupons sporadically — this will avoid more customers joining this segment unintentionally.
#4. The Low Spenders This segment contains your low-spending regulars — faithful, low-AOV customers who aren’t buying as much as the high spenders but make frequent, consistent purchases. Ideally, you want these customers to increase their AOV while maintaining or increasing their purchase frequency. Assuming a normal distribution, this segment tends to make up a large portion of your customer base.
How to Identify: Begin by defining both regular customers and low-AOV customers for your store. For low-AOV (and to contrast your high spenders segment), assume these customers fall between the 20th and 50th percentiles, in terms of revenue. Then, determine the threshold for your regulars — perhaps customers with an above-average number of orders but a low customer lifetime value. Those remaining are your low spenders.
Marketing Strategy: Watch your customers’ buying cycles and send them offers shortly before the time when they would be expected to make additional purchases. From here, you can test different offerings and messaging with customers to see what they respond to:
advertise bundles on related products
broadcast new trends and products
ask for feedback to get direct insight
create a “wishlist” feature for customers to tell you exactly what they’re interested in
Regularly evaluate any positive changes that result from testing the strategies above. While it may be difficult to convert low spenders into high spenders, you can likely find ways to get more products of interest and deals in front of them to increase their CLV over time.
#5. The One-Time Customers This is where every customer starts. Target this group effectively after their purchase to convert as many as possible into loyal, repeat customers.
How to Identify: One-time customers can be easily identified by searching your customer database for their order count: 1. This group can either be subdivided by order value or time since last order. One-time customers with a high order value who purchased recently will be your most valuable, and customers who have not made a purchase in some time are discussed in the next segment.
Marketing Strategy: Identifying the buying cycle for these customers can be challenging. If you retarget these customers too early, you may deter them from purchasing again. If you wait too long, they may have already moved on to another store. Consider using your existing repeat customers as a guide, assuming a normal distribution, and ask questions such as:
What content reliably (re-)engages them?
How often do they purchase?
What is their AOV?
Your new customers will likely behave similarly to your existing customers, so gearing offerings and communications towards known preferences can be effective. Measure the results and adjust accordingly.
#6. Inactive Customers For active customers, customer lifetime value is an ever-increasing metric. For inactive customers, this figure remains the same unless you can entice them back to your store; therefore, for this segment, near-cold re-engagement is your primary goal.
How to Identify: Inactive customers are previous customers who have not made a purchase within an expected cycle. Search your customer base for the last session/activity earlier than some pre-defined cutoff point.
Marketing Strategy: Re-engage these customers based on their order history:
send information about a new collection to encourage engagement
ask for feedback on their purchased products
offer complementary products or mystery items
offer free shipping or a coupon code
While this may not always yield a large increase in revenue right away, you may find long-term success through bringing former customers back into the fold.
Finding the right marketing strategy for each customer segment requires finesse. While your goal is to steer customers towards a more profitable relationship with your store, be careful not to push them too hard — or they might stop visiting and purchasing from your store altogether. By studying each segment’s preferences and behaviors, sellers can create a more welcoming and positive (and profitable) experience.