How Huge is the Impact of Consumer Segmentation and Behavior Analysis in the field of e-Commerce

By this time, you might have heard of many small retail businesses going online amid this Covid-19 pandemic while many big brands are making use of market segmentation to the full extent to reach their customers.

However, many small business owners are still not aware of how to make the most of customer segmentation and behaviour analysis to their benefit as well as to offer a great customer experience.

This piece of writing will explain how customer segmentation and behaviour analysis can help e-commerce businesses to drive growth by reaching potential customers.

Before moving onto discussing customer segmentation and behaviour analysis, let's have a quick look at the history and evolution of e-commerce over the years. 

History of E-commerce

By definition, E-commerce means buying or selling of any products and services via the internet. According to Wikipedia, online shopping was invented by Michael Aldrich back in 1979. 

However, online shopping only became possible when the internet was made available to the public. Amazon was one of the first e-commerce sites that began selling products online in the US. Since then, e-commerce has revolutionised the retail and supply chain industries.

The convenience offered by online shopping has been a significant factor that has helped e-commerce to grow at an unprecedented rate. At present the market is flooded with lots of e-commerce websites ranging from small to big brands. Online shopping has influenced us in such a way that a world without e-commerce is unimaginable.

Why There is a Sudden Increase in Demand for E-commerce?

While the pandemic has hard hit all the sectors, the e-commerce industry is witnessing an unexpected increase in demand. The interesting fact is that many small scale e-commerce websites, especially those providing home essentials, health and wellness products have been witnessing a massive increase in their website traffic recently. It seems the spread of COVID-19 has changed the way consumers buy things. Consumers are now turning to online shopping during this crisis, thus creating new opportunities for many online retailers. 

This change in consumer behaviour was gradually happening, but the subsequent lockdown and social distancing due to Covid-19 have expedited this change. Many experts believe that this change in consumer behaviour is expected to stay even after everything goes back to normal. Realising this fact, many offline retailers have already started moving their business online.

But the problem is, many of these online retailers don't have a clear cut idea about who their customers are and how to target them. Even customer segmentation up to a small level can benefit their business in many ways.

What is Customer Segmentation?

Customer segmentation, in short, is the idea of splitting up your customers to separate small groups based on many factors such as age, shopping habits, geography, gender, interests, etc. By splitting customers into separate groups, brands can individually target each group of customers, with various marketing strategies, thus ensuring better reach and customer satisfaction.

For easy understanding, let's take an example of an e-commerce store primarily dealing in online clothes sales. As far as an online cloth store is considered, their customers are people who are planning to purchase clothes from them. It can be people of different age groups, interests, etc. Each group of customers will have their own needs and desires.

If the same marketing techniques are used on all these different groups of customers, it may only work on some of them and lead to wastage of valuable time and resources of the company. Instead, the cloth store can provide a personalized experience to their customers by segmenting them and targeting each group of customers with different offers based on their interests. Such marketing strategies can help businesses to attract their customers.

Different Types of Customer Segmentation

Customer segmentation allows brands to target a specific group of customers and offer tailored marketing strategies. Targeting customers based on their unique characteristics help to increase sales, revenue and customer satisfaction.

Four types of customer segmentation exist, and they are as follows,

1. Demographic Segmentation - Demographic Segmentation is one of the most common types of customer segmentation in which the customers are segmented based on various demographic data such as age, gender, occupation, etc. Businesses can later use this demographic information to carry out targeted campaigns.
2. Behavioural Segmentation - In simple terms, behavioural segmentation is the process of grouping customers based on their buying behaviour. In behavioural segmentation customer buying patterns, such as the buying frequency, brand loyalty and much more are taken into consideration while grouping the customers. Behavioural segmentation of customers can help brands to identify customers with similar behaviour. Customers who are more loyal towards your brand can be given extra care which in turn results in the creation of a loyal customer base. Loyal customers always hold the key to your business success.
3. Geographic Segmentation - Customers are divided into separate groups based on their geographic borders. Country, state, region, climate are some of the factors based on which customers get grouped. Such kind of segmentation is useful for businesses such as those involved in the sale of winter clothes. With geographic segmentation, they can easily target people living in the snowy region and avoid people living in warm weather conditions.
4. Psychographic Segmentation - Customers are grouped based on factors that relate to their personalities and characteristics. Their lifestyles, personality traits, etc. are considered while grouping customers.

Impact of customer segmentation

To achieve success in your business, you need to provide better service to your customers. Customer segmentation is one way in which you can accomplish that. Now let’s move onto discussing the various benefits of customer segmentation for an e-commerce business.

1. Allows targeted marketing
   Businesses selling a single product to everyone seem to be an unrealistic approach. With customer segmentation e-commerce businesses can identify a specific group of people who are more likely to buy their products. This group of people is considered as the target market, and e-commerce businesses can target these groups of people specifically by making use of various marketing strategies such as digital ads, special discount offers and coupons, etc.
2. Better lead conversion
   No matter what line of business you are in, the success of your business comes when you are able to convert your leads successfully. With lead segmentation, you can have separate lists of your website users based on their actions. People who have previously interacted with any of your product pages from the website can be grouped to one list. On the other hand, users who visited the website homepage only without interacting with any of your product pages can be grouped into another list. With the necessary data available, business owners can use targeted marketing techniques to bring back the users to their website, thus increasing the chance of getting them converted.
3. Stay ahead of competitors
   The e-commerce industry is growing at the fastest pace. As the competition increases in the e-commerce field, many businesses are finding themselves competing with lots of other brands. To stay ahead, businesses need to come with a strategy by which they can engage with their customers and remain relevant. With customer segmentation being able to provide valuable insights about customers, e-commerce businesses can successfully break into the market and stay ahead of their competitors.
4. Improved customer satisfaction and loyalty
   As mentioned in the above points, customer segmentation helps businesses to do targeted marketing campaigns. Targeted marketing helps in promoting products and services that the customer needs, resulting in better-personalized shopping experience. Several studies have shown that offering a personalized customer experience holds the key to improving customer loyalty and satisfaction. A loyal customer is more likely to share their experience with other customers leading to a further increase in sales and revenue as well.
5. Customer retention
   Customer segmentation enables marketers to identify groups of people that need extra care and attention. By identifying such a group of people, marketers can plan various marketing techniques to keep them engaged and create a positive experience for them. Such kinds of actions can lead to an increase in customer retention since they feel more attached to your brand.

The Future

In today's world expectations of the customers are very high, and businesses have to keep pace with these growing demands and expectations. Due to this factor, many e-commerce companies feel the need to adopt new strategies that can help them in offering better customer experience. 

Customer segmentation is a crucial tool for all the businesses; however, to meet the growing needs of the customers', companies have to come with a more advanced strategy rather than sticking with the traditional segmentation methods. 

Many experts believe that in the coming years, we will see an increase in the role of AI in customer segmentation. Using AI to segment your customers offers a lot of benefits for your business. Let's take a look at some of the benefits of using AI instead of manual segmentation.

1. Finds hidden insights in the data, which is difficult for a human to identify.
2. Speedy insights, ability to take quick decisions and make precise predictions.
3. With the changing needs of the customers, AI helps to create dynamic versions of segmentation. 
4. Enables businesses to provide a higher level of personalized customer experience

Wrapping Up

After going through this blog, you might have got an idea about customer segmentation and its benefits. As we mentioned before, customer segmentation allows you to divide your customers into separate groups based on their interests, behaviour, spending habits, etc. 

One thing you should remember is the fact that customer segmentation should be done very carefully as your whole e-commerce marketing plan depends on the data you collect.

Creator, Vinoth Kumar Balakrishnan has been the project lead at Webandcrafts, An Ecommerce Development Company, since 2014.

LinkedIn: https://www.linkedin.com/in/vinoth-kumar-balakrishnan-29b2b753/
Twitter: https://twitter.com/vinob44
Website: https://webandcrafts.com/

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