Data Science

Shopify Customer Segmentation

What is customer segmentation?

Getting to know your customers is difficult online. The problem is not that we don’t have the information, we do. We know which advertisements they clicked on, what they buy, how much they spend, how often they visit the website, which products they look at. And the list goes on. Instead, the problem is that we don’t know how to use this information to give a personalized experience.

And the list goes on. Instead, the problem is that we don’t know how to use this information to give a personalized experience.

The Art of Segmentation

And personalisation is the key to success. If you apply a broad advertising strategy to all customers, you will end up trying to sell a juicy steak to a vegan. Your product may not be that unique.

There may be hundreds of other online retailers selling the exact same thing. But that doesn’t have to be a problem, because you can still provide a personalized experience, and these days, that is what your customer expects.

So… how do you make sure that you, as an online butcher, are only advertising meat to meat lovers? Customer segmentation!

Customer segmentation is using data to group similar customers together, so that you can target each segment with a unique strategy: advertise juicy steaks to the meat lovers, and soy-based burgers to the vegans.

How to segment customers in Shopify?

There are different ways to segment your customer base. Most companies do so by geographic and demographic basis, but this is really not specific enough anymore. Today, “retail is detail”.

In a market where companies can predict when your toothpaste will run out, you have to know not only where your customers are, but the details of who they really are.

Behavioral Segmentation deals with just that. In a nutshell, it is grouping your customers by patterns in their behavior, and developing targeted strategies in real time, to advertise the right messages to the right people.

So how does behavioral segmentation help you optimize your marketing budget:

  1. When you find the right audience, you can optimize your budget to avoid wasting money on people who were never going to buy your product.
  2. If you are giving out vouchers, why waste money on the people who you already knew would purchase your product? Instead, only give them out to entice customers that would otherwise be reluctant.
  3. If you know the online behavior of your customers, you know where to find them. So you can stop wasting your money on marketing channels that are not used by your target audience.
  4. You can see in real time where your customers are encountering problems that are stopping them from making a purchase… and give them an encouraging little push 😉

So how can you use the data you collect to segment your customers and target them to achieve customer retention and lifetime value? Here are the five key data points that are widely available for any online shop:

FactorDescription
OrdercountTotal number of orders placed by the customer.
Average Order Value (AOV)Average amount spent per order by the customer.
Return RatePercentage of products returned.
Voucher UsageNumber of orders placed by using a voucher.
SessionsNumber of website sessions per user.

Key behavioral segment profiles

Based on this information, you can create the following customer segments to boost your sales and optimize your spending:

The VIPs

The VIPs are hands down your best customers. They are your long-term, loyal customers. They order a wide range of products, and order often, spending a lot per order. Best of all, they rarely return or use vouchers.

With these customers, the main goal is to retain them. To keep them engaged, send them customer satisfaction surveys and product review requests. To gain their loyalty, grant them early access to product offerings and set up a loyalty program with them.

Keep looking to improve their experience. This brings innovation to your business and makes it better. As your VIPs are your best clients, you’re going to want to make them the main focus and target of your overall business strategies.

Better still, you can use them to convert others, making them your brand ambassadors. To do so you’re going to want to send them “refer a friend” promotions. This way you can further increase your customer base, and hopefully the customers they will send your way will also share similar characteristics, fitting the VIP profile.

Furthermore, by watching VIP behavior and habits, you can learn what keeps someone loyal, and foster that loyalty in other customers as well.

The Deal-seekers

These are existing customers who consistently make purchases, but are not looking to spend a lot. They are always searching for good deals, so use a lot of vouchers. They also return items often.

The deal-seekers are good to have because they increase your product turnover, but because they are always finding good deals, it’s hard to achieve good profit margins with them.

Therefore, the goal is to increase their basket value. To do this, it’s best to send them vouchers, but with a minimum order value. That way they will spend more on each purchase.

It’s also good to put these vouchers on bundles, that way you can off-load some products that are not selling well as well as upping their basket value. As this type of customer returns a lot of items, don’t offer free returns.

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Occasional Shoppers

These customers don’t place orders often, only on special occasions like birthdays and holidays. That said, they spend more than the deal-seekers per order, and return items less often.

With this type of customer, the key is to know when to advertise and when not, so you can avoid wasting your money advertising at times when they won’t make a purchase.

Don’t send them offers year-round, but only during the run-up to the holidays. Or for people that only shop after a busy day at work, don’t advertise to them at 9 am, only during the time frames that they have historically placed orders.

The hesitant newbies

Hesitant newbies are, as the name implies potential customers, maybe even visiting your site for the first time. They may have a few items in the cart, but are still exploring your site, and the sites of your competitors!

These customers are difficult to convert because, as they are new, you just don’t have the data to understand what they are really looking for, and what will tip them over the edge.

But you can look at their level of engagement: how long they look at product pages, if they opened email newsletters etc. Then, you can focus on those that are engaging with your site, who are more likely to make a purchase. This makes your marketing more cost-effective.

The goal with them is to make them place that first order, by gaining their trust and offering them incentives. Show them satisfied customer testimonials to gain their trust.

To incentivize them, show them retargeted ads with “price match” or “best price” guarantees, and offer them discounts on their first order.


Shopify Customer Segmentation with RetentionX

Solution

Now that you have seen the benefits of customer segmentation, the only question that remains is how you are going to set it up in your business to launch you to new levels of success. RetentionX allows you to quickly and efficiently create these segments via direct integration with shopify. Your data flows automatically, so you can see the insights in real time, with no need for manual processing.

Whilst RetentionX gives you the freedom and flexibility to define your own segments for what you think works best for your business, it also recommends ideal segments based on your data. This feature is great for if you’re just starting out with customer segmentation, and don’t know where to start.

For instance, RetentionX automatically conducts RFM analysis on your customer base, dividing them into multiple segments such as worst customers, dormant customers, loyal customers etc.

Acquire better customers.

You can either create segments using our suggestions or build your own segments from scratch.

Which Customer Segments Should we Target

RetentionX Functionalities: Get the best out of your Shopify Customers

Now that you have set up the segments, the next step is to analyze them. In customer segmentation, the main challenge is analyzing different metrics by segment. For instance, if you would have to calculate Churn Rate yourself every time you create a new segment, you would require specific tools, technical knowledge, extensive resources and a lot of time. This is what makes RetentionX a game changer – it saves you this hassle and time.

Customers are like snowflakes: Every customer is different. 

Nadine Zirbes

As soon as you have configured your segments (or chosen a segment recommended by RetentionX) you can gain access to 100+ reports, and immediately analyze the performance of each segment for various KPIs, such as retention rate, churn rate, repeat purchase rate, and various cohorts.

You can also determine the bestseller per segment and see which product combinations each segment is buying, to help you increase your cross selling. RX makes segmentation analysis easy and efficient, saving you valuable time and labor.

Compare different customer segments or even companies to evaluate which customers you should rather avoid and which ones you should concentrate on.

As well as allowing you to analyze the performance of each segment it allows you to compare the performance of two segments. This helps you to identify behavioral patterns and thereby figure a strategy for each segment. Then, you can automate your targeting of each segment using RetentionX’s integration with external marketing platforms.

For instance, you can sync your segments with Facebook and target these customers with specific campaigns, or send them automated emails using MailChimp or Klaviyo.

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zendesk
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ActiveCampaign
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RetentionX is the tool you need!

We hope that this post has given you some insight into the exciting and rapidly growing field of customer segmentation, and how you can implement it into your business. To experience what RetentionX customer segmentation can do for your business, register for a free trial.

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Join us for an interactive, introductory RetentionX demo and see how behavioral segmentation help you optimize your marketing budget.

Data Science Enthusiast, growing revenues with the power of data – Founder & CEO of RetentionX, the leading Software for Decision Intelligence.