The advantages of customer segmentation in retail

7 min read

The expectations that consumers have of retail have changed over the years. Today, customers look for more than just the product when they shop; they also value their needs being identified and met and a strong customer experience. With this in mind, retailers need to adopt a more personalised marketing strategy to target their customers and encourage them to purchase again in the future. Customer segmentation in retail can do just that. Customer segmentation encourages you to segment your customers into smaller groups, so you can get to know their preferences and target them accordingly. 

Here, we’ll cover the value of retail industry market segmentation and how it can help to strengthen your overall marketing strategy.

What is customer segmentation?

Customer segmentation involves you dividing your customers into groups based on their shared characteristics. By doing so, you can deliver a personalised customer experience and ensure your marketing methods target each group’s individual needs. 

Customer segmentation in retail allows you to truly understand your customers' backgrounds and preferences, so you can tailor your marketing, services and products to their specific needs. By segmenting your audience, you should see increased customer loyalty and retention rate, and a boost in your conversion rate too. 

Types of customer segmentation

There are several types of customer segmentation, known as customer segmentation models. Each type groups your customers by their shared characteristics, values or beliefs. Here, we’ll explore the different types of customer segmentation you can use to better understand your customers. 

Psychographic segmentation

Psychographic segmentation groups your customers or potential customers into segments based on their internal characteristics, such as their personality, values, beliefs, lifestyle and interests. After all, you’re more likely to make informed marketing decisions if you not only know who your customers are, but also how they think. Psychographic segmentation involves you asking questions like ‘What motivates my customers?’ and ‘What are their inherent beliefs?’ In doing so, you’ll be able to make predictions about their behaviours and how they’ll interact with your brand and your product, so you can make more strategic and objective marketing decisions.

An example of psychographic segmentation in retail

An example of psychographic segmentation in retail would be an energy drink company that has recognised its customers’ lifestyle preferences, finding that many customers enjoy hiking. They would then make adjustments to their marketing campaign to target this specific segment by focusing on the benefits of their drink as a source of energy for outdoor activities. 

Demographic segmentation

Demographic segmentation involves you grouping your customers based on data points such as age, gender, family size, income, marital status and race. It’s one of the most common methods of marketing segmentation that encourages you to target a defined market, rather than a broad customer base. 

An example of demographic segmentation in retail

Many retail brands sell different tiers of the same product, to target different income levels. For example, television manufacturers sell larger televisions priced higher than those that are smaller, to appeal to different income groups. By knowing the income of those who purchase their TVs, they can target each group accordingly with their marketing campaigns to appeal to their financial circumstances.

Behavioural segmentation

As the name implies, behavioural segmentation is the process of segmenting your customer base by their behaviours. These behaviours may include the products or content they consume, and their interactions with your website, social media channels or app. Behavioural segmentation in retail can offer you insight into your customers’ preferences so you can create targeted messaging and campaigns that they’ll be more inclined to respond to.

An example of behavioural segmentation in retail

Occasion-based purchasing is a key component of behavioural segmentation, that considers how timing corresponds with making a purchase - particularly certain milestones. For example, a jewellery business may notice a customer who consistently buys jewellery around Christmas time, and make the connection that they buy jewellery each year for their partner. The business could then segment their customers who regularly make jewellery purchases around Christmas time for their partners, and tailor their email messaging around gifting jewellery for their partner at Christmas as a reminder each year.

Geographic segmentation

Geographic segmentation is the process of dividing your customers into groups based on geographic characteristics, such as geographic area, population density, and climate. By doing so, you can better understand each group’s unique characteristics and behaviours and create targeted marketing campaigns that are relevant to their geographic circumstances. 

An example of geographic segmentation in retail

An example of geographic segmentation in retail is a clothing retailer that displays different products to online customers based on the weather or season in the area they live in. For example, a customer who lives in Scotland may need to buy their winter clothing earlier than someone who lives in London, so the clothing retailer could present the customer in Scotland their winter clothing on their website homepage before those in London.

Technographic segmentation

Technographic segmentation involves you dividing your customers into groups based on how they use technology. From there, you can understand how these groups use different technologies and how technology influences their buying behaviour. Technographic segmentation can be used to identify the early adopters of new technological products, and those that prefer to stick with what they know. With this information, you can develop your marketing strategies to target each individual group differently. You can also use technographic segmentation to get to grips with the competitive market by understanding which technologies are being used by which companies. You can then create marketing campaigns that outshine your competitors.

An example of technographic segmentation in retail

An example of technographic segmentation would be a clothing retailer trying to increase its app downloads. By knowing what device their customers are browsing their website from, they can create personalised messaging for each user to encourage them to download their app. For those using iPhones, they could include a link to the App Store with a discount code for those who download the app and display different messaging for those on Android devices encouraging them to download the app from the Google Play store. This can help drive app downloads, by offering customers a personalised incentive that is relevant to their technological preferences. 

What are the key advantages of customer segmentation for retail businesses? 

Retail businesses operate in a highly competitive market, making it harder than ever to stand out from the crowd. Customer segmentation is the key to personalised marketing, increased customer retention and loyalty. Here, we’ll explore some of the key benefits of customer segmentation for retail businesses. 

Focusing on the right customers for better retention

Segmenting your audience into groups allows you to focus on the most relevant customer types for a specific product or service, which can improve your customer retention. You’ll learn what your customers want, so you can solve any problems they may have. Customer segmentation can offer insight into who are long-term, loyal customers and who are newcomers. From there, you’ll be able to identify your most loyal customers who are more likely to try new products and recommend your brand to others. 

More enhanced and effective marketing

Customer segmentation can contribute to stronger and more effective marketing campaigns. By grouping your customers by their shared interests and characteristics, you’ll have a better understanding of what would best attract and appeal to them so you can create personalised marketing campaigns.

Better customer service

Customer segmentation can help retailers gain insight into specific groups within their customer base. By grouping your customers into clusters based on their preferences and background, you can make assumptions about what they value most from their customer service experience and what approach is most likely to appeal to them. 

Improve your product or service

Customer segmentation can inform your product or service decisions that will appeal to specific groups of customers. By understanding a group of customers’ values and preferences, you can create products that meet their needs to stand out against your competitors. For example, if you’re a retailer that sells winter jackets, you may find when segmenting your customer base that a particular group is interested in sustainability. From there, you could go on to create a line of jackets that are made from recycled materials to appeal to these customers’ values. 

Collecting better data

Customer segmentation can help you to collect the most valuable customer data that will provide you with the best insight. Retail data can be split into transactional data and behavioural data - both of which can help you effectively target customers, improve retention and build brand loyalty. Transactional data includes the number of orders, the customer’s last order date, and the product category a customer most often orders from. Behavioural data includes the number of sessions and the open rate of emails, which can help you to understand your customer’s decision-making process.

How Apteco can help you with customer segmentation for your business

Want to understand what makes your customers tick? Harness the power of your customer data with Apteco. With our software, you’ll be able to monitor both your online and offline transactions to create personalised marketing campaigns that your customers can resonate with. Apteco can offer you a complete picture of your customer data, so you can better understand their values, for increased customer retention, brand loyalty and revenue.

Take a look at how we can support your retail business to get started.