13 Benefits of Market Segmentation for eCommerce

Knowing your target market(s) and audiences plays a key role in crafting a successful marketing strategy. It helps you understand how to address your audience better and helps you invest your marketing budget wisely.

But as most business leaders will know, even in a niche market, there are often subgroups that respond to communication, marketing, and products differently. For this reason, it’s not always enough to have a one-size-fits-all marketing strategy. This is especially true in the competitive world of ecommerce.

Knowing your audience better helps you target them better. For example, German car manufacturer Porsche offers high-end, luxury, high-performance cars. These cars are a dream car to many. When they released the entry-level Boxster in 1996, they made the dream a reality for many more people.

Porsche recognized the aspirational appeal of their cars and how they could open up a whole new market.

What is market segmentation?

Market segmentation is the process of dividing your audience into separate groups. This improves the effectiveness of your marketing. There are four key categories:

• Demographic segmentation. Criteria such as age, gender, identification, ethnicity, income, career type, and so on form the basis for this. People with a similar demographic demographic often make predictable purchasing decisions. This makes this a successful way to segment your market.

• Psychographic segmentation. This takes into account personal beliefs, interests, and lifestyle. It can provide valuable insights. However, it's harder to segment people based on psychographic traits because they're subjective. Using surveys or focus groups can be great ways to gather this information.

• Behavioral segmentation. This considers buying patterns, spending habits, how customers interact with a brand, and their loyalty. It can be useful when making predictions on future spending.

• Geographic segmentation. This looks at where buyers live, whether it’s rural or urban, the local climate, and so on. It can help you understand local markets better. You can tailor your online presence to meet local needs, including adapting to local cultures and trends.

Using McDonald’s as an example of geographical market segmentation, you’ll see slight menu changes in different regions. These are dependent on the local audience. For instance, you’ll see a Teriyaki burger in Japan, rice bowls in the UAE, and of course classic burgers in the USA.

Market segmentation shows where the company needed to adapt its regional offering based on local customer needs. In ecommerce, this could mean using different languages and images on your website in different regions to reflect the local market.

When you understand your market, you can work hard to meet the needs of that group. Communication is an essential part of meeting those needs. When you’re dealing with multiple market segments, having a cloud contact solution can help meet a range of communication needs across all market segments.

Why is market segmentation important?

Not all customers have the same wants, needs, or interests and market segmentation recognizes this. Blanket marketing to a large group of people with different needs isn't cost-effective or efficient. Marketing segmentation instead, helps businesses plan a more strategic approach to communicating with their audience and developing products in a way that produces better results.

How can market segmentation boost your ecommerce business?

Market segmentation has several key benefits. Here we’ll look at the ways it can boost your business.

1. It helps you deliver a more powerful message

When your market is broken down, you can tailor your communication to meet the needs of that specific group. You can create products and messaging that speak directly to the wants and needs of that specific group. This means you’re not spending money on blanket marketing to a wide group of people who are unlikely to respond.

2. It gives your company insights into different markets

Learning more about different segments can tell a business a lot about how each group functions. It even increases a business’s understanding of its customers by 60%. This gives useful information on buying habits such as what brand messaging works well and what prompts a sale in that particular group.

This can help with future planning and predictions. If you understand buying habits, you can predict demand and manage customer needs more effectively.

Free to use image sourced from Unsplash

3. Helps you increase conversion rates

As stated above, when the right message hits the right people, it will pack more of a punch. Targeted marketing means people receive more relevant communication. This makes them more likely to respond.

Consistently getting the communication right means you can nurture your audience and build a relationship with them too. This can help build trust and create long-term customers.

This doesn’t just apply to customers either, if you’re a B2B company, market segmentation can still help you convert more leads. If you’ve invested in B2B lead generation tools, then you’ll want to make sure you can convert those leads into sales.

4. Stronger brand image

In the past, businesses established a brand and people responded to it.

Market segmentation can help businesses create a much stronger brand image. This is because it forces the marketing team to understand their customer better. This helps them build a brand that appeals to the target audience. So, instead of customers responding to a brand the company has crafted in line with its product line and style, the company creates a brand in line with customers’ wants and needs.

5. Increases brand loyalty

A more personal approach to communication can help you build and sustain customer retention and brand loyalty. Because you can tailor communication to appeal to your audience, it is more likely to resonate with them. This helps you nurture your audience by making them feel more than just a customer but part of your brand community.

6. Better ROI

Marketing segmentation helps businesses identify which groups of people are the most valuable. It’s therefore no surprise that 77% of marketing ROI comes from segmented, targeted campaigns. In addition, segmentation can help pinpoint new growth opportunities, such as new or emerging markets. This can lead to huge financial benefits.

7. Competitive advantage

Ecommerce is a competitive market no matter what industry you’re in. Having a full understanding of your audience can give you the edge over rivals who don’t have a market segmentation strategy. Market segmentation provides insights into your market such as understanding your customers’ buying habits as well as identifying unexplored niches.

Competitors without a market segmentation strategy could easily overlook these opportunities.

8. Precision digital marketing

Standing out online can be tricky and for an ecommerce business, it’s essential for your survival. Market segmentation can help you fine-tune your advertising to appeal more to your target audience. It means your resources can be assigned to campaigns that will produce better results.

9. Helps you develop a pricing strategy

Having a good understanding of each market segment gives insight into what customers are willing (or able) to pay. This can help boost profits as it means you can charge ‘what the market will bear’ and avoid pitching your prices unnecessarily low.

10. Provide better customer service

Because marketing segmentation gives you a better understanding of customer needs, you can work towards meeting these needs as much as possible. For example, having omnichannel contact center systems to support customers when they need to get in touch.

This increases customer satisfaction and means when problems do arise, you can address them in a way that your customers will respect.

11. Better allocation of resources

Market segmentation gives you the ability to be specific in your target marketing. This means blanket marketing (aka wasting time and money firing off ads to people who are not interested) is a thing of the past. This helps leaders to plan the marketing budget more effectively and make the money work harder.

12. Helps you refine your product portfolio

Trends change fast. In ecommerce, what’s in favor one moment, can be out the next. Knowing your customers well can help you identify where changes in your product line up may improve profitability. For example, discontinuing a line that not many people want, or improving a product based on customer needs.

13. Helps you plan your stock levels

Knowing your audience well can give you the information needed to predict future sales with a good degree of accuracy. This can help plan stock levels and improve your supply chain efficiency.

It can also help you avoid annoying ‘out of stock’ messages on your website, or, on the flip side, having too much money sitting in stock in a warehouse.

Final thoughts

Market segmentation plays a crucial role in enabling businesses to better understand their markets. It helps marketing leaders to target campaigns effectively and allocate resources to where they’ll provide the best ROI.

But, targeting your audience more effectively isn’t the only benefit of market segmentation. As we’ve seen above, it can help you modify your product range, improve your distribution chain, increase profits, and most importantly keep customers.

So, if you want to experience the business-boosting benefits, it’s time to look at implementing market segmentation in your business.