In e-commerce we can easily link a specific customer’s behavior to a specific sale, we can go through the customers’ shopping path over and over again, analyzing why they did or didn’t shop at our site. These are simple actions yet these actions are overlooked by millions of sellers each day. With product recommendations and systems that can provide us with everything from heat maps to click tracking, we have every opportunity in the world to get to know each and everyone of our customers like they are our close friends. And this is where the art of segmentation come into play, the days of simply dividing your customers into demographic and geographic segments are long gone (does it really matter if your potential customer is a high income earner if she or he isn’t willing to spend the big bucks in your shop?).
What you need to start looking at is dividing your customers into psychological online segments, i.e. find out what triggers their motivation and what their perception of the world is. Every high income earner with the same educational background doesn’t necessarily share the same triggers or personality features. (A company which has done this very well offline is Procter and Gamble, they sell multiple brands within the same product category, something which would have never been possible if they didn’t get their segmentation and branding strategy right, e.g. what makes a customer shop Gucci instead of Lacoste or MACH3 instead of Braun?)
So what you need to do is to turn the tables around, instead of starting with your product assortment, trying to figure out which kinds of people that might buy your products, ask yourself which kinds of personalities that will benefit from shopping in your store and why they would want to buy your products. And this is where product recommendations comes into the picture, recommendations help you extract the highest possible value from of all of your customers, no matter spending degree. With product recommendations you can cluster your customers into segments by just using behavioural, personalized data – no preconceived thoughts or categorisation based on income or gender, just pure actual actions.
However, you need to start acting on your segmentation as well, don’t stop when you have narrowed down your customers into psychological segments, this is where the real work begins:
Start connecting the segments’ behaviour with specific products. Doing so will not only help you to create better loyalty programs but will also force you to look at your assortment from new perspectives, making it easier for you to identify gaps that needs to be filled or products that simply won’t make you any money in the long run, i.e. you’re improving your most valuable customers’ experience of your site.
Psychological segmentation and investing in great CRM systems, be it product recommendations or loyalty programs, isn’t just for for small niche companies trying to survive, it’s a must have for every e-tailer that wants to stay competitive in today’s and tomorrow’s market - a winning segmentation model is always responsive to changes in the market climate.