October 15, 2021
10 retail customer segments and how to market to them
Customer segmentation breaks down your customers into subgroups based on shared characteristics. Using customer segmentation, you can improve your performance across every sales channel and customer touchpoint.
Customer insights and segmentation help you unlock a new competitive advantage, identify opportunities to grow profits, and improve marketing performance.
For best-in-class retail customer segmentation, you need Customer Data Platforms (CDPs) with built-in customer segmentation tools like Lexer. This technology can help you manage your data effectively, create valuable customer segments, and automatically update audiences across other retail data systems. CDPs help you take advantage of emerging segments in retailing, empowering your outreach strategy and enhancing experiences.
Here are the 10 main customer segments you’ll find in retail audiences, as well as tips for marketing to them effectively.
What are the main customer segments in retail and how do you market to them?
1. Customer-only and prospect-only
Most businesses have both current customers and prospects in their databases.
The buying motivations and expectations of current customers will be different from those of prospects who’ve yet to make their first purchase. Any marketing campaigns you sent to either should be tailored for this context. Using customer data analytics or customer intelligence platforms to determine common characteristics of high-value customers, you can tailor your messaging to encourage prospects to convert on high-value purchases. This strategy leads to more effective customer acquisition and long-term customer lifetime value.
For example, when marketing to prospects, you could feature your “hero” products with a small discount to entice them to purchase. “Hero” products are the acquisition products that are most likely to lead to loyal, high-value customers, so this strategy will attract higher quality buyers. Learn more about paid social prospecting using hero products here.
2. Gender-based demographic segmentation
Nothing puts a customer off more than getting a marketing email with products not suited for their gender. It can be argued that such a mistake could hurt any chances of said customer re-engaging with the brand.
Therefore, it’s prudent to segment your customer database by gender and then target each gender with gender-appropriate content. For example, gender segments are great for gifting campaigns, such as targeting fathers who are shopping during Mother’s Day.
Mountain Khakis used gender-based demographic segmentation during their Black Friday promotions, leading to a 49% increase in revenue compared to the prior year. Additionally, their follow-up gender-segmented campaign drove a second purchase from newly-acquired customers two to three weeks after their first purchase, resulting in a 7.1x ROAS. Read Mountain Khakis’s customer segmentation case study here.
3. Email engagement segments
Email engagement is a great channel for retargeting, but unfortunately, it doesn’t reach opted-out customers who are at risk of churning.
In fact, we find that for most brands, more than 2/3rds of their lapsed customers have opted-out of email—so if you’re using email as your only re-engagement channel, you’re missing the opportunity to re-engage a large portion of your lapsed customers.
To re-engage these customers, segment your database by their email engagement status and target opted-out customers via other channels instead. For example, Wondercide targeted their opted-out customers via direct mail, resulting in a 600% ROI.
4. Purchase channel preference segments
Some customers prefer to shop online, some prefer the more tangible in-store customer experience, while others may prefer a mix of both.
Understanding your customers’ channel preferences is key to segmenting and targeting them effectively. If you know the specific channel they prefer, you can tailor your campaigns to that specific avenue.
For instance, you can target segments of customers who prefer to buy in-store with messages and offers that encourage them to stop by your store front. Or, if your goal is to migrate in-store shoppers to your online store—as many needed to do during the COVID-19 pandemic—you could offer these segments a small discount for making their first online order.
To fully understand the channel preferences and behaviors of your customers, it’s important to measure omnichannel metrics such as CLV, repurchase rates, and customer profitability.
5. Active and lapsed behavioral segmentation
High churn rates are detrimental to any business. As such, you want to understand why and when customer lapses happen—and you can do so by measuring key customer retention metrics. By understanding what drove these lapsed customers away, you can create a re-engagement plan to attract these customers back to your brand.
By segmenting your database into active and lapsed types of customer segments, you can ensure that you’re targeting existing customers with the right messaging to keep them engaged. At the same time, you can tailor your marketing to lapsed customers to increase your likelihood of re-engaging them. For example, you might send lapsed customers messages like “we missed you” or “it’s been a while since your last order—ready to stock up?”
6. Recency, frequency, and monetary value segments
The recency, frequency, and monetary value of customers’ orders can highlight key differences between the buying motivations of different customer segment types. Because motivations differ between frequent, high-value buyers and infrequent, low-value buyers, you have to tailor your messaging to reap the best results.
This specific type of customer segmentation is known as RFM segmentation, and it’s a tried-and-true method for understanding and engaging different types of customers. Learn more about RFM segmentation here.
7. Customer lifetime value segments
Customer lifetime value is arguably the most important metric for understanding the health of your business, the relative loyalty of different types of customers, and the types of customer segments that you should focus your time, effort, and resources on.
Segmenting your customers by lifetime value can help you understand which customer personas provide the highest value to your brand. You can then build lookalike audiences around these high-value segments and use them to increase the impact of your acquisition and retention strategies.
But before you can segment customers based on lifetime value, you first need to know how to measure it. Click here to learn how to measure CLV.
8. Loyalty status segments
Loyalty members should always be targeted differently than non-loyalty members, since they tend to offer higher value to your brand. Launching segmentation by loyalty status allows you to provide special gifts, exclusive offers, and more personalized marketing campaigns to your most valued customers.
Additionally, you could target non-loyalty status segments with incentives to encourage them to join the loyalty program.
9. Psychographic segmentation based on product preferences and predictive attributes
Purchase history data gives you valuable insight into customer preferences and what they’re likely to purchase next. Additionally, a CDP with predictive analytics tools like Lexer can use AI-powered models to make these predictions for you, as well as offer recommendations for the next best product to market to customers.
With these predictive insights, you can target customers with relevant messaging when the time is right to improve retention rates and grow customer lifetime value.
10. Segments based on NPS scores
The NPS survey is a common survey used by brands and retailers to understand customer satisfaction. By asking customers simple questions about their satisfaction with your brand and products, you can better understand what contributes to customer loyalty and what causes churn.
Segmenting your database into promoter and detractor segments can help you discover more about customer attitudes, preferences, and behaviors. Learn more about unpacking customer insights with surveys and NPS scores.
Customer segmentation retail made easy
No matter your approach to customer segmentation, CDPs or other retail data analytics solutions with built-in segmentation tools can help you discover more nuanced and actionable customer insights to inform the customer experience in retail.
Lexer is the Customer Data and Experience Platform (CDXP) of choice for leading brands like Quiksilver, Igloo, Nine West, Rip Curl, Supergoop!, and more. As the only CDP built for retail, we help the world’s most iconic brands drive incremental sales from improved customer engagement.
Use the calendar below to book a demo of Lexer’s CDXP-powered retail customer segmentation tools.