How to Use Magento Customer Segmentation for Smart Online Store Management

February 28, 2018

By: Igor Goltsov,
Author Title: 
Senior Magento Developer
, ScienceSoft

Originally posted on the ScienceSoft blog.

A substantial part of comprehensive Magento development and a powerful marketing and sales tool, Magento customer segmentation allows a retail company to divide online store visitors into groups and develop a focused approach to each group.

The survey of MailChimp, a marketing automation platform, and an email marketing service, shows that segmented marketing campaigns get 14.64% more opens and 59.99% more clicks than non-segmented ones.

A basis for customer segmentation

All possible grounds for customer segmentation form three large groups:

1. Demographic factors (location, age, gender, marital status, etc.)

Customer segmentation based on demographics can be quite useful for online store management.  For example, a high percentage of foreign visitors on a website hints that it requires language options. Still, this approach has some limitations. Customers within one demographic segment can develop fundamentally different shopping behavior. For example, people of the same age or gender may diverge significantly in time spent in an online store or in average amount of purchases.

2. Psychographic factors (lifestyle, religion, interests, etc.)

Psychographic segmentation is more powerful. For example, you may divide customers based on their attitude to the environment. Focusing on environmental concerns of your green customers, you will win their respect and loyalty, while not annoying the “unconcerned” customer segment with too many promotions irrelevant to their mindset.

3. Behavioristic factors (shopping behavior)

Shopping behavior analysis allows for different approaches to customer segmentation. It depends on the behavior aspects you want to analyze:

  • Occasion (e.g., seasonal behavioral patterns)

  • Benefits sought

  • Status in a customer lifecycle

  • Buyer readiness stage

  • Level of loyalty to the brand

  • Product usage rate and more

Customer lifecycle segmentation types and suggested behavior-based approaches

Here, we will focus on the approach based on customer lifecycle because it’s both valuable and easy to implement. The approach is shared by many eCommerce analysts, though segment names can slightly differ. The approach offers to divide customers into seven groups (segments) based on their user status corresponding to a status in the customer lifecycle. Then, owners of Magento online stores can tailor a marketing campaign to meet the needs of each segment.

1. All Visitors – Literally everybody who has visited your website

The aim is to raise interest and encourage to visit the store. You should start with the full visitor list, storing all the emails in one place.

Suggested Promotions:

  • New product offerings

  • Holiday announcements

  • Seasonal sales and bargain announcements

2. Potential Customers – Customers who have created a shopping account, signed for an email newsletter, or saved some item for later. Potential customers haven’t made a purchase yet, and you don’t know the reason. It can be a high current price or an intention to study the whole assortment first.

The aim is to encourage potential customers to purchase for the first time.

Suggested Promotions:

  • Welcome emails

  • Abandoned checkout reminders

  • First-order only coupons

3. First-Time Buyers - Customers who made only one purchase on the website. It may have simply been their first time buying from you, or they may be purchasing a gift. Negatively, they might have been unsatisfied with the order, but there can be other reasons, found the prices or shipping costs high, or just a low awareness of the full assortment.

The aim is to convert a first-time buyer into a loyal one.

Suggested Promotions:

  • Reminder emails

  • Post-purchase surveys

  • Announcements of new product offerings similar to the previous purchase

4. Repeat Customers – Customers who made two or more orders on the website. This usually means they were satisfied with the first purchase and returned to your store.

The aim is to keep a customer satisfied and encourage to refer friends to your store.

Suggested Promotions:

  • Regular new product offerings

  • Exclusive coupons for repeat customers

  • Product review requests

5. Active Repeat Customers – Customers who make repeat purchases within a set timeframe. These are the most valuable customers. They stay loyal to your store and generate the largest revenue.

The aim is to implement a customer promotion campaign.

A) Make these customers feel important:

  • Customer satisfaction surveys

B) Reward their loyalty:

  • Exclusive coupons for loyal customers

  • Early access to new offerings

  • Dedicated refer-a-friend prompts

6. At-risk Repeat Customers – Active repeat customers who haven’t purchased for quite a while. Define “a while” how it best fits your brand. For example, 6 months to a year isn’t a long time for big-ticket products like home furnishings or industrial products.

The aim is loyalty recovery.

Suggested Promotions:

  • Time-sensitive coupons

  • Win-back reminder emails and surveys

7. Inactive Repeat Customers – If the time since the last purchase exceeds the average time between orders more than 3-5 times (again, the time frame is defined individually), at-risk repeat customers turn into inactive ones.

The aim is:

A) To find out the reason why customers stopped buying with you:

  • Win-back surveys

B) To encourage them to return:

  • New product offerings

  • Holiday and seasonal sales

  • Time-sensitive coupons

Implementing lifecycle customer segmentation in Magento

If you have decided to enhance your online store’s efficiency with targeted marketing campaigns based on status in the customer lifecycle, you need to take the following steps:

  1. Create customer segments in Customers > Segments section

  2. Add relevant conditions for each segment (in this case, you will add number of orders and date range)

  3. Once the conditions are set, you will see the amount of matched customers

  4. Add promotional rules for each segment

Customers within each segment will start getting automated notifications of promotions according to the rule.

Enterprise customer segmentation may seem complicated only at first glance. Analyzing a customer base and planning segments is the most important part of the work while the implementation itself will hardly be time-consuming.

An efficient marketing campaign based on Magento visitor segmentation implies regular updates. Don’t forget that you have access to valuable information about customer behavior. Use this information to analyze which promotions have worked out for each segment to adapt marketing activities to changing needs.

Smart approach to Magento customer segmentation

As there’s no one-size-fits-all approach to store management in general, the same applies to customer segmentation in particular. You need to analyze your customer base to make the most of your Magento online store. A clear understanding of the needs of each segment allows for customized approach and the development of rewarding marketing and sales policies.

About Igor Goltsov and ScienceSoft

Igor Goltsov is a certified Magento developer. With 8+ years in Magento development and 13+ years in PHP development, Igor now applies his deep insights in eCommerce and expert skills at ScienceSoft. As a Senior Magento Developer, he contributes to complex projects involving the implementation of non-trivial platform’s features. For over 28 years, ScienceSoft has been bringing custom and platform-based solutions to large and midsized companies in Healthcare, Banking, Retail, Telecom, and other industries. Contact us at contact@scnsoft.com, and follow us on Twitter @ScienceSoft.