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Retail customer segmentation: guide & 10 examples [2024]

Reading Time: 9 minutes

Retail stores once lacked the extensive data needed to tailor their marketing strategies to customer preferences. However, thanks to the availability of valuable customer data, businesses now excel at personalizing interactions with their audience.

So, how can you use this data to cater to customers’ needs? The answer lies in retail customer segmentation. This process divides customers into subgroups based on shared traits, empowering businesses to improve performance across all sales channels.

In this article, we’ll explore the fundamentals of online retail customer segmentation and discuss various segmentation techniques accompanied by real-world examples.

Let’s get started.

In this post:

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What is retail customer segmentation?

Retail customer segmentation is the practice of categorizing customers into distinct groups based on characteristics such as demographics, behavior, and preferences. The goal of it is to better understand the needs and preferences of various customer segments.

Customer data for segmentation can be gathered from various sources, including website analytics, social media interactions, and customer feedback.

There are four main types of customer segmentation in retail: behavioral, geographic, demographic, and psychographic. 

Essentially, retail customer segmentation acknowledges that customers are at different stages of their buying journey. It also recognizes the diversity among them, allowing for more tailored marketing approaches.

To secure sales, segment your list into customer personas or audience segments. This enables you to personalize your marketing efforts, ultimately boosting sales.

Key factors in customer segmentation

Explore various factors used in customer segmentation across different categories:

SegmentFactors
DemographicAge, gender, income, occupation, education, family size, marital status
PsychographicPersonality traits, values, attitudes, lifestyle
BehavioralPurchase history, frequency, brand loyalty, product usage
GeographicLocation, region, climate, urban/rural, population density
Occasion-basedHolidays, events, special occasions, seasonal trends
Needs-basedPreferences, desires, problems, challenges
Value-basedBudget, price sensitivity, willingness to pay, spending habits

Check out the following video where we discuss the impact segmentation can have on engagement rates in email marketing and walk you through setting up five easy and quick segments to get started.

Retail customer segmentation examples

In this section, we’ll explore ten effective techniques for segmenting and targeting your audience. For each technique, we will provide compelling examples of their application.

1. Order frequency

Segmentation: Behavioral 

Order frequency classifies customers according to the frequency with which they make purchases. It helps businesses identify loyal customers and infrequent purchasers. Targeted marketing strategies can be developed to each segment.

For instance, top purchasers represent highly loyal customers with significant lifetime value. You can show them your appreciation by:

  • Sending automated emails with exclusive vouchers or discount codes
  • Sharing personalized product recommendations
  • Offering exclusive deals for orders totaling a certain amount

Here’s one of the best retail market segmentation examples from To’ak Chocolate. The brand provides frequent buyers with exclusive access to pre-order products. Furthermore, the email exudes gratitude, acknowledges readers’ feedback, and offers insights into upcoming products.

To’ak Chocolate experienced a 460% increase in sales from emails within six months of partnering with Omnisend. Much of this growth can be attributed to its automated email campaigns, like cart abandonment and welcome series.

Retail customer segmentation example: To'ak Chocolate

To'ak Chocolate LogoTo’ak Chocolate has an incredibly effective email automation strategy. It generates 39.4% of email revenue from just 2.1% of total email sends.

Discover how the brand utilizes Omnisend to achieve this impressive result.

Read case study

2. Customer lifetime value (CLV)

Segmentation: Behavioral

Next, you can segment customers based on their lifetime value. This reflects their purchase history with the brand, including factors like recency and purchase value. Done effectively, this helps prevent churn and fosters loyalty with top customers.

Island Olive Oil Company leverages customer lifecycle marketing and automation to drive more sales. Here’s how:

  • Targeting “at risk” and “can’t lose” customer segments for retention and re-engagement
  • Achieving a 27% conversion rate for “at-risk” automation
  • Achieving an RPE of $11.24 for “can’t lose” automation

The lifecycle stage map is an incredible opportunity for a small business. This is the kind of thing that, otherwise, takes a marketing team to be able to do. It’s a simple way to see our customers’ shopping or purchasing habits in one place, and it’s really helped us to be able to target different groups. We’re competing with larger businesses, and this allows us to have that reach at the right time.

Angèl Foster, Co-Owner of Island Olive Oil Company

By using CLV segmentation technique, Island Olive Oil Company can offer specific discounts, like in the example below, where it extends a $5 discount on its 375ml olive oil bottle.

Retail customer segmentation example: Island Olive Oil Company
Unlock the power of AI-assisted customer lifecycle segmentation and re-engage your customers with Omnisend

3. Active vs lapsed customers

Segmentation: Behavioral 

Active customers are those who have recently engaged with the brand. Although they’re already active, proactive marketing can further increase their lifetime value.

Conversely, lapsed customers are those who were previously active but have since disengaged. Despite this, they may still hold considerable monetary value. Utilizing online retail customer segmentation can aid in re-engaging with them.

Kerrits exemplifies this approach through its email. The equestrian apparel company targets inactive customers who have shown interest in the brand but haven’t made a purchase, by offering them a special 20% off clearance items discount.

Kerrits witnessed a 50% surge in revenue-per-email (RPE) for its promotional campaigns after switching to Omnisend. These emails now achieve a 26% open rate and a 5.6% conversion rate.

Retail customer segmentation example: Kerrits

4. Holiday season shopping

Segmentation: Occasion-based

This segmentation technique capitalizes on the times when consumers interact with specific products. This helps tailor marketing strategies to meet their needs more effectively. For example, during Christmas, there may be a surge in purchases of red-colored hoodies.

Accordingly, you can create segments based on the following criteria:

  • Customers who purchased red hoodies during the holiday season
  • Those who have shown interest in similar products
  • Those who have engaged with holiday-themed marketing campaigns

Then, you can provide personalized offers based on the segment you’re targeting. B-Wear Sportswear simplifies this by sending holiday gifting guides to email subscribers. The email features links to shop for various gift categories like women, men, or basic comfort.

B-Wear Sportswear credits 40% of its sales to Omnisend. Automations, in particular, boast a 42% conversion rate. Also, the integrated abandoned cart solution with BigCommerce boosted recovered revenue rates by 15%.

Retail customer segmentation example: B-Wear

5. Problem solvers

Segmentation: Needs-based

This type of retail customer segmentation identifies customers based on their pain points. Usually these customers are looking to solve particular problems, so businesses can tailor their offers to provide relevant solutions.

Let’s say you’re running a skincare brand. You could segment customers based on specific skin concerns like acne or dryness, then customize product recommendations or offer tips based on each segment’s needs.

Here, Ooni Pizza Ovens focuses on customers interested in learning about pizza-making. The email offers a free recipe ebook featuring 10 Ooni recipes.

This approach positions the brand as an expert in the pizza-making realm. Consequently, when subscribers consider purchasing pizza ovens, Ooni will likely come to mind.

6. Loyalty status

Segmentation: Behavioral

Loyalty-based segmentation categorizes customers by their engagement and loyalty to a brand. It considers factors like purchase frequency and total spending. 

Through this approach, the transactional relationship evolves into a mutually beneficial dynamic. Customers come to rely on your brand as much as you rely on their patronage, fostering longer-lasting relationships.

You can express gratitude to loyal customers by:

  • Offering exclusive discounts or promotions
  • Providing early access to new products or services
  • Sending personalized thank you notes or emails
  • Inviting them to join a loyalty program

In the following example, NOTIQ expresses appreciation to engaged email subscribers. The brand extends a limited time offer of $20 off orders totaling $75 or more. 

The email is concise and includes all essential elements, such as  discount code, a deadline, an eye-catching visual, and ample white space.

Retail customer segmentation example: NOTIQ

7. Price sensitivity

Segmentation: Value-based

Next on our list of retail customer segmentation techniques is price sensitivity. Consumers vary in their purchasing power, and their spending habits can differ significantly. Also, not all customers will be willing to spend the same amount on a product.

Thus, tailoring pricing strategies based on customers’ willingness to pay is key. Besides, offering better discounts to price-sensitive customers may increase satisfaction.

In this instance, TOMS, a shoe brand, extends a big discount to email subscribers. It entices with savings of up to 65% on over 250 seasonal styles.

Such markdowns are likely tailored to customers who typically spend less. This demonstrates first-degree price discrimination based on willingness to pay. Such strategies ensure continued customer engagement and retention for the brand.

Retail customer segmentation example: TOMS

8. Product preferences

Segmentation: Value-based

This segmentation technique categorizes customers based on their preferences for certain products. After all, you don’t want to waste time marketing to the wrong audience.

Here are some ways to identify which products each customer is most interested in:

  • Analyze past purchases
  • Track browsing behavior to identify areas of interest
  • Consider expressed interests or preferences indicated by customers

Customizing your marketing efforts in this manner will make customers feel understood. This could likely lead to higher conversion rates in the end.

Sunbasket, a meal delivery subscription service, exemplifies this strategy in its email. It appears tailored for health-conscious individuals. The email starts by acknowledging those managing diabetes, gluten intolerance, or pursuing healthier eating, creating an immediate connection.

Recipients are then offered the opportunity to explore various food categories. Alternatively, they can click a call-to-action button to view the complete menu.

Retail customer segmentation example: Sunbasket

9. Shopping for interests

Segmentation: Psychographic

Every consumer has unique preferences that influence their decisions. Consequently, understanding their lifestyles, attitudes, values, and interests is crucial.

Here are the advantages of segmenting based on these psychographic factors:

  • Tailoring marketing messages and product suggestions becomes highly precise
  • Customers perceive greater value in interactions, reducing any perception of time wastage
  • Marketing efforts can be directed towards relevant audience segments. This will likely maximize the impact of email campaigns

Imagine you run a yoga clothing brand. You could target eco-conscious consumers by promoting your sustainable product line to them.

Here’s one of the best retail customer segmentation examples from Paramount Shop. The email features a collection of buffs inspired by the TV series Survivor, and is tailored to subscribers familiar with the show. This targeted approach ensures relevance, aiming to drive clicks among the intended audience.

Retail customer segmentation example: Paramount Shop

10. Offers for women

Segmentation: Demographical

Male and female customers typically demonstrate distinct shopping behaviors. This prompts many brands to create separate marketing campaigns for each gender. 

This approach enables businesses to customize various elements, including imagery and CTAs. For instance, clothing brands often maintain separate web pages for men and women. 

Simplistic, gender-based customer segmentation in retail proves highly effective.

Rue La La, a boutique clothing company, uses this approach in its email marketing. In the email below, the focus is clearly on promoting women’s products. An additional 25% discount is offered specifically on those items. 

You’ll observe this reflected in the imagery as well — products showcased are stilettos, and the models featured are women.

Retail customer segmentation example: Rue La La

Retail customer segmentation: Wrap up

Although retail customer segmentation might sound like an advanced way of running your email marketing, it doesn’t need to be difficult or time consuming. By using some easy to create segments, anyone can deliver a better email experience to their customers. Omnisend makes it even easier by including pre-built workflow templates to help you easily implement these segmented automated campaigns.

Knowing your customers, responding to their needs, and understanding your brand’s entire customer journey can elevate your marketing strategy. It gives you the power to meet your customers’ expectations, resulting in customer loyalty, higher mutual satisfaction, and, of course, more sales.

Karolina Petraškienė
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Karolina is a content project manager and team lead at Omnisend, where she blends creative strategy with a keen focus on competitive intelligence. Outside of work, Karolina finds balance through her love of gardening, exploring new hiking trails, biking, and raising a bunch of boys.