Retail segmentation and targeting explained

Michael Poyser
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Understanding your customers is an important component of retail success. When you provide relevant products, offers, and experiences, shoppers are happier and more likely to return. Businesses that personalize the retail experience are proven to increase customer satisfaction and retention.

However, retailers need a way to segment customers accurately. If you’re a big retailer with a large number of customers, how do you provide relevant messaging to every single shopper? Or, how do you know you’re sending out the right offers, coupons, and marketing?

Retail segmentation and targeting can help.

What is retail segmentation?

Retail customer segmentation lets you identify manageable groups of customers so that you can tailor messaging to them in the right way.

Not all customers are the same. They will shop differently depending on their individual needs or behavior at your retailer. Because of this, it’s advantageous to categorize shoppers into customer types. Some of the most common methods of segmentation include:

  • Lifestyle
  • Loyalty
  • Price sensitivity 
  • Demographics, like life stage, age, or gender

The greater number of differentiators you have, the more powerful retail segmentation can be. A one-size-fits-all approach doesn't work as it treats all customers as being the same. This can lead to generic marketing messages and irrelevant communications. You might be broadly segmenting your customers, but there’s still a chance your efforts will be irrelevant.

For example, a cost-conscious shopper who uses promotions and coupons will have different needs compared to an affluent, single shopper who also uses them. They likely have different lifestyles, and these key details could mean all the difference when you want to provide relevant, targeted messaging.

Using multiple retail customer segmentations, enables customers to be grouped using multiple dimensions including basket size, product preferences, and economic status. This enables more granular targeting, which leads to better results.

Read the 4-step marketer's guide to retail data analytics. Discover how to  transform your data into targeted marketing. 

What is customer targeting in retail?

Now you’ve identified your customer groups, it’s time to target them.

Targeted messaging helps you reach your shoppers as individuals. These one-to-one communications can generate a better response so that customers are retained.

For example, when a customer makes a transaction at your store, you could provide a coupon at till or send a personalized digital receipt that caters to their specific customer group. This is based on your customer segmentation data, and each template can have different content for each target audience. You can not only customize images and content, but this could include marketing offers and targeted promotions.

This is better than having a single one-size-fits-all digital receipt, where every customer gets the same content, and no relevant messaging.

What is the one-size-fits-all approach?

Customer segmentation and targeting can help you provide hyper-relevant messaging. And as you generate more data about your customers – whether from your point of sale (POS) systems, 1:1 tokens, or loyalty card schemes – you’ll be able to identify more differentiators or similarities.

Gathering customer data helps you provide relevant messaging for a broad range of your customers. When it comes to things like advertising, generic offers, and other marketing, this can still be useful. However, highly-targeted messaging will always be more powerful. 

Hyper-targeting enables retailers to even go beyond segmentation, and treat each customer as a 'segment of one'. Creative and content can be differentiated using customer segmentation, and then the offers and messaging can be specific to each individual customer's shopping. The end result is that all messages are unique and more relevant to each customer. Customers engage more, with better redemption rates and visiting/spending more. And the end result is that retailers see their sales grow.

Harness the power of your customer data

Retail segmentation and targeting doesn’t have to be complicated.

It must be manageable to be truly effective, and your retailer can use segmentation to create a one-size-fits-all strategy that applies to broad customer groups. Or, you can make the process as granular as your resources allow.

If you don’t have the in-house capabilities to start processing your customer data, retail marketing analytics software can help. When you consolidate customer data into one platform, it's easier to define customer groups. Without it, your customer data will remain an untapped resource. 

The 4-step marketer's guide to retail data analytics


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