There are many approaches to segmenting your customers. You can carry out a benefit segmentation to understand the underlying reasons why someone purchases a specific product or service, you can turn to usage segmentation to understand the patterns of consumer usage (heavy users, medium users, light users, occasional users, etc.), or you can use interests and psychographics to paint a more complex and dynamic portrait of your ideal buyer.
There are various segmentation frameworks you can apply in order to understand the target groups that you will be addressing, such as the Minerva modeș, Roper Consumer Styles developed by GfK, or the values and lifestyles (VALS) framework:
However, these relate mainly to the mentality of your shoppers, their emotional drivers, as well as their innermost fantasies and desires, the ones they can project onto the products and services they buy. Today we will be talking about a more specific category of shoppers, grouped according to a single criterion: the value of what they acquire.
In the Minerva framework, you may find value shoppers at the crossroads between pragmatic and traditional, or in the pink quadrant. For the Roper Consumer typology, rational-realists are the closest to our value shoppers, while within the VALS framework you may identify them as “strivers” or “survivors”. Yet this has a lot to do with their psychology and less with the shopping behavior per se. But what are value shoppers, though?
Value Shoppers Definition
You may have heard about the “value for money” concept. It’s a marketing term referring to what people expect to get (from a product or service) in exchange for the price they pay. But “value” can be a very volatile concept: what do people really value? What’s driving their purchase behavior? Is it about the monetary value of a product, its features, or the way it will fit into their lives?
In an insightful article published in the Harvard Business Review, James C. Anderson and James A. Narus have tried to capture the definition and equation of value:
Value S and Price S are the value and price of the supplier’s market offering, and Value A and Price A are the value and price of the next best alternative. The difference between value and price equals the customer’s incentive to purchase. Simply put, the equation conveys that the customer’s incentive to purchase a supplier’s offering must exceed its incentive to pursue the next best alternative.
But regardless of how suppliers approach prices and value statements, there will always be those kinds of consumers that care most about the price of a product or service. These are people who are always looking for a bargain and spend a lot of time comparing prices, both online and offline. They are also more likely to buy things in bulk when they feel like they got a good deal, and to stock up on them. Those people collect coupons and are always hunting for discounts.
Those are value shoppers. Value-selling shoppers care most about the price of the product or service you’re offering; the rest of the features come next. Even though they have a grocery store near-by, they will drive farther just to save up a couple of pennies. They are also less picky about brands: even though they may like a pricier product, they’ll still stick to the cheaper alternative because they aren’t great spenders and have the habit of sticking to a budget, no matter how that translates into other areas of their shopper behavior. Value shopping is all about the lower price- how much a given purchase can save them.
Why is it important to calculate your value shoppers?
Generally speaking, it’s important to know those categories of customers who bring the most value to your business. Some may concentrate on high spenders, while others may put more emphasis on value shoppers. Why? Because as long as you identify them correctly and keep them satisfied, offering them good deals and targeting them with relevant upselling/cross-selling offers that are also affordable, they will be coming back for more. Moreover, most online retailers will tell you that the most frequently encountered type of customer is the value shopper. You wouldn’t want to miss out on such a big opportunity for your business.
It’s important to understand this category of online shoppers, including their path to purchase, including the type of communications they prefer, the moment they decide to buy, the occasions when they use the coupons, and the best time to offer them a deal. This is because once you correctly identify these value-sensitive buyers, you can develop effective strategies to get them to buy more from you, thus raising your profitability, such as:
- Cross-selling: valuable product recommendations related to their most recent purchase or their purchase history
- Upselling: increase the value of the purchase by recommending a similar product as the one they want to add to the cart, but with a slightly higher value (and more benefits)
- Offer free shipping
- Bundle deals: help them get a better price by combining related products into a bundle
- Discounts for bulk buying
You can use your analytics tool to identify your value shoppers based on how much they spend in your shop but also based on discount campaigns, as long as you have a UTM link monitoring the traffic and tying the purchase to that specific campaign. Fortunately, with Reveal it’s easier than ever to identify your value shoppers, thanks to its cohort analysis function that combines RFM segmentation, behavior segmentation, psychographics, and more but also thanks to the specific function that monitors the performance of your product portfolio, taking into account brands, price, and the type of product.
It’s important to calculate your value shoppers: this way you’ll know what products you should be focusing on, what kind of promotional efforts work, and how much value they bring to your business. In short- having all this information at your fingertips will allow you to optimize the performance of your online store and bring more revenue to your business.
How to calculate your value shoppers
There is no universal formula you can use to calculate your value shoppers. However, you can use the same formula you usually rely on to discover the shoppers’ value, namely the AOV (average order value) formula with some minor adjustments or filters that help you determine whether those specific buyers are indeed value shoppers.
AOV = Total income per client / no. of orders placed
Let’s assume you’ve got an online grocery store. You’re selling both higher-value foods and cheaper products. Some shoppers value foods that are more expensive, while others buy the standard stuff. If you want to identify your value shoppers, you should look at the AOV per client over time. Say it’s June, a month like any other, and you want to find out how many orders they placed and how much they spent that month in your online store. The AOV that month should look something like this (assuming they buy from you once a week)
$150 / 4 = $37.5 – that’s the AOV per client in June
Now let’s assume that in September you’re offering an important discount for higher-value foods, a bundle deal, or a great price for certain products available for bulk buying. Suddenly, that same client’s AOV goes up:
$250 / 4 = $62.5 – the AOV for that same client in September
What should you be doing next? Applying those filters we were talking about earlier: take a look at what changed in their product preference, how much your special offers and discounts mattered when they placed a certain order, when they chose to grab that deal, and see what remained unchanged. If these value shoppers preserved the same buying pattern (once per week)- when did they buy more or less the same products as before and when did they buy higher-value products?
It’s rather an oversimplification of the whole situation but you get the point. The opposite can also be true: regardless of how many discounts and pricing strategies you apply, the value shopper’s AOV might not increase, which means that either your efforts were incorrectly or inappropriately targeted or that the discounts weren’t relevant for the specific category you were addressing. All that we’ve discussed so far will help you identify your value shoppers, their preferences, and will also give you an idea of the best time for offering them deals or upsell/cross-sell products.
Identifying, calculating, and dealing with your value shoppers might look complicated, a lot like walking a tightrope. Fortunately, there are plenty of technical solutions that allow you to notice and target your value buyers. You can choose the more difficult approach that involves following your eCommerce store’s analytics closely and making the correlations yourself, or you can let Reveal do all the work for you. Because Reveal doesn’t only identify your best customers- it also tells you the share of margin for each customer type, the share of margin for every RFM group, offers you valuable insights into customer behavior, cohort analysis, and the basis for improving your retention strategies.
If value shoppers are your best shoppers- it’s time to understand them and cater to their preferences. Give Reveal a try and nurture the relationship with your customers!