5 Reasons to Use Product Segmentation

Most products won’t appeal to the majority of Amazon users. They are on the platform to get specific items. Not everyone is going to need diapers because not everyone has children under three years old.

Because each product appeals to a specific market demographic, you’re going to target your marketing with each item you have on the platform. That means you need to apply product segmentation.

What Is Product Segmentation?

Product segmentation involves separating your product groupings according to the markets that want them. Effectively doing this consists of creating multiple personas and identifying which products will appeal to which personas.

But knowing what product segmentation means is one thing. How can you use it effectively? Here are some of the significant aspects of product segmentation so you can apply them effectively.

Understand the 80/20 Rule

The 80/20 rule is that 80% of your profit comes from 20% of your inventory. The standard outlines that there are only a few products that are selling well.

You can see this principle in action in a couple of ways when it comes to sales on Amazon. 80% of sales come from 20% of your products. You likely already have an idea of which of your products sell better than others. Running low on these items can get you in big trouble while running low on others may not matter much.

That also translates to 80% of your customers only care about 20% of what you have to offer. Make it easy for your target audience to find these products by making them the center of your ad campaigns.

Finally, 80% of your storage space should be used for storing 20% of your products. Since these products are in such high demand, you’ll want to dedicate most of your storage space to these products.

Understanding this principle can help you run your business better. When you know where to focus your efforts, you can make the most of your time and become more productive.

80% of your profit comes from 20% of your inventory. Only a few products sell well, and you should focus your advertising efforts here.

Separate Items into Highest Earning, Lowest Earning, and Mid-Earning

One great way to identify which of your products are selling the best is to separate them based on how well they earn.

Your sales dashboard has a plethora of information as to what’s selling well and what isn’t moving quickly.

The best report for finding out what’s selling well is called the Detail Page, Sales and Traffic by Child Item report. The best way to get there is to go to Seller Central.

Once there, go to business reports, and then the sales dashboard.

Under business reports, you’ll be able to find the Child Item report. Child item is simply a term for variants of a particular item. The best way to read this report is to download the data, but you can view each line item within Seller Central.

There are several items in this report that will help you identify the best-selling items. They are Sessions, Unit Session Percentage, Units Ordered, and Total Order Items. You can also reference Ordered Product Sales

Sessions tells you how many times your page has been viewed. Unit session percentage is basically your conversion rate – this takes the session number and the units ordered and compares them. The higher the number here, the better selling your items are. The more sales you have, the higher you convert.

Once you have the data, separate them into three groups: highest, lowest, and mid-earning. Your lowest-earning items might need to head for retirement. At the very least, you won’t want to put any more of your advertising efforts into them. If someone finds and purchases them, great, but you won’t be spending your promotion efforts on those low-earning items.

Your highest-earning items are going to be within that 20% of your product offerings that sell the best. Relying on this principle will be the backbone of your profit. Focusing on these items will bring you the most success.

Your mid-earning items shouldn’t be ignored. However, if you only have so much advertising time and budget, you’ll want to spend 80% of it on your high earners, and 20% on mid-earning items.

Focus on Best-Selling Items for More Opportunity

Once you know which items are selling the best, you’ll want to focus your efforts on those products. Since these are your best-sellers, this is where you can get the most opportunity. You’ll want to focus your advertising efforts on promoting these items since they’ve found resonance with your target audience.

As mentioned above, you’ll want to focus most of your promotional efforts on your highest-earners. If you put up sponsored brand banners, make these items the ones you show in your banners. These are the ones that will get the most attention from shoppers who are looking at similar things. Your top-selling items are most likely to garner attention from people who are looking for a product to solve the pain point for which you’ve already created a solution.

Identify How Product Creation Factors into Product Segmentation

Part of your product selling cycle is product creation. Once you’ve identified a market that does well, you’ll want to focus your product creation efforts on that product. Are there complementary products you can create that will sell well? Are there variations you can make that would appeal to a similar audience?

Before you dive into product creation, take some time to figure out what it is about these 20% products that sell well. If you feel like you already know, then go ahead and use those things in your product creation. If not, it’s time to do some audience research. Create surveys and send them out.

Here are some questions you can include in your survey to get information on why they like your best-selling products:

  • What problem does x product help you solve?
  • What do you like best about x product?
  • If you were to tell a friend or family member about x product, what would you tell them?

The answers to these questions can help you figure out why these products are so popular, and then capitalize on it.

For example, let’s say you have a lotion line that sells well. Can you create different varieties of that lotion? Different fragrances? Different strengths? These variations on what has already succeeded will help boost your bottom line.

Using Multiple Segmentation Options

There are several ways to segment your products. However, there is no one “right” way to separate them. Market segmentation is a complicated process and takes time and research to get right.

When creating product segments, try to stay away from making them too broad. It might be better to go too narrow first. You can always broaden it out if your groupings are too close. The reasoning for this is that trying to make your segmentation too broad will make your product less appealing. People will see that you’re trying to appeal to everyone, and you’ll lose the attraction you hold for the small market that your product helps.

You’ll have to go through some trial and error to see what works best for your brand. Here are some ideas to get you started.

  • Separate products by problems they solve
  • Separate them by product category
  • Use product groupings 
  • Create groupings through cultural appeal
  • Utilize target audience to segment your products

When researching to see what segmentation works best for your brand, your data should give you an idea of which markets will most benefit from your products. If it doesn’t do that, then it won’t give you the direction you need.

Product segmentation can be complicated if you don’t approach it with your end goal in mind. However, when armed with the right information and a specific purpose, your business can expand and become more refined and targeted.

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