To Segment or Not to Segment: That is the Question

Stephen DeAngelis

February 13, 2020

Historically, marketing efforts have taken advantage of segmentation. Purveyors of merchandise have intuitively understood trying to peddle wares to demographic segments of the population likely to be uninterested in their products is a waste of both time and money. So I was a bit surprised when I read a sponsored headline declaring, “Segmentation is dead!”[1] Analysts from Tinyclues, the company sponsoring the article, notes, “Customer segmentation has long been a pillar of campaign planning and audience building, but truly personalized experiences require more than traditional segmentation.” By “traditional segmentation” they mean segmenting target audiences by traits such as sex, age, and location. They continue, “So, is segmentation really dead? The answer, of course, is complicated. … We are no longer in a world where rules-based segmentation provides the level of value needed to justify the effort. Despite its limitations, retail brands may have trouble letting go of segmentation because it has been so ingrained into how we think about our marketing messages and how they relate to consumer demographics at large. … Personalization is the next frontier, and it requires the ability to react intelligently to both overt signals (for example, ‘this customer put this product in their cart’) and latent signals held within dynamic, behavioral customer data.”

The fine line between segmentation and personalization

Paul Laughlin (@LaughlinPaul), a self-described customer insight enthusiast, writes, “It could be argued that the combination of IoT and Cognitive learning power … and the enablement of true 1:1 personalization (at last!) is sounding the death-knell for segmentation.”[2] According to Laughlin, the death-knell may be sounding a bit prematurely. He explains, “Segmentation will still be required, at least to the medium term. This gives marketers and data scientists a clear window to improve, optimize and eventually replace their segmentation approaches, i.e., to evolve alongside both the cognitive tools and the customer appetite/expectation for digitally enabled personal experiences.” Murali Nadarajah, Head of Big Data and Analytics for Xchanging, asserts personalization is simply creating a “segment of one.” He explains, “Traditionally, companies have marketed products with a specific demographic in mind. This approach groups people into buckets and develops specific marketing programs for each segment. While this can be an effective approach, it doesn’t take into account potential customers who may not fall in the predetermined buckets. Through machine learning, businesses can see people beyond generic segments and target them as individuals — creating a ‘segment of one’.”[3]

Even if companies can create segments of one, target markets (i.e., larger consumer segments) still have value. In fact, some notable companies have decided that segmentation is a better approach than 1:1 personalization as a result of unintended consequences from getting “too personal.” Erika Morphy (@EMorphy) explains, “While the marketing industry may be happy with the results of personalization, many consumers are not, especially when the personalization becomes too intrusive. … Overly intrusive personalization can get a little creepy.”[4] She concludes, “The problem for many marketers becomes where to draw the line.” To avoid coming too close to the creepy line, Kelly Jameson Werner, founder and director of Werner and Media, told Morphy another approach is to personalize at the group level (i.e., segmentation). She stated, “We advise an approach to advertising that is personalized down to the demographic group and not necessarily the individual. Targeting things like race, geographic location, interests and political/professional affiliations will help you build out buckets of prospects that you can granularly target with your paid campaigns.” Werner believes, “The results will be the same if not more powerful than an individually personalized campaign.”

The value of segmentation

Staying clear of the “creepy line,” while gaining the benefits of personalization, requires sophisticated segmentation. Thomas Griffin (@jthomasgriffin), president and co-founder of OptinMonster and TrustPulse, explains, “Segmenting your member base is a powerful but simple way to create better experiences for your members. Member segmentation is about categorizing your customers into groups based on certain characteristics. When you have clear groups based on different characteristics, you’ll have the ability to improve your marketing campaigns. Segmentation can help your business grow in many ways.”[5] He suggests seven ways sophisticated segmentation can help your brand. According to Griffin, segmentation:

1. Allows you to create personalized content and communication
2. Generates increased customer satisfaction and member loyalty
3. Results in better marketing efficiency
4. Helps retain new customers
5. Focuses on your most profitable customers
6. Improves cross-selling opportunities increases purchases
7. Assists marketers to make data-driven decisions

Tom Wozniak (@tomwozniak), head of marketing and public relations at OPTIZMO Technologies, insists, “Virtually any company that has a product or service can benefit from developing an audience segmentation strategy geared toward their particular business model.”[6] He believes marketers need to think about segmentation in a completely different way. He believes brands should think about segmenting customers into four groups. They are:

Group 1. Site Visitors. Wozniak writes, “Users who visit your site are one of the most fundamental prospect audiences you can identify. Sure, some visitors may turn out not to be good prospects, but the fact that they did navigate to your website is one of the best initial indicators possible of an interest in your product or service. Developing a remarketing/retargeting strategy to reach out to your site visitors should be one of your first campaigns. There’s a reason that retargeting tends to be one of, if not the most effective marketing programs for many companies.”

Group 2. Hand Raisers. Wozniak explains, “Hand Raisers is a useful term to encompass any prospective customer that has proactively given you a signal they are interested in your product or service. This could be someone who filled out a lead form, downloaded content for your site, put products in their shopping cart, researched a particular product or service on your site, etc. One key for any company is to define what a hand raiser signal looks like and creating trackable opportunities for your prospects to signal their interest.”

Group 3. Current Customers. According to Wozniak, “Virtually every company should ensure they have an up to date file of all current customers. Whether your business model leads to long-term customers or is focused on driving a one-time purchase, there are ways to effectively use a Current Customer segment within your marketing strategy. If you have the ability to drive repeat sales or maintain long-term relationships with customers, then creating targeted marketing campaigns to this audience should be a core part of your marketing program.”

Group 4. Lapsed Customers. “Similar to current customers,” Wozniak explains, “identifying past customers can also be hugely valuable. This segment provides the foundation for customer re-acquisition campaigns.”

Wozniak understands there are myriad ways to segment customers. He explains he “doesn’t even attempt to provide an exhaustive list of potential audience targeting strategies.” He concludes, “The ways you can identify and target various audience segments is essentially limitless, as long as the data is available to define each group.”

Concluding thoughts

Griffin concludes, “Trying to create personalization and building a relationship becomes meaningless unless you segment your member base. It’s an important starting point that will enable you to understand your customers. You’ll be able to cater to them more efficiently and can drive your business’s growth online.” Advanced analytics capabilities found in most cognitive computing platforms can provide valuable marketing insights. For example, the Enterra Shopper Marketing and Consumer Insights Intelligence System™ can leverage all types of consumer data to provide high-dimensional consumer, retailer, and marketing insights to improve segmentation and personalization. To segment or not to segment, that is the question. The answer should almost always be yes.

Footnotes
[1] Tinyclues, “Segmentation is dead!Retail Dive, 17 January 2020.
[2] Paul Laughlin, “Customer Segmentation in a Cognitive Computing age,” Customer Insight Leader, 24 October 2017.
[3] Murali Nadarajah, “Machine Learning and the Great Data Analytics Shake-Up,” Information Management, 2 March 2016.
[4] Erika Morphy, “When Marketing Personalization Becomes Too Intrusive,” CMS Wire, 5 February 2019.
[5] Thomas Griffin, “7 Reasons Why You Should Segment Your Members,” Business 2 Community, 9 January 2020.
[6] Tom Wozniak, “4 Key Audience Segmentation Strategies,” Business 2 Community, 6 June 2019.