Too many marketers are on autopilot when it comes to segmentation. It’s become a marketing staple, so not enough marketers stop to consider the benefits of fully optimizing their customer segments.
Why take the time to optimize customer segments?
- Robust segmentation enables marketers to treat different customers differently, which increases efficiency and effectiveness.
- Relevant messages make customers feel understood, which increases purchases, engagement, and loyalty.
- Segmentation allows marketers to understand what’s working and what isn’t, and then optimize their campaigns.
- Customers can get offended by off-target messages from preferred brands because they think those brands should know them.
All of this translates to increases in marketing campaign performance and revenue generation at a lower cost—in other words, greater marketing ROI as a direct result of segmentation.
Most of all, segmentation enables personalization—and customers and prospects expect a personalized experience, say 88 percent of U.S. marketers polled for the “2018 Trends in Personalization” report by Evergage and Researchscape International. Nearly all the respondents (98 percent) agree that personalization helps advance customer relationships.
Indeed, more than half of consumers (56 percent) feel more loyal to brands that show a deep understanding of their priorities and preferences, according to the “Wantedness” study by Wunderman.
And, although 90 percent of organizations are focused on delivering personalized experiences, only 40 percent of shoppers say the information that retailers provide is relevant to their interests, according Forrester Research—which means that the companies that get segmentation and personalization right will have a distinct competitive advantage.
Ultimately, more accurate the segmentation leads to more personalize messaging, which improves the campaign performance. In other words, marketing ROI increases when marketers use optimized segments to send relevant, targeted communications.
Segmentation Designed to Boost ROI
The best way to ensure that your segments are optimized, so you’ll see the most return on the time and effort you’ll invest in creating them, is to adapt the “ABCs” from the sales team’s playbook: That is, “Always Be Closing” becomes “Always Be Segmenting.”
Segmentation is not a one-and-done process. Once you create your core segments, you should evolve them over time to optimize them, as well as use the insights you’ll gain in doing so to develop new segments and uncover unexpected ones that could be profitable. When you take the time to optimize your segments you’ll see a virtuous cycle of improvements in campaign performance that lead to revenue gains and increases in wallet share. And when you use insights drawn from your core segments to develop new or unexpected ones you’re potentially creating new sources of revenue.
There are two core elements to an effective segmentation strategy that supports optimization:
- Personas: A descriptive representation of different customer types based on demographic, psychographic, and behavioral values
- Lifecycle stages: Where a customer is in the decision-making process, as well as where they are in their customer journey
These attributes are essential to segmentation because the messages you would serve to established, high-value customers, for example, are completely different than ones you’d serve to a brand-new website visitor. Speaking to customers and prospects with relevancy increases their likelihood to take such actions as buy, convert, and recommend, which then enhances their actual and potential value.
When creating segments, marketers will often rely on one area of delineation, such as demographics. But segmentation will be more robust and effective—and easier to optimize over time—when marketers draw from several areas to create personas. Here are some common attributes to consider within the three core areas of persona development:
Demographics: Age, gender, occupation, education, income, family status
Psychographics: Interests, lifestyle, social status/influence, values, personality traits
Behaviors: Occasion, usage, loyalty, benefits sought, activity (e.g. interactions, purchases)
Once you identify the most relevant attributes, use them to build your personas. Then add in contextual elements such as time, location, triggers, and market drivers (e.g. new legislation) to enhance your segments and campaigns.
With all that in place, start testing. Customize and test your campaigns using your new segments. As you track the performance of various segments, you’ll be able to see what’s working—or not—and then use that insight to optimize your segments and, as a result, improve campaign performance. This should be an ongoing process as your customers and business evolve, and as the market and interaction points develop and change. As your campaigns improve over time, your costs will decrease because you won’t have to spend as much to get the results you’re targeting, and your revenue will increase because you’re more likely to reach the right customers at the right time.
Metrics that Matter
Tracking the performance of your segments is essential not only to optimize them, but also to determine the ROI of your investments in segmentation. You should track what’s working and what isn’t, so you can make the most informed decisions about what to optimize. You also should think differently about the metrics you use track performance. For example, if you’ve always tracked proxies and impressions (e.g. CPC, CPM) for different segments, it may be time to switch to or at least add more impactful KPIs such as engagement measures (e.g., CPA). To increase ROI, you need to understand which metrics support your segmentation and revenue goals and prioritize them.
This change in approach requires a change in mind-set, too. It’s important to be patient and let campaigns run longer to get the most accurate read on engagement metrics. Use benchmarking to determine the ideal length of campaign, because running campaigns for too long will lead to diminishing returns and, as a result, misleading performance data.
Customers expect and want you to demonstrate that you know them. In fact, 79 percent of U.S. consumers say they “only consider brands that show they understand and care about ‘me,’” according to the “Wantedness” study. Personalized marketing is the way you can achieve that level of intimacy with customers, as well as show that you understand your prospects and their interest. And personalization starts with optimized customer segments.
So, don’t just create a few basic segments and stop there because their performance is “fine.” Take the time to develop more robust segments that you can optimize over time. You’ll see your customer engagement—and marketing ROI—improve as a result.