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Effective segmentation: the key to successful marketing

If you look back at the early marketing communications, you’ll see that identical offers were usually disseminated to every customer with a single message - the same product and the same price for all customers.  

The world is changing and communication strategies need to reflect these changes. With the arrival of social media organisations have woken up to the fact that customers have different needs, different price points (e.g. some are willing to pay more money for the same product or service) and different buying cycles.

In this new environment your business needs effective segmentation techniques to ensure successful customer analytics. In today’s digital-driven world, where consumers are bombarded with so much information, offers and advertising, it is essential that your message is as relevant as possible in order gain their attention and to have an impact on their purchasing decisions.

This can seem overwhelming since businesses now have so much data available about their customers. But you need to bear in mind that people are expecting a personalised experience, which might include birthday offers or discounts on items they have been browsing on your website. With effective segmentation, you can achieve one-to-one communication, giving your customers the personalised experience they have come to expect.

Customer segmentation can reveal key differences in how customers are responding to marketing campaigns. The major benefit of deploying segmentation is that you can better estimate the relative costs of identifying new customers from these segments, and know which groups it is worth paying a premium to attract. By segmenting effectively, you can target customers with the correct product offering - at the right time and at the right price.

What approach to segmentation is right for your organisation?

There are three basic approaches to segmentation:

  • demographics: tells us who a customer is (age, gender location, etc.)
  • psychographics: describes customer attitudes and opinions
  • behaviour: tells us what customers are doing (this can be based on purchases made, responses, feedback, etc.)

Unfortunately, many organisations still only use demographic-based attributes to segment their customers. Although this can be useful, by ignoring behavioural attributes you could be missing out on vital information that allow you to better differentiate and segment your customers. For example, if you sell online and in-store it is useful to segment customers based on the total percentage of spend online versus in-store so as to identify medium and high online purchasers.

You may want to segment online shoppers even further, for example, by age, as there is a different usage profile for different age groups.  

It is possible to drill further down but the goal is always to identify clearly differentiated segments; customers who are likely to respond to different marketing messages. Another key outcome of this approach is it enables you to understand segments with particularly high engagement or response rates and target them for new customer acquisitions.

You also need to consider that customers are usually dynamic in nature; some will undoubtedly switch between segments over time. You need infrastructure in place to capture the “point in time segments” for each customer. For some organisations, the cohort of customers changing between segments because of changes in life stage will make them a prime target for a targeted marketing campaign.

How do you measure whether your strategy is successful?

Without appropriate measurement there is no way of knowing how successful your customer segmentation efforts are. Collecting and measuring data is the key to a successful marketing campaign. The only way this can be carried out is by allocating an adequate budget to integrating, transforming, and storing data so that it can be easily analysed over time.

In analysing your data you should look at key metrics including revenue, profitability, and response rates to campaigns. By closely monitoring response rates across target segments, including open rates for eDM communications, click-through rates, and call to action rates, you will be able to better plan future campaigns.

This blog has just touched on the tip of the iceberg.  It has highlighted how effective segmentation is essential for successful customer analytics. Your overall goal should be to match customer needs with the right product at the right time at the right price with the right promotion. By using your available data to create key customer segments, you will be able to move from broad-based marketing to much more targeted messaging with the overall goal of increasing marketing return on investment.

In today’s business environment analytics is the key accelerator for business growth, and should be part of the fabric of every organisation. Talk to Empired’s customer engagement analytics team on how you can make analytics part of your organisation.

Posted by: Andrew Murphy, Data Insights Developer | 25 September 2017

Tags: CRM, Data Analytics, Data Insights, Customer and Member Analytics, Customer insights

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