Why Segmentation Matters

/ 14 September 2021

As a savvy marketer, you understand the importance of segmentation.  It aligns content, offer, and other mechanics available for your communication strategies with the audience where it will have the most impact.  Most segmentation schemes begin with purchase behavior.  And for good reason – it quickly and easily differentiates your most from your least active customers.  The ability to do so is critical when aligning the objectives of your communication for the right audience.  For example, sending a reactivation message to loyalists and an offer to join your loyalty program to those that have lapsed would cause confusion which, likely, will suppress response and conversion rates.

Incorporating additional dimensions with purchase activity intensifies the focus of segmentation schemes creating opportunities to micro-target when communicating with customers.  Many organizations use demographic or psychographic attributes to create this layer of insight.  However useful, descriptive data does not have the “wow” factor compared to sources reflecting the customer’s engagement in the brand.  It boils down to what the data is telling you – descriptive characteristics simple profile the customer whereas behavioral information shows you their interest in what you offer.  At the end of the day, featuring engagement with purchase behavior data results in a better defined and more actionable scheme.

This is where Earned Data comes into play. Earned Data is data captured only directly from consumers and goes far beyond clickstream and other “traditional”, less transparent data sources. Earned Data is shared directly with an organization through a consumer-defined value exchange. This makes it a rich, actionable and fully consented data set that creates strategic differentiation for brands.

So how does this get translated into something to use in planning marketing schedules?  Many visualization formats exist but I’ve found Heatmaps to be one of the more effective tools.  They represent a myriad of data making it easily to identify customers according to where they fall in the lifecycle.  Being able to quickly separate loyalists from those that are lost allows you to target marketing efforts appropriately creating the highest return possible on your advertising budget.  

Below is an example of a heatmap which combines purchase behavior with engagement information commonly captured in a 3radical experience.  By creating a value exchange-based relationship, trust is built with the customer that results in a self-reported, fully-consented unique data asset that defines the customer’s wants, needs, and behavior.  In this example, five divisions are assigned based on level of purchase behavior and four using level of engagement.  The two are crossed to create 20 segments, which are collapsed into eight ranks to quickly and easily differentiate strongest (highest level of purchasing activity, most engaged) from weakest (lowest amount of purchase, least engaged) and separate out those with no engagement.  The result is a segmentation scheme that allows marketers to create tailored messaging and allocate budget accordingly to drive ROI. 

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To illustrate this concept, below are examples of marketing implications for three of the eight segments.    

Rank 1:  Frequent engagement meets high purchase activity

Marketing Implication: These are the loyal brand advocates. The group represented here require frequent attention through communications, incentives, and other marketing activities to ensure they remain engaged and purchasing. Consider learning more about this audience to enhance the personalization of each customer’s experience.

Rank 2: Limited engagement but still with high purchase activity

Marketing Implication: These are valuable customers who have high purchase frequency or value but are not engaged or loyal to your brand. Apply ‘at-risk’ strategies to mitigate attrition and consider tactics to increase engagement. This segment of customers is likely to attrite without immediate rectification.

Rank 3: Heavy engagement meets occasional purchase activity

Marketing Implication: These customers are heavily engaged, which suggests something is holding them back from purchasing with more frequency or value. Incentives may help to encourage stronger purchase behavior and move these individuals into the extreme purchase segment. Consider a marketing strategy focused on understanding what is holding back this segment from increasing purchasing activity.

Many brands tend to focus on reactivating underperforming customers instead of retaining and growing their current customer base. Incentivizing the behavior of already highly engaged customers looks very different than how brands should incentivize the behavior of customers they want to become more regularly engaged. Using a heatmap based on purchase activity and engagement is key to providing the right incentives and tailored experiences needed to improve the effectiveness of your marketing communications. 

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