I have a confession to make. I was a personalization junkie. As the head of marketing for a website testing company that became one of the first to make the shift to personalization, I was addicted to the promise of personalization.
But after spending years working with retail brands looking to implement personalization, I have another confession to make—personalization technology alone will not deliver the results that you are looking for.
The concept of personalization is simple—leverage all available data to automatically put the most relevant product or offer in front of a consumer. But the realities of launching a personalization initiative can make your head spin. Custora held an executive networking lunch at ShopTalk last week and one of our guests—a VP of Direct to Consumer at a leading clothing manufacturer—asked the table to help him understand where to begin with personalization. Should he work with a product recommendation vendor—the companies that use algorithms and cohort tracking to automate the products being displayed? Or should he work with a website personalization vendor—the companies that use dynamic testing to automate and optimize the display of banners and offers on the website? Or maybe he should begin with one of the email-focused marketing cloud providers—the companies that let you set up rules to curate the optimal customer journey.
Another guest at the table, a Custora customer, shared an important insight. Personalization technology solves an execution challenge—how do I automatically deliver a specific offer to a specific individual at a specific time. But personalization engines don’t know who your most valuable customers are. They don’t know who is at risk of churning from your brand. They can’t tell you if your customer is price sensitive or not. They can’t tell you who is most likely to want to try your new product line. You get these answers by through segmentation. And these answers help ensure personalization is more than just a gimmick but a way to forge deeper ties with your best customers.
Segmentation is the process of defining and subdividing a large group of customers into clearly identifiable segments that have similar wants, needs, or characteristics. The goal of segmentation is to identify the most important audiences for your business and to design a marketing mix that precisely matches their expectations.
Segmentation helps you answer strategic questions like: Who are our best customers? Where do they come from? What are they buying? Why are they buying it? What makes these customers unique? What will they want in the future?
Segmentation and personalization are tightly intertwined. The insights gained through segmentation can be the rocket-fuel that powers successful personalization. But beyond powering personalization, segmentation gives brands the insights they need to drive sustainable growth across their business.
Here are five reasons that you should make segmentation an important part of your personalization initiative.
1. Segmentation is a strategy.
Personalization is execution. Most fundamentally, segmentation comes before personalization in the marketing and insights process—way before. Segmentation informs positioning and marketing strategies. Once we have determined our strategically valuable targets and defined which can be reached through various platforms and executions, we can think about personalization. Personalization is an advanced form of campaign activation, one that relies on sophisticated technology and big data analysis, but activation nonetheless.
2. Segmentation surfaces growth opportunities for brands.
Personalization is focused on consumers that have already expressed an interest in a brand. It serves up a relevant product recommendation to a website visitor. Or it provides an engaging ad based on the websites browsed by that consumer. But one of the goals of segmentation is to identify the audiences that are most likely to be interested in your brand in the first place. Brands using basic segmentation identify their key personas based on common attributes and qualitative insights, and use these personas to target their advertising and creative strategy. Some brands employ more sophisticated techniques like behavioral and predictive segmentation to uncover hidden audience targets that they can develop into new opportunities for growth.
3. Segmentation uncovers the reasons why.
Personalization is based on actions, and automatically optimizing experiences based on those actions. The actions taken by consumers – what they click on, what they add to their cart, what they purchase – are used by personalization engines to determine the next best product or offer to present to maximize clicks and conversions. But just looking at actions does not help you understand why your customers are behaving the way that they do.
Strategic segmentation can uncover the fundamental human needs that can become motivators that drive action. Does your customer want to look cool? Do they want to simplify their lives? Are they looking for ways to stay fashionable but are strapped for time? By understanding these motivations, brands are more likely to figure out ways to satisfy their key target audiences and to find underserved audience segments.
4. Personalization optimizes for the now; segmentation can drive performance year after year.
Personalization solutions optimize the current moment for each customer, using big data and automation to maximize immediate clicks and conversions. But the gains can be fleeting. The website testing company that I used to work for did a test a few years ago and found that offering any product recommendations—whether they were powered by predictive algorithms or just a simple “other people who looked at this item bought these items” delivered about the same benefit. Online revenue jumped 5-10% then plateaued. Segmentation helps you keep the incremental benefits of personalization growing year after year. The insights gained through advanced segmentation—who will be your highest value customers? Who has a predicted affinity for a clothing category? Who is promotionally sensitive?—will add the fuel that can sustain the incremental revenue growth from personalization year after year.
5. Segmentation can improve the ROI of all of your marketing campaigns.
Imagine if you could target the people most likely to be your highest value customers with your Facebook and display advertising. Or if you could determine after only one purchase what a customer is most likely to want next. Or if you could identify VIP customers long before they spent enough money to cross the high-value threshold. Or if you could predict the products most likely to be purchased next by each customer. Brands using advanced segmentation techniques improve their return on ad spend (ROAS) in Facebook and display, drive greater ROI from their email and direct mail campaigns, and grow the lifetime value (LTV) of their customer base.
My favorite segmentation experience occurred when I was the product manager for Nicorette Nicotine Gum. We had conducted exhaustive and expensive usage and attitude testing to help us identify the ideal customer segments for our nicotine gum and our nicotine patch products, which were both about to move from prescription to OTC status. But the statistically valid questionnaires didn’t uncover any meaningful differences in the smoking audiences that we could exploit. So we hired a psychologist to conduct a day full of interviews with smokers. At the end of 12 interviews we had a much deeper understanding of the motivations and fears behind a smoker’s desire to quit. And the positioning became clear – the gum was for smokers that felt they needed to quit on their own but wanted a little help. And the patch was for the smokers that needed something to do the work for them. That’s how we crafted the positioning that stands to this day for Nicorette: You can do it, Nicorette can help. This positioning helped propel Nicorette to become a multi-million dollar consumer brand.
Segmentation and personalization can work together to create a perfect mix of micro and macro, strategy and execution. But at the end of the day, there is no substitute for a strategic understanding of your customers. Take a tip from an ex-personalization junkie—ensure you have a robust customer segmentation strategy before embarking on your personalization journey.
Custora is an advanced customer segmentation platform for the retail industry. We help marketers improve the ROI of their email, display, direct mail, and Facebook campaigns. Custora surfaces smart (and predictive) customer segments, integrates with marketing channel technologies to execute hyper-effective acquisition and retention campaigns, and measures the impact on customer lifetime value. Over 100 brands including Nordstrom, Ann Inc., Tiffany & Co., Crocs, and Teleflora use Custora to improve new customer conversions, grow revenue from existing customers, and improve team efficiency.