February 15, 2016

Why Customer Segmentation Still Matters for Marketers

These are exciting times for marketers.

The mediums used to communicate with buyers are wellsprings of data, and this data has escalated the marketer’s ability to shape and adapt the customer journey to ever more specific degrees.

Naturally, personalization has taken the spotlight. The motivations behind personalization are well documented (the average ROI on personalized marketing is over 200 percent, for instance), but few discuss its latent effects on other marketing tactics.

ALSO READ: How Personalizing Marketing Campaigns Really Works

I’m talking about customer segmentation shaming. Like so many trends in marketing, the newer technique is being promoted at the expense of the old. Segmentation must be torn down so personalization can shine.

As powerful and necessary as personalization is, its relevance does not invalidate customer segmentation. In fact, the opposite it true.

Customer Segmentation Enables Personalization

At its core, segmentation is the practice of organizing your audience into smaller groups with shared attributes. The obvious goal is to draw insight from these groups to better inform your communications and product or service delivery.

The irony of condemning segmentation in favor of personalization is that true personalization — the kind predicated on supplying your audience with answers to their questions at the best possible time — requires segmentation as an input.

Of course, there is the technological side of personalization, where content is dynamically matched to behavior using if-then logic and predictive algorithms. But how can you strategize and create that personalized content unless you first uncover common interests among your audience?

You can’t.

That’s why Venturebeat found that over 70 percent of marketing automation users segment their audience.

venturebeat marketing automation study

The harbingers of segmentation’s death fundamentally misunderstand the relationship: segmentation paints in broad strokes; personalization adds the details.

Stephanie Miller writes for Click Z: “Personalization is an additional layer on top of segmentation to ensure that campaigns are responsive to audience behavior and relevant to their needs.”

How to Effectively Segment Customers

The purpose of this article is not to claim that all segments are created equal, but to expose another case of marketing hype masquerading as insight.

Of course certain applications of segmentation will not be as useful as others. Like any marketing tactic, each customer segment is a hypothesis that can be validated or invalidated by testing.

If you’re struggling to uncover new ideas for customer segmentation, try these segments on for size.

1. Company Size

On the surface, this may not seem like a revolutionary tactic, but consider all that company size can tell you about a prospect. Company size can determine the size of the marketing team and indicate how well equipped a prospect is to implement and utilize your product.

It can also tell you how many people are involved in the buying process, which informs the type of campaign you should run to persuade this particular prospect.

Consider the difference between marketing to a startup and marketing to an enterprise. A quick Google search for the term “startup blogs” yields a terrifying 35,000,000 results.

startup blogs

Startups have their own culture, and you should market to them differently than you would a large, established company. This segment can help you sort out which prospects in your database belong to which tribe.

2. Persona

Ah, the persona. Much has been written about creating these customer profiles, but like some outmoded segmentation practices, some of it is irrelevant. Don’t over-complicate.

Focus on the most important attributes each persona has in common:

  • Job title
  • Service offering
  • Pain points
  • Aspirations
  • Interests

These are the common denominators that should inform your content and brand strategy. Every brand should use at least one or two personas to segment their audience.

This Hubspot form is an excellent example of data gathering for persona segmentation.

hubspot web form customer segmentation

As you can see, Hubspot wants to find out specific things about agency marketers who download their ebook. Why? Because these attributes help them build profiles that their acquisition strategy.

3. Lead Source

To personalize an experience for your prospects, you must adapt each new interaction to fit the context of the previous one. This isn’t as difficult as it sounds.

One of the easier ways to create personalized experiences is to segment by lead source — i.e. where/how a prospect entered your database. You can drop them into nurture tracks that correspond to their interests.

For example: if someone downloads a guide on LinkedIn PPC campaigns, you can presume that they’ll be interested in more paid media content. Depending on the nature of the guide, it may be appropriate to connect your product to the lead’s interest in PPC marketing.

Lead source segments are precursors to an overarching strategy that involves using automation software to personalize your customer journey.

4. Upselling

Your best customers are your current customers. Strategizing how you can sell more to people who already like your product or service is a logical maneuver. To be specific, the probability a new customer will agree to an upsell is between 5 and 20 percent, while the probably for successfully upselling an existing customer is between 60 and 70 percent.

probability-of-selling

Image Credit: Groove HQ

Creating a segment for upselling requires testing. Which current customers are primed to spend more with your company? The answer could be customers who are the heaviest users of your product, the most avid supporters of your brand, or something else entirely.

You’ll need to develop criteria, test them, and record your success rate to make this strategy work.

Add a Layer of Personalization

Once you’ve organized these segments, you can use personalization to deliver increasingly relevant messages and guide prospects toward your intended destination.

Since you’ve already created useful segments, you know which type of content will connect the best with each prospect, based on their attributes.

With the right technology (typically your marketing automation platform), you can present the content at an appropriate time, which might be the buyer’s second visit to your website, a consideration stage email, their arrival at a landing page, or through a retargeting ad after they leave.

For a little inspiration, here’s a chart from eConsultancy that breaks down current personalization trends:

EconsultancyAdobe-Personalization-Data-Types-ROI-Impact-Dec2014

As you can see, personalizing your approach based on patterns in purchase history, user preferences, digital body language, and other factors bodes well for ROI.

Ask yourself how can you apply these tactics to the segments mentioned. What would each respective audience find most interesting, most helpful? When should you deliver your messages?

* * *

As marketing continues to assimilate influence from both empiricism (revenue goals, sales alignment) and creativity (content, design, influence), the techniques marketers use will evolve.

But evolution does not discard what came before; it builds on it and adapts it. As marketing techniques grow and change, don’t abandon the fundamentals. Personalization may be the future of marketing, but it’s the child of segmentation.

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