Do you know who your most valuable customers are? Every marketer and business leader asks this key strategy question. Today, going smaller and more specific in your marketing may yield more accurate insights and bigger results. Your most valuable customer probably isn’t “a man over 40,” but instead, is likely “married men between 40 and 50 who work in finance and play sports on the weekends.” If that sounds incredibly specific, that’s because it is. Focusing on micro-segments in personalization allows marketers to identify the top percent of customers that drive the majority of their revenue, deliver personal experiences and offers to that segment, and find other customers like them. A micro-segments can be very powerful.
As today’s marketers increasingly move toward developing dynamic personalization strategies, micro-segmentation is moving to the forefront as an effective approach to delivering meaningful personalization. Here’s a closer look at the process behind micro-segmentation and what steps marketers need to make it a reality.
The Drift from Segmentation to Micro-segmentation
Recent academic research notes that every industry – from retail to financial services – is experiencing the “drift from segmentation to micro-segmentation.” Segmentation emerged as a marketing practice that was built largely on market research insights. Within the universe of existing and potential customers, different groups shared commonalities based on demographics, buying behaviors and preferences. By grouping these customers together, it was possible to market at scale while personalizing campaigns, service, and other factors. For example, companies selling computers would focus on speed and graphics quality for their “gamers,” while emphasizing ease of use and budget for their “casual tech users.”
However, as companies have developed better data-gathering systems and customer expectations have evolved to deeper personalization, micro-segments are emerging. It’s easier to understand your customers at a profoundly intimate level and translate that information directly into your marketing and customer experience efforts. Better data is also helping marketers understand who their most profitable customers are and hone in very specifically on the aspects of the customer experience that matters most to them.
Getting to the atom level with your marketing lets you build deeper relationships with priority micro-segments through better communications, insights and experiences.
Segmentation and Personalization Are Not Opposing Forces
Many seasoned marketers wonder: Do customer segmentation and personalization go hand-in-hand, or are they separate processes? The American Marketing Association recently published a thoughtful piece exploring this issue and concluded that segmentation and personalization are not opposing forces. Critics are concerned that when you target your marketing by putting customers together into groups, you miss the opportunity to truly personalize at the one-on-one level. However, as the author notes, segmentation and personalization are two different and complementary approaches within the marketing mix.
Segmentation is a useful tool that gives marketers a way to strategize around their customer base. When data and insights are considered through a segmentation lens, it helps put that information into context: Who are you serving? What groups represent profitable and interested potential customers? What motivates your customers, and how can that shape future marketing campaigns? By contrast, personalization describes how you approach the customer experience. What products do you recommend to a specific customer? How will you personalize your communications? Personalization focuses on how you build the systems that deliver your customer experience. Taking your segmentation strategy to the micro-segmentation level helps marketers deliver a smarter and more personalized experience.
Micro-segmentation in Action
For marketers, going deeper into your segmentation and becoming more specific in your analysis opens up opportunities to deliver more relevancy across channels. One email services provider found that users who segmented their email communications, for example, had 94.1 percent more click-through rates and 14.63 percent more opens than non-segmented campaigns. By diving deeper, each element of the customer experience becomes more targeted and yields stronger results via a range of touch-points.
For companies hungry to grow revenue, micro-segmentations also help identify untapped opportunities within the market. For example, consider a survey which reveals 60 percent of the audience for an alcohol company consumes beer. With high-level segmentation, those people might begin to receive email blasts or product recommendations for certain products. Yet if you take a micro-segmentation approach, it might reveal specific opportunities to really target products which are uniquely relevant to their interests and personal taste profiles. Specific sub-segments might include lager lovers, craft beer aficionados, local focused regional beer drinkers, and cider fans. For a company that’s already selling all these products, aligning marketing at a more personal level – when driven by micro-segmentation – improves sales for your team and creates a more relevant experience for buyers.
Embracing a micro-segmentation approach lets marketers bridge the gap between strategy and execution. Understanding your customers on a more granular level, and then putting the systems in place to deliver on that promise on a relationship-by-relationship basis, is the only way to stay competitive. Mine the wide range of information you have at your fingertips from demographics to behavioral patterns, and then look for ways to create customer experiences that build on those opportunities.
Liz Alton writes about digital marketing and her work has been featured on USA Today, Forbes, Inc, Harvard Business Review and Entrepreneur. Her specialties include all things marketing, technology, B2B, big data/analytics, cloud and mobility. She holds a Bachleor’s degree in journalism from University of Massachusetts, Dartmouth and an MBA from Western Governors University. She is currently pursuing a Master’s in Journalism from Harvard University. Liz is a paid contributor to THINK Marketing.
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