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Is Customer Segmentation Killing Your Personalized Marketing Strategy?


These days it’s extremely rare to find a major retailer that isn’t examining its consumer base through a segmentation lens. Customer segmentations aid a variety of business functions, from setting strategic objectives to introducing new products and services. Most retailers also deploy multiple segmentation views, including customer value, lifecycle, channel preference, and needs. 

However, there are limits to segmentation applications within an organization, and when it comes to personalized marketing, relying too heavily on this approach when communicating with customers often proves detrimental to a retailer’s marketing strategy. That’s because targeting messages and offers at a group level, rather than a one-to-one, can result in a poor customer experience, low campaign participation and offer redemption rates, and minimal incremental sales and profits.

Consider an example of a baby-themed segment-based mailer housing eight product-level offers being sent to 5,000 baby households. In this case, each family would receive the same eight offers as each of the other 4,999 families. One, maybe two, coupons may be germane to each of these baby households, depending on if the brands are popular, the products are relatively common, and the offers are deep.

From the customer’s perspective, remembering to redeem just one coupon is often more hassle than it's worth, and having to peruse a retailer’s numerous communications and coupon outlets to find offers that are relevant is time-consuming and inconvenient. In the end, segment-level campaigns without any personalization not only fail to deliver meaningful gains, but their lackluster performance also limits the retailer’s ability to secure CPG funding for offer nominations.

If retailers are going to leverage segment-level campaigns to communicate with customers, they should look for ways to boost relevancy potential. The following are a few ways marketing teams can experiment with a number of variables to improve the performance of their segmented campaigns: 

  • Increase the number of offers in a given campaign
  • Broaden the offers to include more products
  • Supplement product-level offers with category and store-wide offers
  • Create a higher number of customer segments or overlay different customer groups or behaviors to more narrowly define the audience for each campaign

A True One-to-one Approach

Given that these efforts tend to require a considerable increase in investment and may only lead to marginal improvements in campaign results, the ultimate solution for many retailers, particularly those in the high shopping frequency sectors such as grocery and mass, is to move to a true one-to-one approach.  With this approach, each customer receives a unique combination of offers tailored to their shopping behavior and preferences.

"Segment of one" marketing does entail a higher degree of analytical sophistication, but the results are well worth it. Retailers that make the transition experience average campaign participation rate increases of 200-500 percent and redemption rate increases of up 700 percent. Additionally, successful direct marketing programs are much more likely to attract CPG funding, which contributes to stronger program ROIs.

So is customer segmentation useless in the world of personalized marketing? Not entirely. Segmentation can be used to inform creative versioning and to steer customer pre-selection for various campaigns. Additionally, segment-level campaigns could be included as part of a broader marketing strategy for functions such as customer acquisition or product introductions.

The key to developing a robust and successful personalized marketing strategy is to center around a core of true one-to-one programs, while supplementing efforts with segment-level initiatives as needed, based on the organization’s resources, processes, capabilities and goals. Retailers that go beyond segmentation to analyze and put their customers’ needs first will become the ultimate winners in the end.

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