Customer Segmentation Isn’t as Important as You Think

Posted on by Olly Downs

Agencies Consumer 464267817Marketers have embraced personalization. Understanding customer needs to create and deliver relevant and timely experiences is top of mind. And personalizing campaigns to drive better performance is a top priority.

So what exactly is at the heart of personalized marketing? Ask 100 marketers and the vast majority will say customer segmentation. After all, knowing that a customer is active, a big spender, and at risk of churn, for example, is powerful in determining the best offer or incentive to influence their behavior.

But marketers often focus on customer segmentation at the expense of other factors such as experience and execution.

The many facets of personalization

Customer segmentation is just one piece of the personalization puzzle. The probability that personalization will create revenue lift changes based on context—which is defined as a combination of customer, experience, and execution.

So to what degree is targeting optimization a function of customer segmentation versus experience and execution? Is a rich understanding of the ‘who’ really more important than the ‘what, when, and how’?

Amplero did a cross-customer study of 3,291 successfully optimized targeting definitions. The study focused on educational messages surrounding customer adoption and retention, and the attributes used in the targeting optimizations were broken down into three buckets.

The first bucket was customer attributes: customer state, usage, consumption per day, days with no activity, social connectedness, churn propensity, history with customer care, etc. The second was execution: time of day, day of week, channel utilized, etc. The third was experience: the message, tone, language preference, etc.

The study found, as shown in the graphic below, that targeting optimizations were 37% customer attributes, 24% experience attributes, and 39% execution attributes.

For the experience attributes, 75% of the targeting optimizations were achieved by selecting the right message.

For the execution attributes, the dominant optimizations were timing attributes—such as day of week and time of day—comprising 82%. Interestingly, almost 18% of execution optimizations were related to the timing of previous offers.

Over 60% of the successful targeting optimizations in the study did not involve customer segmentation at all—so it’s clear that being overly focused on segmentation (or any single facet of personalization) has diminishing returns for improving campaign performance.  Discovering that 18% of execution optimizations were based on timing of previous offers shows that marketers need to understand the customer journey. They need the ability to orchestrate their campaigns to drive revenue lift, by looking at revenue per experience.

Finally, if a campaign is educational, getting the message right matters. You need to see what works and what doesn’t to inform and accelerate how you fine-tune value propositions for your customers. What’s key is the ability to explore and analyze a variety of different messages to determine how each one impacts lift.

The payoff: better customer experience and better lift

A successful personalization strategy is a win-win for consumers and marketers. Consumers get more relevant and timely offers which leads to an overall better customer experience, and brands maximize the monetary uplift of their campaigns. But creating optimal targeting is not simple and goes beyond customer segmentation. To tailor individual experiences and maximize campaign performance, marketers need to experiment with a broad number of attributes and conditions keeping in mind that context dictates optimal marketing performance, and context is a function of many factors.

Dr. Olly Downs is Chief Scientist for Amplero by Globys.

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