Refining Personalization Using Segmentation: Insights from the Marketing Leaders Study
Segmentation and personalization are powerful tools in the marketing toolbox. When used in combination, as described by marketing leaders in the AMA San Diego Marketing Leaders Study[1], brands can positively influence their marketing Return on Investment (ROI). The bridge between segmentation and personalization are detailed personas that outline demographic, geographic, behavioral tendencies, cultural influences and psychographics of segments. Inputs to personas are the outputs from a segmentation exercise.
For some marketers, segmentation and personalization occur in a five-step process:
- The market is segmented and the segments are ranked from most valuable to least valuable to the business
- A classification scheme is developed to classify existing customers in the database and potential new customers into segments
- Additionally details of each segment identified by the segmentation are used to develop a persona for each segment[2]
- The personas are used by marketers to address opportunities and challenges within each segment; they may also be used to personalize communication with each segment
- Personalized campaigns are measured through data and analytics and the performance results are put back into the cycle to refine and target different customer groups based on their value to the company as well as their needs, attitudes, opinions and behaviors
Segmentation is a research tool designed to identify segments with similar needs, wants, or demand characteristics. Once the segments are identified, a marketing strategy that matches each segment is developed. Segmentation also allows brands to focus on the most valuable segments. A classification scheme is used to separate all existing, new and potential customers in the appropriate segments. Personas are the formation of personalities that best represents the various segments. Personas are often shared using infographics. Personalization is a marketing tool used to communicate and build relationships with those customers. The diagram below visually depicts the process of moving from segmentation to personalization.
SEGMENTATION
Two broad approaches are used for segmentation depending on whether a company has their own database of customers. If a company has a database of customers, they can set criteria and determine different segments within their own database then use those segments to find new customers that fit into those segments. Organizations that do not have a customer database can use a survey to identify the different segments that are interested in their products and/or they can purchase data on their customers and use that data for segmentation.
There are four levels of sophistication in segmentation:
Improved ROI
When segmentation is executed correctly, companies will see an increase in ROI due to a two-fold benefit. When organizations perform segmentation and generate a marketing strategy that is dedicated to specific high value segments, it boosts the interest and engagement of the existing and potential customers within the targeted segments and this ultimately increases sales and profitability. The second benefit from segmentation is the reduction of wasted marketing campaign budgets. Marketing leaders in the tech industry participating in the AMA San Diego Marketing Leaders Study explained that they stopped wasting their marketing budget on individuals or companies that were uninterested in their products and would not convert into paying customers in the future.
CLASSIFICATION
After developing a segmentation scheme, it is then necessary to classify existing, new and sometimes even potential customers into the segments derived from the segmentation scheme. To market directly to customer segments in an organizations’ database it is necessary to classify the database into segments so each segment receives the marketing material that is related to them. Broadly, there are three types of classification approaches:
- Classification of all customers can be as simple as scoring the database into male/female or as complicated as sending a short classification survey to everyone in the database to classify them into appropriate segments.
- Typically, when a multivariate segmentation is conducted, companies create a classification scheme. This is often a set of 10 to 15 questions that is used to classify existing, new and potential customers into segments. Customers must answer the 10 to 15 questions to be classified.
- Another sophisticated way of classifying customers into segments employs regression techniques and discriminant analysis, the segmentation scheme, and company or purchased data. A segment classification scheme is developed using the company or purchased data.
PERSONA DEVELOPMENT
Personas are often developed based on the segments resulting from the segmentation scheme employed. Personas describe a single fictional person that represents the entire segment. They make it easier for company employees to relate to that segment by having an image of what each segment represents. Marketing staff are then more able to form appropriate communication for that persona.
A marketing leader from the Life sciences industry who participated in the AMA San Diego Marketing Leaders Study reported that they are using personas to drive content creation. They analyze each of their persona’s characteristics and create monthly content accordingly. It is important to have a presence where each persona spends their time and capture their attention through content on the appropriate platforms.
When working on personas, it is easy to get carried away and form multiple personas according to the data results. One company representative from the tech industry participating in the AMA San Diego Marketing Leaders Study explained the importance of remaining focused on the most valuable segments/personas and allow yourself to let go of others. Trying to focus on too many segments/personas with multiple and diverse marketing messages may confuse the existing or potential customers.
Some companies refrain from forming personas in fear of blocking certain demographics out of their target market. However, it has been shown that when companies appeal to more targeted and higher value segments, they are able to engage them more efficiently and effectively, and build brand loyalty. When companies try to appeal to everyone they end up being irrelevant to all market demographics and are not able to connect with their customers.
PERSONALIZATION
It is the personalization of communication and the proper use of marketing channels that will have a true effect on increased ROI. Through personalization, companies can connect and become more relevant to their customers by providing them valuable information that segments truly care about. Consumers are constantly bombarded with advertisements on a daily basis, so it is through personalization that companies can differentiate from the crowd and provide customers with content they actually want to receive.
Emotional Marketing
Many organizations across industries are moving away from a heavy emphasis on communicating functional and technical specifications of the product, to incorporating communications with more emotional emphasis. Consumers are more interested in connecting with the brand’s mission, what it stands for and how it is contributing to society and the environment. When customers connect on this level, they are willing to follow the company’s social media activity and receive updates on what the company is working on. They do not feel that the communication is forced upon them but instead it is a communication of common interests.
Micro Targeting
Some companies in the AMA San Diego Marketing Leaders Study use advanced personalization beyond the broader segments. They use micro-targeting to focus-in on the individual customer level and track as much information as they can about their specific needs. One company in the hospitality industry represented in the AMA San Diego Marketing Leaders Study tracks the customer’s preferences during their stay, and uses that data to perfect their current and future visits by providing them a personalized experience. The company has found that strong brand loyalty is built this way and they are seeing high retention.
Retargeting
The hospitality industry regularly asks guests for feedback about their recent experience and what they want to receive information about. The feedback is fed into social media algorithms that generate targeted advertisements for retargeting.
RETURNING TO FULL CYCLE
One of the most important steps that some marketers omit is re-evaluating the cycle of segmentation and classification, persona development and personalization, and making appropriate adjustments. Many marketers identify their segments and target audience, personalize their communications and then stick to the same procedure for years. It is vital to measure the performance of each segment and campaign and make appropriate adjustments accordingly. Segments change their characteristics as they grow older or the external environment changes. It is necessary for companies to constantly re-evaluate their processes through data, analytics and marketing research.
[1] Q2 Insights, Inc. designed, implemented and reported on the AMA San Diego Marketing Leaders Study. The study was undertaken in partnership with FreshForm.
[2] http://q2insights.com/blog/ways-capitalize-customer-segmentation/
Authored by Stephanos Trokoudes. Q2 Insights, Inc. is a research and innovation consulting firm with offices in San Diego and New Orleans: (760) 230-2950 ext. 1 or info@q2insights.com
This entry was posted in Tools and Techniques and tagged on October 12, 2017 by Kirsty Nunez