Segmentation - 5 Strategies to Use Now
Most marketing organizations today develop strategies based on a traditional definition of segmentation — with the goal of delivering to the customer the right offer with the right product at the right price at the right time. Traditionally, marketing models and programs start with the product or offering. While this approach has worked well for many years, in these economic times, companies need to shift focus: Rather than starting with product or offering, the first focus needs to be the customer.
Over the past year, we’ve implemented this shift at American Greetings. We’ve changed the way we look at our business, and it’s driven significant growth in attaining new customers and increasing the life cycles of existing ones.
Through this process, we’ve learned five key lessons that can be applied to any business:
1. Basic RFM isn’t enough
Previously, we relied on two different methods for segmentation: basic RFM (recency, frequency, monetary) and groupings based on life cycle. Like most companies, we segmented our customers into a finite number of large groups and differentiated our communications and offers to the customers based on those attributes. But as we grew, we found we were simply slicing the same variable into more ranges with diminishing results.
2. Focus on the customer
We began by enhancing and modifying RFM to differentiate our communications, but quickly found that RFM alone, however modified, wasn’t sufficient to adequately segment our customers and prospects.
We looked at why customers came to our site and what our desired outcome was. Most people visit our site to send or pick up cards. Ultimately, our desired outcome is that they subscribe. Looking at our objective through the customer lens, we could create differentiated customer experiences to drive the highest number of card sends and ultimately the greatest number of subscriptions.
Customers also visit Web sites to get information about their orders, the company from which they're purchasing or how to return products. What's that experience like for your customers? Should it be the same for all customers? Maybe you could reserve your phone support for your best customers only. Go through the process of every activity that your customer can do on your site, and identify where you have the opportunity to deliver different experiences for different customers or conditions.
From this launching point, we’ve expanded our models to include the aspect of engagement on each attribute. This helps us better identify ways to interact with customers at every touchpoint, resulting in a greater return on investment for all of our marketing costs.
3. Customize the experience
Once you’ve identified the customer segments, the next step is to act on that knowledge. Because we’re an Internet offering, we have tremendous flexibility to customize our communications, offers and experiences based on a multitude of factors.
For customers, we can look at their purchase histories and customize their site experiences to reflect the occasions and types of cards they have an affinity to send. For prospects, we have to look a little harder to collect information that can help us deliver a more relevant experience. Rather than prior histories, the variable options are more about how the prospects got to the site (keywords, etc.) and activity once they’re there. We look to use whatever information we can collect or infer to determine if it can help identify and create relevant segment groups.
So how does all of this get implemented? Looking at how customers engage with our products — such as using the reminder tool, opening reminder e-mails, seeing reminders on the Web site, or sending selected cards to one recipient or many — we gain insight into what actions, or engagements, drive our customers to buy. With this information, we can increase the likelihood that we can encourage them to buy more. The key is to start small, using what you know, what you find out and what you can customize. Measuring the impact of different changes will drive where you expand and where you invest in the ability to capture more data and enable more customization.
It’s important to walk through the entire customer experience and locate opportunities to customize and enhance that experience. For example, if customers come to your site through keyword search, there might be keywords or combinations of keywords that suggest those customers are rapid shoppers. Providing an experience to quickly and easily find and buy on your site might be very important to those customers. Alternatively, some potential customers want to browse and see the depth of your offering. Once you have the capability to offer different experiences, it’s time to develop a test plan to uncover all of the relevant variables.
4. Consistent messaging in e-mail and on the Web
A simple example of how this works at American Greetings is in campaigns where we remind customers of a pending event, such as Mother’s Day or a customer-specific birthday. Within the e-mail, we feature a product based on customers’ past selections — such as cards that are funny, traditional or religious — and simultaneously customize presentations and offerings on our site that expand on the e-mail customization based on customers’ engagement histories.
5. Continue to differentiate treatments
Continue to differentiate treatments until the return is less than the effort. We’ve recently begun enhancing our models even further — using more variables to help drive a better customer experience. These include evaluating proximities to events, similar to airlines’ 14-day purchase fares; types of events, such as birthday cards for wives compared to birthday cards for bosses; and search methods, such as free search terms compared to birthday e-card searches. While a version of these enhancements may have been possible before we started engagement-driven marketing, the impact in the engagement-enabled arena is significantly magnified.