GUEST COMMENT Realising the vision of advanced segmentation

Marketers are failing their customers. From increasing the relevancy of experiences to personalising engagement, too few brands can boast the marketing maturity required to truly meet the needs of modern consumers.

Nearly 50% of marketers believe that advancing segmentation is critical to keeping up with today’s consumer and generating key marketing returns, yet more than 40% feel that it is incredibly challenging to accomplish. Marketers can no longer afford to delay investing in their segmentation strategy.

Brands that are getting it right are delivering measurable uplift in Customer Lifetime Value (CLV) as the quality of customer experience is having a direct business impact. Recent developments in personalisation and behavioural predictions make it easier than ever before for brands to improve segmentation.

Embracing the opportunity

According to figures from The Relevancy Group, improving segmentation and targeting was a top priority for digital marketers in 2015 – cited as the biggest opportunity by 35%. Yet recent research from Forrester revealed that 94% of brands failed to meet even basic criteria for delivering a modern email experience for consumers. While this research does not extend to the whole of digital marketing, segmentation is often most evident in direct marketing forms, from traditional mailers to email marketing.

The problem is that moving beyond simple segmentation – such as gender and location – is incredibly challenging and most brands are failing to explore the depth of rich data they could collect from customers across the omni-channel. So what is holding them back?

Defining the strategy

Marketers share common concerns about segmentation that are adding to the inertia. Has the brand collected enough data? Should the focus be on persona or behavioural based segmentation? Both? What is the business priority – reducing churn, improving email performance and value or increasing CLV for top customers? And, critically, how can the success of any segmentation activity be measured?

Email marketing may be tried and trusted – indeed, it’s the highest revenue producing channel for most brands – “if it’s not broken, why fix it?” However, the batch-and-blast model is indeed broken. Long-term data demonstrates that consumers who receive mass email disengage faster and are more likely to churn.

Stepping away from a model of near constant customer engagement and a focus on short term goals – typically opens and click-throughs – towards less frequent, targeted communication and an emphasis on longer term objectives – such as CLV – requires a new mindset.

If brands are to realise the benefits of advanced segmentation it is important to take a strategic approach. Firstly, put in place a framework for testing segmentation driven communication to determine the value being achieved.

Secondly, a brand needs to prioritise activity. Is the focus on reducing churn by minimising opt outs affecting revenue? Or improving email effectiveness by increasing revenue per email? In the ideal state, marketers are testing this approach in the long-term, as they will most often see short-term dips in engagement but revenue metrics will increase when viewed longitudinally! Prioritising activity and putting in place a strong measurement model will enable marketers to determine the best approach for continued advancement in segmentation.

Evolving sophistication with predictions

One of the most effective forms of segmentation is behavioural – using an individual’s frequency of brand interaction, purchase patterns and other variables to determine the best messaging cadence, content and even channel for engagement.

Traditionally brands taking this approach have used tactics such as relevancy frequency monetary (RFM) modelling to identify customers who are likely to once again engage or purchase; however, this approach is both time consuming and painstaking. While it generates significantly more revenue than batch-and-blast, the accuracy of this approach pales in comparison to using predictive algorithms to automate behavioural segmentation.

Predictions can arm marketers with an individual’s predicted likelihood to open email, click, purchase, opt-out, spend, number of items they will purchase and which specific items they will buy. Using this information marketers can create more targeted segments and deliver a transformative customer experience.

Predictive analytics being used to drive segmentation can also supplement persona-based segmentation driven by marketers or business intelligence teams, sending specific content and offers based on both persona and behaviours.

Layering predictions and personalisation

Pairing algorithmic personalisation with predictions ensures a brand can present the right content to each customer with minimal overhead. While predictions allow a marketer to identify intent; the data that drives personalisation identifies preferences. Automating the combination of the two, ensuring that a marketer is optimising every revenue opportunity at scale.

The Clymb, a US retailer, recently took this approach and experienced a 175% increase in revenue per thousand emails sent and a 72% drop in customer churn. Marketers at the company used new technologies to predict which customers were likely to purchase within the next week to create a new top customers segment. The Clymb also predicted average order value to dynamically personalised individual email newsletters using buyer preferences relative to the predicted purchase values, ensuring that customers who would spend $100 on a single item received applicable products, while those predicted to spend $50 on two items, received products within those parameters.

To maximise value similarly to The Clymb, marketers must approach advancing segmentation with the goal of increasing the most critical metric tied to customer retention: customer lifetime value.

Critically, the results must be measured and assessed against the prioritised business objectives. Continually assessing and reviewing the success of segmentation – especially against CLV – will enable marketing to refine and improve the sophistication of the strategy.

This is a new era of customer engagement and segmentation will continue to play a vital role. With the ability to identify those customers most likely to churn or those with a highly likelihood to purchase, a marketing team can begin to develop a highly relevant lifetime messaging strategy and automate the delivery of pertinent, timely content. So why wait?

Neil Capel is founder and chairman of Sailthru