Segmentation is one of the oldest marketing tactics in the book. Understanding the broad strokes of one’s audience – their likes, dislikes, interests, hobbies, desires, and habits – has long been at the core of effective marketing. But in an era of personalization and relationship-focused business, is segmentation still critical?
Is it still even relevant?
“Understanding what makes customers the same isn’t personalized marketing,” writes Aaron Raddon, Co-Founder and CTO of customer data analyst Lytics. “Understanding what makes them different is…if you’re still segmenting customers as we know it today, stop it.”
“[Customers] want marketing that feels like a personalized shopper or content curator,” he continues. “You should be thinking about decisioning, orchestration, and affinity-based recommendations.”
Raddon’s advice isn’t without merit. The days when brands could get away with impersonal, loosely-targeted advertising campaigns are far behind us. Today’s consumers not only look favorably on personalization in marketing, they practically demand it.
In a 2017 survey by GBH Insights and Epsilon, for instance, 90 percent of respondents in the United States expressed that personalized marketing was either very or somewhat appealing. Lack of personalized content, meanwhile, generates 83 percent lower response rates, according to customer experience specialist Monetate. And according to analyst McKinsey, personalization can reduce acquisition costs by up to 50 percent.
In short, personalization is essential to your success. But that doesn’t mean that segmentation is, by association, no longer relevant. Quite the contrary, in fact.
Market segmentation is the first step to understanding your broader audience. It allows you to cluster your customers together based on general, shared traits. Initial acquisition and advertising can be designed based on these traits.
Eventually, as you bring in more customers and they move further down the sales funnel, you can make the shift from a more generalized, segmented approach towards a more focused, individualized one. In this way, personalization functions as a sort of natural ‘evolution’ from segmentation. One leads into the other, and both are valuable to the savvy marketer.
“Segmentation is a relatively early tactic on what we term the personalization maturity curve,” reads a blog from cross-channel marketing expert Sailthru. “That curve begins with a single message mailing, then moves through simple forms of personalization, such as putting someone’s name in a subject line, and segmentation. But more sophisticated strategies have a bigger impact on revenue and retention: personalized recommendations, omnichannel optimization, and eventually, predictive personalization.”
In other words, you start with segmentation, then move towards a more dynamic and focused approach. An approach that puts the customer front and center. An approach that, using a combination of predictive analytics and artificial intelligence to provide them with precisely the content they’re looking for.
Personalization is the future. There’s no doubt about that. But at least for the time being, segmentation still has its place in marketing.