NMA SPECIAL
CRM: Segmentation
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Segmenting your audience not only allows for more targeted communications but can be valuable in all forms of customer contact, especially when combined with offline information
quick facts
- Segmentation is becoming increasingly important as one-to-one customer interactions are valued more highly than multimedia broadcast messages
- Key to successful segmentation in digital is integrating traditional data on who people are and what they’re like with real-time data on how they behave online
- Communication is only one activity that can be modified by segment. Segmented promotions, sales incentives and product development demonstrate segmentation’s wider strategic significance
- Segmentation should be organic, constantly evolving, not cast in stone. Consumers’ behaviour and preferences are constantly changing
There’s no doubt that increased consumer activity online and the availability of analytical tools like Omniture to track people’s online journeys are generating unprecedented volumes of data. The trouble is, many now believe there’s a mismatch between the opportunities this offers brand owners and their ability to grasp them.
“The digital world is increasingly using CRM language, but the sophistication of its segmentation isn’t yet on a par with offline CRM,” observes Steve Farquhar, managing consultant at web analytics specialist e-customermetrics. “You segment in order to tailor a treatment to different audiences and optimise revenue, but I’m not sure this is being done well in the digital world.”
This view is shared by a number of digital marketing specialists. “Traditional segmentation is about how people look. With digital, however, you can gain clearer understanding of the cognitive processes behind how they behave,” says Pete Anderson, planning director at digital agency Underwired. “Yet many clients don’t understand the opportunity the online world provides because they still think in broadcasting terms rather than focusing on building in-depth personal relationships.”
People’s understanding of segmentation is still, in many cases, “top level”, says Martin Talks, CEO of digital agency Blue Barracuda. “Often it’s seen as being all about demographics. But by not capitalising on the huge volumes of online behaviour data now available, brand owners are missing a major opportunity,” he says.
Both online-only and multi-channel businesses that have extended their activities into digital face challenges when it comes to effectively collecting, collating and managing customer data. “For digital-only businesses, the challenge is to catch up with the so-called old-fashioned world of direct marketing in terms of how best to use segmentation and analysis techniques,” says Nick Earnshaw, head of data-driven marketing at AgencyDMG. “For multi-channel business, it’s how to effectively integrate digital with offline consumer data.”
For many brand owners, the ability to combine digital and offline data is increasingly important. Often, multi-channel businesses manage digital activities separately. The growth of many digital-only businesses, meanwhile, has been technology driven, with less attention paid to how the effective collection, collation and management of customer data can drive their businesses forward.
“All websites create logs. But effective segmentation means more than just analysing behaviour on a site,” says Farquhar. “The key is to use data from logs and join this with CRM databases. Effective implementation comes from joining online and offline data.”
Slicing the data
How to use this data is another problem for many brand owners. “We know more about the digital customer’s interactions than ever before. But the fundamental question remains of what to do with that knowledge,” says Dela Quist, CEO of email marketing specialist Alchemy Worx. Just because you can segment doesn’t mean you should automatically do so. A key starting point must be understanding the strategic value, he adds. “Some of the desire to segment is undoubtedly driven by the availability of the web analytics tools to do so rather than a clearly
established end use”.
Digital marketing agency LBi’s CRM practice director Pipa Unsworth endorses this. “Segmentation must always be driven by clear business objectives because of the costs involved,” she says. “But this isn’t always the case.”
Despite its wider potential, segmentation is still often used primarily for targeting marketing communications to different audience segments, Quist says. As important, however, should be its use for driving sales through promotions and other personalised incentives, and developing new products or services for different audience groups. “A particular concern,” he adds, “is that when it is used to incentivise sales the emphasis is all too often on effectively rewarding lapsed customers rather than more intimately embracing loyal ones.”
The greater ease with which it’s now possible to segment a brand owners’ customer base poses a further challenge: just how far is it appropriate to segment? “The ideal, in my view, is a segment of one, although not many companies are set up to conduct truly one-to-one communications,” says Blue Barracuda’s Talks.
Quist, however, isn’t so sure. “In theory you should segment until ROI on that additional segment is zero,” he says. “In practice the cost of doing so will often outweigh the benefits. There are also cost implications if the segmentation is too complex and difficult to manage.”
Unsworth agrees. “When you start to combine online behaviour data with contact/profile details, then you can start to build quite complex segments. But my advice is to keep it simple. Cost is a constant issue but you can still segment quite simply and drive significant incremental revenue growth,” she says.
Applying your knowledge
Brand owners must address a number of challenges to fully realise the potential of segmenting audiences in a digital world. One of the most important relates to skills and resourcing. “We already have loads of data without sufficient time to do anything useful with it,” says set up to do. We directed different groups of people to different parts of the main McCain site and also new subsites where they would find tailored content relevant to their areas of interest.”
The use of separate creative executions for each segment grew the database by 233% within the first 12 months. Click-through rates averaged 12.6% (ahead of a UK average of 3.08%) by the end of the same period, and engagement with brand resistors rose from 14% to 63%.
As the strategy moves into its second year, Anderson says the aim is to evolve the basic four-group segmentation to become more granular. “We need to get it closer to 20 groups by pointing people to online surveys and ‘golden questions’,” he says. “We can then better understand the needs and values of the four main behavioural groups and the smaller clusters within these, grouped by the different drivers that lead to these behaviours, then tailor content accordingly.”
The feasibility of larger numbers of segments depends on the systems put in place to manage and automate content distribution, Anderson says. “Subsites provide a neat way of providing different types of content for larger numbers of segments, once you go beyond six or eight.”Alchemy Worx’s Quist. “Resourcing is a major issue and is what’s holding companies back, rather than lack of tools or appropriate technology.”
Education is key, LBi’s Unsworth believes. “Brand owners are still at the beginning of the journey. If they’re not experienced in direct marketing, their understanding of segmentation is based on customer research rather than data. There’s a clear opportunity to educate and to align segmentation models used for direct marketing with models used for online development.”
Clients currently misunderstand the degree of analysis available and can be put off by the speed with which customer marketing via digital is evolving, says Underwired’s Anderson. “Tools such as Omniture can be expensive and data-heavy. It takes time and expertise to process hundreds of rows of data. There’s the cost of the technology, the skills required to analyse data, the ability to get a single customer view and then create an actionable plan around that. It’s a lot of stuff.”
Also important is cultivating a greater understanding that segmentation isn’t static. “A lot of companies stick with groupings for a year or more, when in reality their approach should be organic,” Anderson adds.
Arguably the greatest challenge will be gathering, interpreting and responding to customer data minute by minute, according to John Baker, joint-MD of marketing agency Iris Digital. “In my view the thing that really blows the doors off segmentation is the ability to segment in real time by need,” he says. “You can know as soon as someone arrives at your site how they got there and what keywords they used, then respond accordingly. It’s a huge change from segmentation as list management. Without doubt, segmentation 2.0 will be live and action-based.”
Earnshaw agrees. “Even in direct marketing, segmentation is a pretty blunt tool when it comes to communications activity. Segmented messages to six or eight different audiences still involves a high degree of generalisation. That’s why the big opportunity digital provides is real-time data,” he says.
AgencyDMG’s work in this area has involved the development of Digital Brain, an approach that allows a brand owner to combine historic and real-time data then manage real-time customer interaction. This has been used by Thomas Cook to sell add-on financial services to customers who have booked Thomas Cook holidays. The system cross-refers data relating to which holiday they booked and when they’re due to travel with information about recent online behaviour to target relevant financial services at the time most likely to prompt a sale.
“Digital provides the opportunity to both understand consumer behaviour and respond to it in real time,” Earnshaw says. “You can personalise not just digital but all interaction where appropriate in real time - a far more powerful approach than merely tailoring communications according to historic performance. We’re working with a building society to enable its counter staff to access data and use it to prompt individual customers when they come into a branch. I believe we’ll see a lot more of this.”
case study: McCain Foods refines its email targeting
In May 2008 McCain Foods began developing a new eCRM strategy. Until then, consumers opted in to receive a monthly newsletter. Working with digital agency Underwired, the company has since developed a segmented e-communications strategy to build loyalty to the brand.
“Four top-level segments had already been identified - two were brand engagers, two were brand resistors more cynical about the product or frozen vegetables in general,” says Underwired’s planning director Pete Anderson. “We set out to use email to target different messages at different segments, something McCain Foods’ main site wasn’t set up to do. We directed different parts of the main McCain site and also new subsites where they would find tailored content relevant to their areas of interest.
The use of separate creative executions for each segment grew the database by 293% within the first 12 months. Click-through rates averaged 12.6% (ahead of a UK average of 3.08%) by the end of the same period, and engagement with brand resistors rose from 14% to 63%.
As the strategy moves into its second year, Anderson says the aim is to evolve the basic four-group segmentation to become more granular. “We need to get it closer to 20 groups by pointing people to online surveys and ‘golden questions”, he says. “We can then better understand the needs of the four main behavioural groups and the smaller clusters within these, grouped by the different drivers that lead to these behaviours, then tailor content accordingly”.
The feasibility of larger numbers put segments depends on the systems put in place to manage and automate content distribution, Anderson says. “Subsites provide a neat way of providing different types of content for larger segments, once you go beyond six or eight.