Micro-segmentation–The Future of Personalized Digital Experiences

Today, consumers are bombarded with countless advertising and marketing messages, making it more and more difficult for brands to create messages and digital experiences that differentiate. Unifying data from internal and external sources for a holistic view of the customer makes it easier for you to discover what makes them tick so you can deliver the relevant experiences they crave. Understanding your customers is critical to success and the best way to do that is through micro-segmentation—a far more granular segmentation approach that leads to highly personalized experiences that compel customers to action.

While personalization and segmentation are nothing new, they are critical to world-class marketing. In fact, as of this year, “Gartner predicts that organizations that excel in personalization will outsell companies that don’t by 20%. Segmentation is also a key step toward meeting consumers’ demands for more relevant experiences. Meanwhile, at least 42% of marketers believe they are not very good at segmentation for digital experiences.” That’s a shame because segmentation enables you to build homogenous audiences and meet their needs and wants through personalized digital experiences that help you achieve and exceed your goals.

“In the age of the customer, one size fits few. Customer segmentation provides the key to delivering relevant customer experiences, but many customer insights (CI) pros haven't yet mastered segmentation fundamentals.” -Forrester

What is Customer Segmentation?

Let’s review some general background and best practices about segmentation. Bain describes customer segmentation as “the subdivision of a market into discrete customer groups that share similar characteristics. Customer Segmentation can be a powerful means to identify unmet customer needs. Companies that identify underserved segments can then outperform the competition by developing uniquely appealing products and services. Customer Segmentation is most effective when a company tailors offerings to segments that are the most profitable and serves them with distinct competitive advantages. This prioritization can help companies develop marketing campaigns and pricing strategies to extract maximum value from both high- and low-profit customers.”

The Difference Between Segmentation and Personalization

So how is segmentation different from personalization? According to David Krajicek of GfK Research, “Segmentation is strategy. Hyper-personalization is execution. Fundamentally, segmentation comes before hyper-personalization in the marketing and insights process—way before. Segmentations inform your positionings and marketing strategies, and defines the human landscape that products will inhabit. Nothing can happen with a product until we know its intended targets. Once we have determined our strategically valuable targets and defined which can be reached through various platforms and executions, we can think about personalization.”

Four Ways Audiences Can be Segmented

There are a number of ways that audiences can be segmented, and they start with four main categories:

1. Demographic segmentation: This method uses variables such as gender, marital status, age, income level, highest level of education attained, occupation, primary language, religion, nationality, and socio-economic status.

2. Geographical segmentation: This type of segmentation looks at location data, such as country, state, regional area, city, and neighborhood. Additionally, it can also include data such as climate, type of area (rural or urban), type of terrain (coastal, mountain, prairie), and size of city or town.

3. Psychographic segmentation: Using the attributes of values, attitudes, and believes, this method uses data related to social status, personality type, lifestyle, purchase considerations, interests, political learnings, and hobbies, among other things.

4. Behavioral segmentation: This type of segmentation takes into account loyalty to a brand, purchase history, purchase intent, and other actions that can tracked online.

Micro-Segmentation: Diving Deep into Data

Once you have the broad categories sorted, continue refining them into smaller and smaller segments, known as micro-segments. Accurate micro-segmentation is critical to delivering digital experiences that truly resonate with customers because it enables you to get a clear picture of what your audience needs, what they value and how they behave—and how addressing these factors impacts your goals, such as users, purchases, conversion rate, revenue, revenue/user, AOV, pageviews/user. As we’ve seen, advanced customer segmentation uses cross-channel behavioral insights and data from internal and external sources to discover, understand and define audience segments, enabling you to deliver highly personalized digital experiences. These segments are validated in real time through digital experience analytics and other data sources. This is the future of marketing.

Craig Teich from Connexity, Inc. asserts that “Micro-segmentation involves layering hundreds or even thousands of data points to identify granular clusters of individuals. Rather than looking at target ‘groups,’ marketers can layer rich sets of first- and third-party data to identify hyper-relevant segments based on attributes like lifestyle, interests, attitudes, purchase behavior, search behavior, panel data, buyer stage and much more. The result is a rich mosaic of tens, hundreds or thousands of micro-audiences, rather than just 10 or 20 segments. Your first-party data—your own customer and visitor information—gives you an excellent jumping-off point for identifying your most valuable segments….The more information a brand has on its customers (as in, the greater number of signals it collects), the more data it has to ‘pattern match’ similar individuals and identify new micro-audiences outside of its own database. In order to identify and target new customers, marketers can leverage third-party data sources to identify consumers with similar attributes to their own best customers.”

It’s important to note here that many digital marketers—even in today’s age of digital analytics—aren’t equipped for this intense level of analysis that includes the complexity and difficulty of layering hundreds or thousands of data points to uncover a micro-segment. But AI is changing all of that. Digital experience platforms powered by AI do the heavy lifting of complex data analysis for you, helping you uncover micro-segments with ease, making advanced micro-segmentation and personalization possible for even non-data centric digital marketers.

“Artificial intelligence technologies will be the most disruptive class of technologies over the next 10 years due to radical computational power, near-endless amounts of data, and unprecedented advances in deep neural networks; these will enable organizations with AI technologies to harness data in order to adapt to new situations and solve problems that no one has ever encountered previously.” -Gartner

David Blankley, CFA, adds,"Micro-segmentation in broad strokes is when you go beyond several clear segments, but do not take the further step of individual level modeling (evaluating a person rather than a segment). Many organizations often see clear value on the table going beyond initial segmentation, so they jump to individual modeling only to discover the model complexity is too high to comprehend and the cost of content has gone beyond any gains. Micro-segmentation is often the resulting sweet spot."

How to Get Started

To get started, the best practice is to consolidate data from silos across your organization into a single content repository. Your web content management system should be the single source of truth for customer data allowing you to deliver real-time, personalized content across multiple channels for every stage in the customer journey. When centralized, you can use holistic user data to better identify high-value micro-segments and personalize experiences for them (and then use the results to compare these audiences against others that you have built).

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Figure 1: Customer segmentation example

For example, let’s say you work for a European company and your goal is to prompt your audience to purchase from your website. You want to target high-value returning users who use tablets (perhaps because this audience has a higher AOV for your organization) and are located in Spain where there’s a big storm moving in. You can easily build the micro-segment and then personalize the experience for that audience by offering coupons, free shipping or a volume discount on umbrellas and raincoats, for example. You can even test how the experience renders across different device types.

Here are a few examples of how to build segments for the most homogenous audiences:

By behavior:By technology:By geographic location:
  • Number of pageviews
  • URL visit
  • Product view
  • Product viewed
  • Category page visit
  • Homepage visit
  • Cart page visit
  • Products added to cart
  • Products purchased
  • Purchase value
  • Event trigger (e.g., add to cart, purchase, subscribe)
  • Event trigger by property
  • Goal conversion
  • Unit click
  • Dynamic Link click
  • Traffic source
  • Referring domain
  • Device category
  • Operating system
  • Browser
  • Screen resolution
  • User agent
  • Country
  • Region/state
  • City

Using the parameters above, we could easily build micro-segments such as:

  • Mid-west visitors on Android devices coming from Google search
  • San Francisco visitors using iPhones who have purchased headphones
  • UK visitors on Windows 10 PCs looking at sweaters

To go beyond these simple micro-segments, think about building audiences that have the most value for your organization or represent a huge untapped opportunity, such as:

  • Frequent Buyers—visitors who have made X number of purchases in a certain time frame
  • Coupon Responders—visitors who have redeemed a coupon in making a purchase
  • Highest Spend in a Specific Category—visitors who spent the most in an individual category, such as apparel, electronics, home décor
  • Cart Abandoners—visitors who spend time on your site filling up their shopping cart only to never check out
  • Discount Lovers—visitors who always search for sales, lowest prices and promotional discounts

The possibilities are truly endless. Taking it one step further, you can then target these audiences with personalized digital experiences or build even more refined experiences using additional parameters that can vary from session to session such as URL parameter in session, previous URL or weather conditions. This helps you to deliver even more individualized experiences to your micro-segments by understanding which campaigns they’ve come from, where they’ve been on the site and the weather forecast for their location. For example, if you are targeting by URL parameter (such as for a campaign offering limited-time-only free shipping), you can personalize your website with that information when your targeted micro-segment arrives.

Segmentation Also Drives Dynamic Messaging and Recommendations

Not only do these segmentation strategies feed the creation of dynamic personalized content, but also behavioral messaging and recommendations. Recommendations are a well-known strategy for increasing visitor engagement, user retention and time on site. The idea is to inject product, content or email recommendations at critical touchpoints or drop-offs to optimize for goals such as conversions or purchases. You can, for example, enable recommendation strategies based on viewing history, prior behavior, real-time intent and more—or let your AI-powered recommendation engine make automatic recommendations to meet your goals. It’s also important to expand personalized recommendations across your channels and use hybrid recommendation strategies to maximize average order value. This could mean anything from delivering time-sensitive coupons in emails to social proof highlighted on your site to engender trust to retargeted ads based on items abandoned in a shopping cart.

Similarly, you can boost engagement with dynamic behavioral-based messaging. This can be anything from incentivized overlays and notifications, retargeted display ads, exit intent overlays (Going so soon? Sign up for our newsletter and get a 10% discount on future purchases), emails and more. The most important thing is to rely on the data to design and trigger highly targeted, personalized messages with laser-like precision based on the micro-segment you have built.

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Figure 2: Example of data-driven, dynamic behavioral messaging

Summary

You know that the buyer journey is no longer linear, which is why location, channel, mindset, recent activities, current environment and other contextual factors need to be taken into consideration for the best personalized experience. Micro-segmentation offers you the best way to identify who your buyers are, how they behave, and what matters to them—and discovering this information enables you to create the most compelling and relevant experiences for each of your audiences you want to target, particularly the most high-value customer segments or those where there is opportunity for improvement.

Next Steps

The FirstSpirit Intelligent Content Engine from e-Spirit uses AI-powered algorithms to uncover insights and high value micro-segments for better targeting, advanced customer segmentation and analytics. If you’d like to learn how e-Spirit can help you drive revenue from your digital experience strategy, please request a demo.