If you’ve collected information about your customers, now is the time to put that extra effort to good use—with micro-segmentation.
What is micro-segmentation?
The practice includes dividing customers into four general groups—by demographics, geography, behavior and lifestyle—then segmenting each group even more.
Geography, for example, could be broken down into regions, then states, then cities, then neighborhoods. Behavior could mean frequent purchases, seasonal-only purchases, coupon-only purchases or “window shoppers.” Lifestyle could be an adventurer, fashionista, world traveler and tech savvy.
Micro-segmenting combines multiple variables from the above categories with certain demographics, such as age, sex, life cycles, job, and income, to create a target persona.
While a high-end RV dealership might target a wealthy, retired male over age 60 who enjoys travel, a sporting goods store would likely market to single, college-educated, employed males between 21 and 35 who identify as adventurous, fit and eco-conscious.
It’s easy to see why micro-segmenting could significantly help make marketing more effective. Just imagine how a 62-year-old man feels every time he gets an email advertising a company’s new diaper bag or lipstick.
Just imagine how a 62-year-old man feels every time he gets an email advertising a company’s new diaper bag or lipstick.
There’s probably not a strong sense of importance or feeling of connectedness to the company sending him emails.
And when it comes to building loyalty, feeling a sense of “belongingness” and importance can increase profits. In a 2014 survey by Infosys, 78% of consumers said they’d be more likely to make a purchase again from a company that provided more targeted offers. And Bain & Company reports that after shopping with a company for 30 months, returning customers spend 67% more than their initial purchase.
In addition to strengthening customer relations through more targeted emails, micro-segmenting can help companies track how customers move among segments over time. In the long term, this could mean tracking how a 25-year-old woman’s spending changes from grad school to married life to buying goods and services for a family of five.
In the long term, this could mean tracking how a 25-year-old woman’s spending changes from grad school to married life to buying goods and services for a family of five.
In the short term, it could simply mean tracking her seasonal purchases and spending.
The value of tracking this movement is priceless, as it can help companies optimize their marketing actions to increase revenue from existing customers—or potential customers on whom they’ve collected data. In addition to increasing conversion rates immediately, micro-segmenting can help businesses identify a customer’s lifetime value—the predicted total of all future profits that the customer will generate for the company.
Micro-segmentation is both responsive and predictive marketing, and probably as close as a company can come to a crystal ball when it comes to customer behavior.
How do you create micro-segments?
A lot factors into how businesses categorize customers into micro-segments: the size of its database, what information has been collected, the types of customers it serves, and if the business is local, regional, national or worldwide, to name a few.
Although there are complex algorithms, sales analysis and data mining involved in serious micro-segmenting, small businesses can do the initial legwork themselves just by evaluating their customers’ traits and behaviors, and looking for patterns in clicks, abandoned carts, purchases, and returns.
The idea is to start broad and then narrow the category down to the lowest common denominator. For example, a jewelry company might segment customers like this:
Looking at this example, a company could create a marketing campaign for a very specific micro-segment. Perhaps a week before Mother’s Day, the jewelry business could launch a campaign advertising its “sterling silver charm bracelet for Mom”—geared to daughters who shop for their mother at the last minute.
Finally, how do you implement micro-segmentation?
Part of micro-segmented marketing is understanding the best way to reach the group that’s been chosen to target, including how and when they shop and how they prefer to be contacted. In the profile above, an analysis of collected data might show that this customer segment tends to shop on their tablet at 9 p.m., or that they check emails on their smartphones between 3 p.m. and 4 p.m. while waiting to pick up their kids at school.
Businesses can use the information about customer behavior patterns to not only create a micro-segmented target persona but also determine how best to reach them. Here are some automation features to consider, including examples of how they might work with a particular micro-segment.
1. In-app Messages
For companies with their own apps, in-app messaging can be highly effective when combined with micro-segmenting. Because the customer has to be in the app at the time the message is sent, this works best for businesses with heavy app use. Music app Beats does a good job of micro-segmenting its customers based on their listening habits then uses its in-app messaging to create a “Just for You” playlist.
Just imagine how Target markets to a variety of micro-segments on its ultra-successful Cartwheel app! Think first-time moms who buy organic and sustainable products as often as they can, looking for maternity clothes, comfortable shoes, and cute pink items to add to their baby registry. Bullseye.
2. Push notifications
Unlike in-app messages, which require the user to be in the app at the time of receipt, push notifications only require that customers be opted in. According to Kahuna, there’s an 85% opt-in rate for Android users, likely because it’s the default setting. This is more of a challenge for companies with iPhone users, who only have a 50 percent opt-in rate, likely because they have to opt in for every app individually.
Micro-segmenting can help maximize marketing efforts on these more limited contact methods and cut down on irrelevant messages that may come across as intrusive. Common push notifications using micro-segmenting include software upgrade notifications, new microbrews on tap and alerts for events or sales.
Thanks to geo-location services and social media check-ins on Foursquare and Facebook, businesses can now set up push notifications triggered when a specific target persona gets near a brick-and-mortar store like Starbucks does when espresso-drinkers are within walking distance.
Just like in real estate, location matters. In a 2014 survey, Infosys found that 71% of consumers would be more likely to purchase from a retailer again if they were offered incentives based on location.
Micro-segmenting based on location makes particularly good sense for the on-site consumption food and beverage industry. And while other traits like gender, age, income and lifestyle obviously play a role, the location may be the biggest contributor to food and beverage mobile app push notifications getting a 25% click-through rate.
3. Text messages
With more than 80% of adults in the U.S. texting, the Pew Research Center reports that it’s now the top use for cell phones, with calls coming in at No. 6. That’s good news for businesses because micro-segmenting can increase the chance of reaching the right people via their favorite contact method—even on a limited marketing budget.
Consider how nail salons, massage therapists, hair stylists and other similar service-related businesses could fill slow times by sending out text messages to female clients with disposable income who live within a certain radius and are retired, non-working without young children at home, or who own a home-based business and therefore have some flexibility in their schedules.
Email marketing still offers the best return on investment when compared to other forms of marketing, according to Campaign Monitor. It’s also a very shareable form of marketing, which can increase a business’ reach—and results—exponentially.
Take this email from Postmates, a 24/7 on-demand delivery service. Besides the perfect timing—the email was sent at 11:55 a.m.—the micro-segmenting created a precise target market that was just ripe for a lunch-related promotion. Think busy worker bees in San Francisco with eclectic tastes and a nonexistent lunch hour.
Here’s another example: a business seeking to boost juicer sales during the holidays could target the middle-class, panicked husbands of health-conscious women who struggle to come up with a great Christmas gift idea for their wives. The email campaign includes a direct link to the juicer, guest checkout and free gift wrap. That’s a simple approach to garner the appreciation of a grateful micro-segment.
5. Web messages
Website visitors can be filtered and targeted based on micro-segmenting choices. Marketers can write short notifications that are only shown to certain groups of visitors, such as repeat visitors or traffic coming from Google searches. The Web messages can also be used to create surveys—again, given only to the chosen micro-segmented audience.
Lytics, a company providing intelligent user engagement for the Web, recognizes new visitors and greets them with the message below. The site displays different options based on micro-segmenting of inbound traffic.
Web messages can serve multiple purposes, helping businesses gather emails and data from surveys while personalizing the experience for the visitor. A makeup store’s e-commerce site could learn more about how its customers are finding the website, what they’re looking to buy, how old they are, where they live and what their skin tone is.
For example, a 60-year-old African American woman living in Washington state is most likely going to look for different foundation than a 22-year-old Caucasian woman living in Maine. With that information in hand, the company can better meet each woman’s needs and customize the messaging on the website each time she returns.
Let’s say the makeup company has a potential customer who lives in Colorado, loves to ski and has two kids in college. The micro-segment she’s in is dealing with a very dry climate, a lot of sun exposure and probably some early signs of aging skin. If she visits a website in January, a pop-up message asking, “Would you like to check out our line of moisturizers with sunscreen before your next ski trip?” would make perfect sense.
Micromarketing campaigns may take a little more legwork on the front end, but once businesses understand micro-segmenting, there’s little need for mass email blasts.