The Importance of Segmentation in Targeted Marketing

Stephen DeAngelis

August 19, 2016

I have no idea when consumer segmentation was first introduced as a targeted marketing tactic. I suspect it may have started in the apparel industry where the obvious differences between men and women made it sensible to create separate stores for each gender. Whenever and wherever it began (and for whatever reasons), customer segmentation has a long tradition in the marketing arena. Dr. Chuck Hermans, a professor at Missouri State University, notes, “Not everyone is interested in, nor a good target for, every product or service offering. Marketing communications should be tailored to a particular audience.”[1] At the most basic level, targeted marketing simply makes sense. Hermans continues:

“Segmentation is the process of dividing the marketplace into potential consumer sub-groups based on demographic, socio-economic, geographic and behavioral characteristics. Some segments are more valuable to a business than others. This presents an opportunity for a business to first exclude non-customers, and then rank the remaining sub-groups of interest from best to worst. … While segmentation divides the market, targeting is, in turn, a matching of a specific segment to a specific product or service offering. A target group is made up of possible customers for a product, product line or service offering.”

In the age of big data, customer segmentation has been taken to whole new level. “Audiences are getting more segmented,” reports Kimberlee Morrison (@KymleeIsAwesome), “and advertisers need to be reactive to changes in the market.”[2] How much more segmented has targeted marketing become? Murali Nadarajah, Head of Big Data and Analytics for Xchanging, believes big data and cognitive computing systems can provide insights so granular that he calls it creating a “segment of one.”[3] Derek Newton (@DerekTNG) adds, “The future of marketing is intensely personal — marketing targeted not just to you, but to where you are and about what you’re doing right this very moment.”[4] The goal of targeted marketing has always been to get the right message in front of the right audience at the right time in hopes of persuading some of them to make a purchase decision. That’s why in print journalism ads aimed at men were found in the sports section and ads aimed at women were located in the society section. A similar phenomenon occurred when radio and television came along.

 

It’s no secret that ad revenue is falling in traditional marketing arenas while Google just announced record profits from advertising. There are numerous reasons that ad money is shifting from traditional print and broadcast media outlets to new social media outlets. Two of the most significant reasons, however, are mobile technology and improved segmentation powered by big data analytics. Jack Nicas (@jacknicas) reports, “The rise of smartphones has put internet-connected computers in the pockets of more than a billion people world-wide, leading to a surge in internet use — and a major boost to the bottom lines of tech giants such as Google and Facebook Inc. As consumers use the companies’ wildly popular free services more, Google and Facebook can sell more ads to companies trying to reach those users.”[5] Marketers realize, however, that targeting all smartphone users doesn’t make sense either logically or economically. Targeted marketing campaigns are reaching out to specific segments at specific times and, in some cases, in specific locations. Nicas adds, “Google said it is now reaping the rewards from the shift to mobile because companies are increasingly willing to advertise on smartphones. That is in part because Google is adding new mobile ad formats and better measuring the efficacy of such ads, including tracking users’ locations to see if they visit a physical store after seeing an ad for the store on their phones, Google said. … Mobile ads are generally less expensive than desktop ads, so as the number of mobile ads has increased, advertisers’ overall cost per click has declined.”

 

Yohai Sabag, Chief Data Scientist at Optimove, writes that his company wanted to explore the assumptions behind targeted marketing and segmentation; namely: “The more granular a segmentation, the more the offer can be tailored to customers’ specific needs and wants, and therefore higher engagement would be achieved.”[6] To test that assumption, they analyzed 30 million customers and 2,000 campaigns. Their conclusion: “Segmentation does stand up to its promise. … As you cater to smaller and smaller segments, the average uplift you can expect to gain from your total customer base grows.” In order to achieve the kind of granularity Sabag discusses, you need to employ advanced analytic techniques and apply them in real-time. Only artificial intelligence systems are capable of achieving those kinds of results. Sabag concludes, “Granularity has the potential to make customers deliriously happy. And as our study shows, embracing the diversity of human beings by speaking to each according to their own tastes — even when they are unarticulated — is a surefire way to speak to their hearts and to affect your bottom line.”

 

Targeted marketing campaigns must weigh a lot of variables to be most effective. Morrison explains, “Advertisers have started to spend more time tailoring content to their audiences, and they have also been increasing spending on such efforts. But basic demographic campaigns aren’t enough anymore; audiences want campaigns that target their interests as well.” Will Humphries (@JustCallMeWill), Head of Digital Marketing at Internal Results, adds, “Things get a bit more complicated when your customer base is spread across a wide range of geographic locations. You have to be more creative and strategic in your communication to optimize effectiveness and efficiency.”[7] He continues, “Location is only one of many factors to take into consideration when targeting potential clients. … Other methods you can use are Intent Data (individuals actively researching your products and services), Interaction Data (reaching individuals based on their interaction with your content), Cross-Device Targeting, Install Base Targeting (understand the technologies and products that are currently installed at a company), and Predictive Data, to name a few.”

 

Segmentation and targeted marketing are more than fellow travelers. They enjoy a symbiotic relationship. Unbounce notes, “Segmenting your campaign allows you to send each group to their own dedicated landing page so that you can target your offer, determine which segments are performing best and optimize accordingly. … Try to appeal to everyone and you’ll appeal to no one. Segmentation helps you create targeted offers that convert.”[8] Morrison concludes, “Marketers still seem to struggle with personalization and segmentation, but it’s the way forward. Connecting with a core audience will increase engagement a lot more than simply pushing out more ad units. If the content is not well targeted, users won’t click through. Identifying the correct audience, and serving them quality ads, should become central to any marketing campaign.”

 

Footnotes
[1] Chuck Hermans, “Divide and Conquer: Segmentation, targeting and positioning,” Springfield News-Leader, 22 May 2016.
[2] Kimberlee Morrison, “Demographic Targeting Is Becoming Less Effective on Social,” Social Times, 15 March 2016.
[3] Murali Nadarajah, “Machine Learning and the Great Data Analytics Shake-Up,”Information Management, 2 March 2016.
[4] Derek Newton, “Coming Soon: Marketing Targeted Only at You,” Entrepreneur, 9 May 2016.
[5] Jack Nicas, “Google Profits Surge on Strong Ad Demand,” The Wall Street Journal, 28 July 2016.
[6] Yohai Sabag, “Understanding the Power of Segmentation for Marketing Campaigns,” MarketingProfs, 19 July 2016.
[7] Will Humphries, “Challenges in Geo-Targeting Market Segments,” Business 2 Community, 19 July 2016.
[8] “Segmentation,” Unbounce.