Targeted Marketing: How Much Segmenting is Too Much?

Stephen DeAngelis

November 3, 2016

When Procter & Gamble (P&G) announced it was going to do less targeted marketing on Facebook, it was big news. For example, Ian Leslie (@mrianleslie) wrote, “Procter & Gamble, the world’s biggest marketer, recently announced a change in the way it buys advertising on Facebook. It is cutting its spend on highly targeted ads and is increasing spend on ads that address much larger swaths of the potential audiences for its brands, which include Tide, Pampers and Gillette.”[1] P&G’s action seemed to fly in the face of current marketing philosophies that stress the importance of personalization. Elyse Dupre (@DMNreporter) sums up this philosophy by stating, “First impressions are already important. But in today’s customer-centric world, every impression counts. … Creating experiences that are tailored to customers’ needs and preferences has long been the Holy Grail for marketers.”[2] Proponents of targeted marketing as well as proponents of broader advertising are both making sound arguments about their preferred approach; which indicates to me that a hybrid approach is probably the right one.

 

The Case for Targeted Marketing

 

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.”[3] You have to admit that the good professor makes sense. Barry Smith (@BS_IkanoInsight), Business Director for Partners, Sales & Marketing at IKANO Insight, says the same thing, but in a different way. “Dividing your customers into groups,” he writes, “is vital to increasing the success of any form of digital marketing. If you don’t know who you are talking to, it is unlikely you will get much of a response. Who are your potential customers? How many sub-groups should you divide them into? How do these groups differ?”[4] Those important questions deserving of serious answers. Money spent on advertising that reaches an uninterested audience is wasted money. That’s why targeted marketing and personalization has received more and more attention. Smith adds:

“To achieve the desired impact, customer segmentation should take into account a variety of elements, including channel preference, previous behaviours and a variety of segmentation models, and should blend both behavioural and statistical data. It needs to be much more sophisticated than simply saying ‘show me all customers who don’t own x product.’”

Brendan Witcher (@BrendanWitcher), a principal analyst for Forrester Research, told Leslie, “[Customers] want to know you get them. They want to know that it’s not just another email from another nameless, faceless brand out there. It’s from someone who gets me.” Personalization is possible because companies now gather so much data about their customers they have a much better idea of what they want. Witcher insists companies can and should abandon segmentation in favor of personalization — or, even better, individualization. He told Leslie, “Organizations are now in an era where they don’t need to rely on segmentation, except in situations where they know very little about the customer.” Leslie explains, “As the evolution [from segmentation to personalization] continues, Witcher says marketers now need to rely on individualization. Forrester defines this business strategy as ‘experiences that use customer data to structure interaction, functionality, and content around the needs of individual customers.’”

 

How personal can companies get? 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.”[5] So the question remains: How much segmentation is too much?

 

The Case for Broader Advertising

 

In explaining why P&G decided to reduce its targeted marketing efforts on Facebook, Marc Pritchard, the company’s global brand building officer, stated, “We targeted too much, and we went too narrow. And now we’re looking at: What is the best way to get the most reach but also the right precision.”[6] Leslie observes, “Making perfectly targeted ads appears to be much harder than it sounds. Most digital ads are clumsy and annoying, and easily ignorable.” He continues:

“Information about consumers is not the same as insight into human beings. The more fundamental problem with micro-targeting is that for big brands, advertising has never really been about messages, even if brand owners never quite realised it. It is about the creation of shared memories, triggered at the point of purchase. Think about some of the great brands: Nike, Apple, and yes, Pampers. If you buy them it is because you know millions of others do, and because they seem to stand for something that, far from being unique to you, is common to all of us: achievement, creativity, nurturing. The broader these brands go, the better they do.”

To put it another way, you never know when somebody (current customer or not) is going to need a product or service your company provides. If they are not in any of the segments your company has targeted, they will never know about your product or service. That’s why broader brand advertising has been successful in the past. The Mad Men of advertising got some things right. Sharon Terlep (@sharonterlep) and Deepa Seetharaman (@dseetharaman) report, “Over the past year some marketers, specifically consumer product companies, have discovered they need to go ‘much more broad’ with their advertising on social media sites such as Facebook, said James Douglas, executive director of social-media agency Society, which is owned by Interpublic Group. Mr. Douglas said case studies show that companies can receive a bigger sales increase if they reach a more significant portion of a platform’s overall audience.”[7]

 

Every company wants to get the best return on investment it can on its advertising spend. Sometimes that metaphorically means trying to hit the barn door and sometimes it means trying to hit the whole barn. Peter Daboll, Chief Executive Officer of Ace Metrix, told Terlep and Seetharaman, “If you could run an ad and reach a million people or run a targeted ad to reach 5,000, you have to have pretty impressive returns on that 5,000 to make it worth it.”

 

Breaching the Gap between Broad and Targeted Marketing

 

One way advanced analytics tries to breach the gap between targeted marketing is through behavioral data. Using advanced algorithms companies can determine, in the moment, when a customer may be in a buying mood and what they are looking to purchase. Those insights can be used to present consumers with appropriate offers when they are most likely to make a purchase. Janet Choi (@lethargarian) writes, “There are many different types of behavioral data, based on everything from page views, events and app actions, and interactions with your previous messages. Combine that with dynamically updated customer attribute data and you can get super targeted. … Your challenge as a marketer should be thinking about ways to reach exactly who you need to influence behavior, not blasting out generic offers.”[8] She adds, “Behavioral data gives us an opportunity to connect with real people, improve their experience and provide value, have a conversation, and make a meaningful difference in how they understand and view your brand.”

 

Summary

 

People will never buy your products or services if they don’t know you exist. That’s why narrowing your targeted marketing efforts too narrowly can mean missed opportunities. On the other hand, dwindling attention spans and intensifying digital noise means that messages deemed irrelevant are wasted messages. P&G, like many other companies, is trying to find the right balance between broad and targeted marketing.

 

Footnotes
[1] Ian Leslie, “It does not pay for advertisers to narrow their targets too much,” Financial Times, 11 September 2016.
[2] Elyse Dupre, “Stop Segmenting; Start Individualizing,” DMN, 19 September 2016.
[3] Chuck Hermans, “Divide and Conquer: Segmentation, targeting and positioning,”Springfield News-Leader, 22 May 2016.
[4] Barry Smith, “Customer Segmentation: The right approach for maximum ROI,” Fourth Source, 13 September 2016.
[5] Murali Nadarajah, “Machine Learning and the Great Data Analytics Shake-Up,”Information Management, 2 March 2016.
[6] Sharon Terlep and Deepa Seetharaman, “P&G to Scale Back Targeted Facebook Ads.” The Wall Street Journal, 17 August 2016.
[7] Ibid.
[8] Janet Choi, “Embrace Behavioral Data for Super Targeted Marketing,” CMS Wire, 17 August 2016.