Digital Segmentation

Basic principles of effective customer segmentation

October 2012
Introduction

This paper is an introduction to customer segmentation.

It goes through the basics of segmentation, explaining
what it is, why you should use segmentation in your digital
marketing and in the wider context of multi-channel
marketing. It will describe the types of segmentation you can
use with your data and some of the practical applications of
segmenting your audiences.

2
What is segmentation?

Segmentation is the process of dividing your database into groups based

on a single or multiple criteria. As individuals your customers have many
characteristics that define them; segmentation allows you to group these people
by similar characteristics. This could be as simple as separating your male and
female customers; or it could be more complicated, such as using search data
to isolate a group of people who specifically express an interest in your product.
Grouping your customers into different segments gives you greater flexibility with
your digital marketing and allows you to target your most profitable customers
effectively.

Why segment?
The core goal of any marketing campaign or activity is to be relevant. If you can
deliver the right message, to the right people at the right time then your chance
of converting a sale will improve significantly. Conversely, sending the wrong
message will at best irritate your customers and at worst turn them away from
your brand in search of something else.

As Internet usage and penetration continues to grow, online experiences are

becoming more sophisticated. In turn, customers are demanding more from
their user experiences not just online but across all channels. Customers expect
a seamless and consistent user experience regardless of the way they interact
with a brand; companies that are unable to deliver on those ever-expanding
expectations are quickly left behind by the competition. As customers become
more savvy, more fickle and more demanding, understanding exactly who your
audience is and how you can speak to them as a marketer has never been more
important.

Segmentation allows you to be more relevant by understanding the core

characteristics and behaviours of your customers and then delivering marketing
messages which are likely to resonate with them. Increased relevance is going
to lead to higher conversion rates which ultimately will lead to more sales and
greater contribution to your company’s bottom line.

As customers become more savvy, more fickle and

more demanding, understanding exactly who your
audience is and how you can speak to them as a
marketer has never been more important.

3
Types of segmentation

There are no limits to the ways in which you can segment your customers, it is
all a matter of how niche you want each segment to be. Broadly speaking though
there are four key types of data that can be used to segment your customers:
Demographics, Lifestyle, Behaviour and Value.

Value Demographics
Transaction Age, sex
data, product
purchases

Behaviour Lifestyle
Online
searches, Geographic
Facebook likes, location, net
emails opened household
income,
Mosaic
type

• Demographics - these are the characteristics of a person which the

individual generally has no control over, including their age and sex.

• Lifestyle - these are the characteristics an individual can influence. These

include geographic location, net household income, the number of holidays
they take a year and so on.

• Behaviour - identifies customer intentions through their observed

behaviours. This could be a propensity to search for a particular product, how
often they check their email or the brands they ‘like’ on Facebook.

• Value - looks at the worth of a customer. This often uses previous

transactional data to understand products purchased, lifetime value, how
frequently the customer purchases and ultimately how profitable they are to
your business.

4
Pitfalls of segmentation

Dirty data – the success of any segmentation you do will ultimately depend on
how well maintained your database is. Cleansing duplicate records and keeping
your data up to date is essential to maintain relevance and accuracy and avoids
the embarrassment of sending two different messages to the same recipient.

Clear and consistent definitions – accurate segmentation is only possible if

the characteristics you use to define a segment are clearly laid out and applied
consistently. What does a regular customer look like to your organisation? Is
it someone who shops once a week or once a month? A lack of rigour in your
segmentation will lead to inconsistent results and poor returns.

Survival of the fittest – segmentation is a process of dividing your customers into

different groups. There is a temptation in this process to abandon some segments to
focus solely on the most profitable groups. Segmentation should not be seen as an
evolutionary system of ‘survival of the fittest customers’ rather it is a way to understand
your customers better and how to maximise returns from each of those segments.

Segmentation check list

Regardless of the aims of your segmentation whether to identify loyal, profitable
or prospective customers each of your segments should encompass the
following:

1. Have similar attributes - the whole point of the segment is that you can
target groups of similar people who are likely to respond to an appropriate
marketing message.

2. Be suitably different from other segments - each group must have something
which separates it from the others. If groups are too similar the effect of
targeted messaging will be marginal.

3. Be large enough to be viable - there is no point in having a highly bespoke

segment that includes only a handful of individuals. Each new segment must
be able to create significant additional value to your business.

4. Be reachable and targetable - too often segments are described in fluffy

descriptive language without any form of substance behind them. What does
it mean to be ‘fun-loving and outgoing’ and how can you target these types of
people?

5. Be actionable - there has to be a product or service that can be sold to this

segment otherwise they are not going to make the business any money.

5
What makes Experian segmentation unique?

Experian has over 30 years of experience working as a data provider and has
redefined excellence in segmentation. Experian Mosaic is the market leading
segmentation product with the most comprehensive data set in the world. Mosaic
divides the UK population into 15 core groups and 67 types which sit within
those groups. If you want to understand your customers’ online and offline habits
Mosaic can show you what newspapers they read, how many holidays a year they
take and what cars they drive. We can benchmark your audience against any one
of 450 different data variables to give you the richest segmentation data available
on the market.

One of the key benefits of using Experian is the wealth of data assets we have
available. Within Experian Marketing Services we have other products which
we can overlay Mosaic data to segment your audiences across all channels.
Using Experian Hitwise data for example it’s possible to segment online visits
to websites by Mosaic groups or identify how different Mosaic types search
for a specific product. With Experian Cheetahmail we can segment your email
database by Mosaic group and show you what types of people are most likely
to respond to a particular email offer. Mosaic is the common currency within
segmentation across Experian products which gives you a joined up holistic
approach to audience segmentation.

Experian data is all about helping you Know, Get and Keep your customers.
Segmentation will help you know who your customers are by closely analysing
their online and offline preferences and behaviours. It will then help you get more
of those customers by identifying the up and coming acquisition channels they
are most likely to respond to. Finally, once acquired segmentation can help you
keep those customers that are so valuable to you by showing you what they want
right now and anticipating what they will want in the future. Know, Get, Keep can
be applied across all data channels and will help to optimise your multi-channel
marketing, providing your customers with that seamless consistent experience
that they demand.

6
Five steps to implementing segmentation

Now that we have understood what segmentation is, the different types of
segmenting available and the reasons why segmentation is important, it’s time
to go about implementing a segmentation process. There are five key stages to
successfully implementing a segmentation system:

1. Set Clear Goals

Goal setting is a vital first step to implementing your segmentation. What are the objectives
of the business? Do you want to indentify cross-sell opportunities, increase your conversion
rate or improve the average order value of your current customers? It may be that your
business has multiple objectives it wants to achieve through segmentation but these need
to be agreed and prioritised properly. Having clear goals will determine everything that
follows in your approach to segmentation so is worth spending time getting it right.

2. Gather
Data is at the heart of all good segmentation processes so it is essential to gather as much
data as you can on your customers. Ideally this should be a combination of your own
internal data sources and external market research. Bringing together data from multiple
sources adds to the layers of detail you can drill down to with your segmentation and
creates a much fuller picture of what your customers look like in your chosen segments.

3. Analyse
Once you’ve set your goals and gathered your data it’s time to analyse what you’ve got and
identify the key variables that are going to define your segments. This can be quite simple
and led by your goals. For example if your goal is to target young people who you want to
nurture as long term customers, then grouping your segments by age and targeting people
between 18-25 is a strong start. On the other hand if your goal is to increase the average
order value then you might want to analyse those customers that visit your website more
than three times a month. What are the behaviours of this segment that you could identify
to inform your digital marketing strategy to encourage more sales?

4. Test
Segmentation strategies need to be tested to prove the worth of each segment and to refine
the digital strategy as time goes on. The more you test the more data you have available to
make informed decisions on improving your segmentation and your marketing campaigns.
Proving the benefit of incremental sales generated by using a good segmentation process
shows that all important ROI.

5. Improve
Using the results of your testing you can change your segmentation and strategy to deliver
the optimum results. Segmentation is not a static process, rather it is one that is continually
evolving. It’s important that you go through a thorough review of your segmentation
regularly to make sure it is working to its peak efficiency. Have your goals changed? Is your
database cleansed and up to date? Has the market focus shifted recently? These are all
questions you need to bear in mind to improve your segmentation and constantly refine it.

7
The future of segmentation

In this paper we have talked about the basics of segmentation, the whats, whys
and hows of understanding your customers. But what does the future hold for
segmentation? Companies are going to find themselves continually squeezed
in an ever more competitive landscape. Basic age and gender differentiation
although useful as a foundation for companies that are new to segmentation are
not going to be enough to stay ahead of the competition. As markets become
more saturated, the need for smarter and more advanced segmentation will
become more of an imperative and data will be at the heart of this evolution.
Great data that will help you Know, Get and Keep your customers will be the
deciding factor that gives you the edge over the competition.

The next level of segmentation will be understanding audiences on a more

granular level and combining data sets to be able to target niche groups more
effectively. Experian is already leading the next wave of segmentation innovation
with a state of the art segmentation tool that allows you to create bespoke
audiences based on virtually any criteria and can then dive into the online habits
and behaviours of those audiences.

With greater insight into customers behaviours both online and offline, marketers
will have the ability to create accurate forecasts and predictive modelling for
their campaigns. With the combination of seasonal trend data and granular
segmentation the right customers will be targeted with a perfectly tailored
message at the right time. A deep understanding of the travel market for example
might lead to sending an email to affluent luxury travellers on a Sunday with
an offer for a weekend break to Rome, whereas an entirely different email can
be sent on a Monday to a family traveller for a package holiday to Tenerife.
Each segment receives the marketing message that is most likely to resonate
with them. The result is better targeted, more personalised and more relevant
campaigns which will lead to higher conversions and ultimately a greater ROI.

As markets become more saturated, the need for

smarter and more advanced segmentation will become
more of an imperative and data will be at the heart of
this evolution...

...The next level of segmentation will be understanding

audiences on a more granular level and combining data
sets to be able to target niche groups more effectively.

8
Appendix

To find out more about segmentation and how Experian Marketing Services can
help you, please contact us using the details below.

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About Experian Marketing Services

Experian Marketing Services delivers best-in-breed customer data and insight,
digital marketing technologies and data management services into multiple
regions around the globe. By helping marketers more effectively target and
engage their best customers with meaningful communications across both
traditional and digital media, Experian Marketing Services enables organisations
to encourage brand advocacy while creating measurable return on marketing
investment.

For more information, visit www.experian.co.uk/marketingservices

About Experian
Experian is the leading global information services company, providing data
and analytical tools to clients in more than 80 countries. The company helps
businesses to manage credit risk, prevent fraud, target marketing offers and
automate decision making. Experian also helps individuals to check their credit
report and credit score, and protect against identity theft.

Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent
of the FTSE 100 index. Total revenue for the year ended 31 March 2011 was US$4.2
billion. Experian employs approximately 15,000 people in 41 countries and has
its corporate headquarters in Dublin, Ireland, with operational headquarters in
Nottingham, UK; California, US; and São Paulo, Brazil.

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