Segmentation Analysis: The First Step To Surviving Increased Competition

Last week, I presented some recent survey results compiled by InternetRetailer.com and eMarketer (Better than average?) that may help online retailers gauge how they compare to the “typical” online retailer. As part of my blog entry, I talked about increased competition in email marketing and the challenge of staying in front of customers as the inbox gets more crowded. InternetRetailer.com just followed up on their survey with an article detailing the steps email marketers should take to better reach their customers. I think they make some really good points, so wanted to share the article (Survey: Too much and not enough) and talk about their findings.

First, through, a quote from the article that illustrates the problem:

“Retailers are trying to keep up with the competition-and as the competition sends out more e-mails, they send out more e-mails,” says Julie M. Katz, an analyst who specializes in e-mail marketing at Forrester Research. “Marketers feel like if they do not send an e-mail out on a Tuesday but their competitors do, they are missing out on business. So now they feel they need to send an e-mail out every day of the week to touch their customers before their competitors do.”

So what are marketers supposed to do? Well, the article gives three suggestions (segmentation, testing, and customer review inclusion); however, both testing and review inclusion depend on having done some kind of segmentation analysis first.  The benefit of using segmentation is obvious: by dividing your customers into manageable groups you can better market products they’re interested in. Many marketers understand this, but have a hard time getting beyond the perceived complexity in implementing some kind of segmentation scheme. The truth is segmentation doesn’t have to be complex to improve results. Simple analysis like dividing customers into the typical recency, frequency, and monetary value buckets can be a starting point to find groups that are easier to market it to.

The nice part is that as you improve your segmentation and targeting, you also improve your open and conversion rates. For substantial lift, you can mix demographic data (either that which you’re collecting or imputed from zip code data) into the transactional mix, to really narrow in on the distinct profile types of customers in your database and what products each group is most likely to buy next. The InternetRetailer.com article makes it clear that customers have come to expect targeting. I, for one, have marked several retailers’ emails as junk if they don’t ever pertain to me. For those retailers that keep me interested, although I may not buy every week, I do look forward to and open their emails religiously.

What continues to amaze me is that almost 44% of companies are not doing any kind of segmentation at all. In my mind, this means that they either have no formalized email marketing or they are batch blasting all of their customers with every email. It doesn’t take How do you lose customers? By sending them the wrong message over and over again (for more info see Timing and targeting: why you shouldn’t blast all your customers with every offer). Even if they don’t opt out, there is a high probability you’ll end up in the junk mail folder. As for those of you weighing the benefits of segmentation analysis versus sales and promotion emails, let me first warn you that this is not a good idea, and then point you back to my colleague Matt Thomson’s post from yesterday on retail marketing strategy. Matt details the problems with the typical “free shipping” email that we tend to see during the holiday season.

The bottom line, as the InternetRetailer.com article points out, is segmentation analysis works and those retailers that are not doing it now will simply not be around in the near future.

Tags: customer segmentation, Personalized Email, segmentation analysis, Targeted Email

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This entry was posted on Tuesday, October 21st, 2008 at 12:51 pm and is filed under Customer Segmentation, Personalized Email, Targeted Email. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.