Abstract
- Privacy and personalization. Regulation and privacy concerns will shape the future of personalized marketing strategies.
- Technology drives segmentation. New technologies enhance customer segmentation with real-time data and predictive analytics.
- Values influence loyalty. Social and environmental values increasingly influence customer segmentation and brand loyalty.
In the 2002 film Minority Report, the main character, played by Tom Cruise, undergoes an eye transplant. As you run through the mall shopping in 2054, you will be bombarded with ads and personalized promotions based on your eye scans.
For marketing and customer experience research professionals, this kind of true personalization is impressive. We're not even halfway through 2054, and it doesn't seem like we're heading toward that kind of individualization. However, customer segmentation appears to be at a tipping point.
Privacy laws challenge global marketers
Data privacy and protection regulations continue to create obstacles for marketers when considering customer segmentation. First, there was the General Data Protection Regulation (GDPR), which covers the European Union, followed by the California Consumer Privacy Act of 2018 (CCPA), which was passed in one state. However, these laws affect everyone doing business in those areas. Efforts exist to increase transparency in how data is processed, stored, and shared, but legal jargon often leaves you scrolling through pages of text to read the terms and conditions.
A further impediment to data-driven segmentation is the need to protect customer information. Even within the same company, data is segregated to ensure that details that could be linked to an individual are not exposed.
Related article: Gain customer insights with data segmentation
Transform customer segmentation with a data-driven approach
Traditional segmentation uses zip codes to infer income, family status, and household size. Having access to more demographic information such as age, gender, education, and income has allowed us to better target our potential audience. However, this approach did not allow for truly personalized offers. As more data becomes available and computing power increases, data-driven approaches can now analyze large amounts of data and identify patterns at a deeper level than traditional segmentation techniques. .
Related article: 5 ways data-driven insights are reshaping customer segmentation
Retail analytics raises serious privacy concerns
A little more than a decade ago, such an analysis by a retailer led a father to discover that his teenage daughter was pregnant because of a coupon in his mailbox. This incident arose from a deep understanding of the mix of products purchased based on household identification, assuming a pregnant woman and distributing targeted offers to her. The realization that retailers know a lot about homes has raised serious privacy concerns, leading retailers to include random items in their offers to make them seem less intrusive.
Related article: When and how to use email segmentation and personalization
Personalization and privacy in customer segmentation
However, there is a growing feeling that companies must provide personalized offers without knowing more about their customers' lives and habits. This seemingly contradictory set of criteria—customers demanding privacy while receiving increasingly personalized offers—has increased the need to rethink customer segmentation.
Related article: Personalization vs. Segmentation: What’s the difference between them and why it matters?
Technology enhances customer value and segmentation
It's clear that companies can benefit from understanding customer lifetime value. You can assign each customer to a segment based on past and potential future spending with your company or specific product categories without exposing individual customer data. This approach will be further enhanced by several emerging trends that leverage technology.
1. Omnichannel segmentation: This goes beyond just integrating in-store and online purchases. It is a holistic approach that includes social media channels and mobile applications to gather more information about customers' daily behavior and inform businesses about their needs. For example, if you visit a website about a product and then switch to a social media site, you'll see an offer for the same product you just searched for. Or visit a retail store and receive incentivized offers on your mobile app.
2. Real-time segmentation: By updating customer information “on the fly,” businesses can respond to immediate changes in behavior and interactions. Traditionally, printing companies set repurchase reminders based on the expected ink wear time. When the device is connected, these reminders are based on the actual amount of ink remaining in the cartridge. Reminders can also be delivered via email or sent to other connected devices to sound an alert. This timely engagement increases sales opportunities and improves brand loyalty.
3. Predictive analytics and AI: Artificial intelligence is revolutionizing the industry by leveraging past data to create predictive models of future customer needs, similar to previous examples in retail. However, when these models are combined with real-time updates, personalizing offers to customers can become even more timely. For example, instead of waiting for ink cartridges to run low, usage increases over time to predict the exact date when new ink is needed and avoid “ink downtime.” You can encourage them to buy at the right time.
New tools give you more options for customer segmentation
I remember the first time I worked on customer segmentation. There were 64 different household types commonly used by different retailers, each with its own name. With the advent of new segmentation tools, each household could become its own segment, resulting in potentially thousands of segments with even more subsegments. All of this complexity comes before you create customer journey maps based on these segments and personas.
Feedback enhances mass customer segmentation
There are many considerations that influence customer segmentation. An important aspect that is often overlooked by high-volume brands is integrating customer experience feedback. Sales data typically comes from customer relationship management (CRM) tools and is often linked directly to customer experience responses, but this type of connection must also be established for high volume transactions. Knowing whether customers are promoters or detractors helps each location understand the root causes of dissatisfaction among different segments.
Additionally, having access to this customer information can help field employees resolve specific issues. This data can also reveal customers' intended behavior (as opposed to documented behavior), affinity with competitors, and needs beyond their current offering.
Deepen segmentation with psychological insights
In addition to the aforementioned strategies, it is important to integrate psychographic and contextual segmentation to create empathy at scale within each customer segment. This approach goes beyond simply knowing a shopper's birthday. This includes understanding additional purchasing opportunities and recognizing when customers need additional support, such as choosing the “right” birthday present for a teenager in the family. In the medical field, questions about mental health are likely to become a standard part of hospital visits, aides observed. The move is aimed at segmenting customers for both immediate and ongoing care and tailoring care to each individual's specific needs and circumstances.
Sustainability will shape future customer segmentation
Finally, there will be increased awareness of the role of social and environmental consciousness in customer segmentation. It's not just about incorporating sustainability. It's also about understanding the key values shared between a brand and its customers. This deeper connection can influence purchasing decisions and brand loyalty, as consumers increasingly align with companies that reflect their ethical and environmental priorities.
Brands need to update their segmentation strategies
As the next evolution of customer segmentation unfolds, it is imperative that brands regularly review and update their segmentations, customer personas, and associated customer journey maps. These updates should reflect rapid changes over supported models. This is especially important as evolving privacy expectations and the desire for greater levels of personalization challenge traditional customer segmentation paradigms.
