In theory, segmentation is the process of breaking down your user base or market into small groups to understand them better and create marketing strategies to engage with them and drive conversions.
But it’s a lot more than that.
Every business with a marketing manager creates segments - then why is it that some are more successful than the others?
The answer lies in how they chose to create user segments, and what they do after. Let's dig deeper into this with a use-case.
Use-case: Segmenting users of a niche e-commerce website for effective communication
Let’s say that you run an e-commerce site based in Canada which exclusively sells men’s grooming products.
As a result, 95% of your users are males, based in Canada. The remaining 5% of users are females, a maximum of whom are also located within the same region and bought your product as a gift for someone they know.
Though there are several ways in which the marketers at this e-commerce app can segment their user base, let’s discuss the two, most apparent strategies:
Strategy 1: Segment all users based on purchase history
Disregard the 5% female user base, as it’s a relatively smaller segment and club them with the 95% male user base. Then segment the users based on their purchase history;
- Yet to make a purchase
- Made at least one purchase
Reason 1: It’s easier to focus on the mass rather than catering to the individual needs of your users.
Reason 2: Short-term gains from focussing your resources on the larger user base are a lot more significant and require less effort.
Strategy 2: Segment users by gender and lifecycle stages
Create two segments based on gender - Males and Females, acknowledging the varied needs and behaviour of each and engaging them with contextual messages.
This can be achieved by segmenting the two gender-based segments further by the stage they are at in your product’s lifecycle.
Reason 1: Because why would you treat a female user as a male? What are the chances that they will relate to your message when it’s directed at men?
The obvious answer is that they won’t, and will most likely churn because they know that the brand doesn’t care about them.
Looking at the two strategies, it seems evident that most marketers would go with Strategy 2 - but you will be surprised! Most marketers make the mistake of creating mass campaigns without realising the damage it can do to their brand’s image (and their conversion rates) in the long run.
Reason 2: Another problem with Strategy 1 is that you end up dehumanising your user base into mere financial entities, without acknowledging their needs and expectations from your product.
Hence, thoughtful segmentation is critical to ensure the success of your business and warrants a better definition;
Segmentation is the process of analysing users by their actions, demographics, spending patterns, interests, channel preferences and so on - bucketing them into differentiated groups with the aim of creating contextual communication/ experiences, nurturing a healthy brand relationship.
Thus, it’s safe to say that the growth of your business depends on how well you connect with your users. This then doubles back to how well you have understood their needs, behaviour and segmented them by the factors which impact your relationship with them, the most.
This is why micro-segmentation is so important to modern marketing practices.
Micro-segmentation is an advanced form of segmentation wherein a broad segment is broken down into particular groups so that contextual relevance (in communication) is the priority. The goal is to narrow down to small groups with the lowest common denominator.
Consumer first marketing is a must for retaining customers. Creating content which is highly relevant to each user is the key to cultivating a real brand-user connection. Micro-segments play a significant role in helping you achieve this.
In continuation of our use-case; here’s how one can create micro-segments to engage users of the niche e-commerce website with highly targeted campaigns:
Click to enlarge
Now imagine, if you had not created micro-segments and would have sent out a marketing campaign around No Shave November to your female buyers, how would they feel?
While the end goal of micro-segmentation is always to engage users with persuasive communication, pushing them to spend more or interact more - context, relevance, personalisation, timing is everything. Hence, once you have the right segments in place, you can start engaging users with tailored campaigns, driving them towards the desired goal.
With WebEngage, you can identify the most reachable channel (be it Push, In-app, SMS, Web Push, On-site Notification or Email) for a particular segment and create personalised campaigns accordingly!
Now that we understand what segments and micro-segments are, here’s a detailed explanation of the impact effective segmentation can have on your business:
1. Segmentation helps you understand your users, better
With millions of customers who do a considerable amount of activity on your website/app over their entire lifetime, it becomes impossible to draw concrete conclusions about their behaviour. But by filtering your users based on common grounds relevant to your business, you can understand them better and establish a clear direction in which your marketing efforts need to be aligned.
Use-case: Understanding the causes of a low conversion rate
Let's say that you are currently dealing with a lower than usual conversion rate. There could be several factors contributing to it. One of which could be - your entire user base consists of two groups;
Group 1: Users who organically motivated to make repeat purchases
Group 2: Users who did not engage with your product/service after their first purchase
Solution: Segment users by their purchase history
By segmenting your users base into two broad segments; Repeat Purchasers and Churning Users, you can understand the demographic differences between the two and craft your engagement strategies accordingly.
- Understanding the demographic differences
You could analyse who these Repeat Purchasers are - where they’re located, the devices they use, the campaigns through which you acquired them etc. For example, if you see that most of the users in this segment, unlike the Churning Users segment, are located in London and New York, perhaps this was a result of some highly effective offline PR campaigns you ran in these locations.
Similarly, for Churning Users you may find that you acquired these users specifically through a social media campaign advertising your annual discount sale. As a result, some made a purchase and never came back, while the rest simply browsed through your site and left. Perhaps a majority of them were deal shoppers and weren't motivated enough to visit your app/website again.
- Crafting your engagement strategy
You can also understand what you’re doing right to engage the Repeat Purchasers and how you could improve your engagements efforts with Churning Users. Hence, your campaigns can further be refined by breaking down Churning Users into micro-segments by their behaviour. A few parameters of segmentation could include;
- Products viewed
- Product categories searched for
- Items added to cart but not purchased yet and so on.
2. Segmentation makes it easier to create contextual communication
To create contextually personalised communication for each user, it’s important that you identify their interests and actions. But when dealing with a massive user base, it becomes impossible to do this at an individual level. This is where contextual segmentation comes in - the practice of segmenting users by their behavioural history.
Use-case: Contextual segmentation for favourable app reviews and ratings
Let's say that you have an e-commerce mobile app and occasionally nudge users for app store reviews and ratings. But broadly targeting active/ returning users for reviews makes it difficult to ensure that you'll receive a positive review each time.
Is there a better way to do this?
Solution: Segment users by behaviour exhibited in their last session
This way, when you're sending an in-app notification prompting users to rate and review your app, you can exclude users who experienced an app crash in their last session - including only those who have recently made a purchase. It's a highly effective segmentation strategy to ensure that one is contextually engaging only to those users who are more likely to give favourable ratings and reviews.
Similarly, you can also segment users based on the value of their last purchase to contextually engage with them. For example, you can create a segment of customers whose last purchase equals a certain amount, preferably higher than the average and was made more than two months ago. You can then use this segment to send a discount coupon for their next purchase, periodically.
3. Segmentation makes it easier to evaluate the impact of acquisition campaigns
You can also use segmentation as a tool to evaluate the effectiveness of a paid acquisition campaign.
Use-case: Tying high-intent users to source of acquisition/ location
For example, you can segment highly engaged users into a group and dig into their historical data to understand aspects like;
When were they acquired?
Which channel did you acquire a majority of these through?
Was it a paid campaign on a social media channel?
Or did most of these users find you organically?
Do they have any common behaviour, preferences, locations or likes?
Digging into these aspects via segmentation can give you a great perspective on how to structure your future acquisition campaigns and decide whether or not paid acquisition yields long-term results for your business.
4. Segmentation facilitates customer retention
Contextual personalisation is the key to customer retention. And the first step in achieving this is segmenting your customers by the RFM model - Recency, Frequency, Monetary Value.
Retention campaigns are primarily targeted at customers who have made one or more purchases over their lifetime. And using the RFM model, you can segment customers based on their value - a combination of the recency of purchase, the frequency at which they make a purchase, and the monetary value of their purchase(s).
Once you have scored customers based on the three parameters, you will end up with the following segments - each deserving a different customer retention strategy.
A customer who has transacted recently, does so frequently and makes purchases of a high monetary value
Onboard them for a loyalty program and retain them with exclusive offers
A customer who makes purchases of a high monetary value occasionally (includes high and low recency)
Opportunity to up-sell and cross-sell related products, occasionally
A customer who has transacted recently, and does so with a high frequency (includes high and low-value purchasers)
Onboard them for a referral program and gather feedback
High Value Churned Customer
A high lifetime value customer who is on the verge of abandoning you as they haven’t transacted in a long time
Send them a highly personalised reactivation campaign aimed at reviving the relationship
Low Value Churned Customer
A low lifetime value customer who hasn’t transacted in a long time and does so sporadically
Send them reactivation campaigns frequently
A recently acquired customer
(includes high and low-value purchasers)
Send them frequently, personalised communication for cross-selling related products
Now imagine, if you had not segmented your customer base and treated your VIP Customers and New Customers the same way - how would the former feel?
User segmentation based on the RFM model or even just one of the parameters, be it Recency, Frequency or Monetary value can have a big impact on your revenues when combined with a structured engagement strategy.
5. Correct segmentation leads to higher purchases
The fundamental idea of segmenting your user base is to create a single view of each customer which is guided by their behaviour, needs, and preferences. By investing in the creation of correct user segments, which are in line with your business goals and their needs, you can drive revenues in no time.
Use-case: How correct segmentation can increase conversions
Let’s consider that you run an e-commerce site that sells consumer electronics exclusively. This means that the frequency of purchase for each user will be considerably lower than the industry average as one doesn’t purchase electronics on a regular basis.
So, how do you drive repeat purchases?
Solution: Cross-sell products which are relevant to the last purchase made by a user
You can do this by creating broad segments like users who have purchased entertainment devices, household appliances etc. The idea is to reach out to users whose behaviour suggests that they may be shopping to set up a new household.
To identify these users, you can create a segment wherein a user, who has either bought/ added to cart - a product from both the categories is included. Then all you need to do is set up a triggered campaign to cross-sell related household products and appliances!
The biggest problem faced by businesses is understanding where to begin when segmenting their user base. There are numerous ways to slice the cake - you simply need to find the best way suited to your business needs.
Here are a few guidelines to help you out:
1. Define your goals
Before you set out to segment your user base, have a clear idea of your goals - what do you hope to achieve by creating user segments?
- Is it - driving new users to make their first purchase?
- Is it - pushing users to sign up for your product/ service?
- Is it - driving customer retention and repeat purchases?
User segmentation should give you focus so that you can develop contextual campaigns which guide a user’s actions towards the desired goal.
2. Create small segments
Segments are the guiding force behind your marketing campaigns - so the smaller the segment, higher are the chances that your message will resonate with the audience.
Because it has been refined to address the needs of the particular segment only! So don’t stop at creating broad segments, create mutually exclusive micro-segments which will help you communicate better with your users.
3. Create practical segments
While segmenting your user base into micro-segments, do keep in mind that the size of the segment is practical enough to engage. Over-segmenting users can sometimes lead to the creation of tiny groups of users based on small data points, which may not give clear insights. It becomes difficult to optimise marketing campaigns targeted at such small segments due to the lack of valuable insight and can add a significant load to your marketing budget.
4. Create highly differentiated segments
When creating user segments, make sure that users of each segment have discernibly different needs and behavioural patterns. If you are unable to distinguish segments by describing each with three adjectives, then it's highly likely that you have created segments whose needs are pretty much the same. We suggest you scrap them and start again.
5. Create segments based on the stages of your user lifecycle
There are several ways in which you can segment your user base, but the best way is to start with something which impacts your revenues directly - the user lifecycle. Creating segments based on the stages of your user lifecycle can help you push users towards conversion at each step, with relevant communication.