Personalization 101
A customer in the U.S. is shown an ad for a pair of sneakers that only ship within Canada.
Whoops!
Sometimes, it’s hard to get advertising right. Yet, in an increasingly competitive market, DTC brands must try to avoid slip-ups like this one at all costs. Why? Because our affinity for brands comes down to a human truth: we all want to be seen and understood. A brand that remembers and acknowledges our wants and needs gains our loyalty and trust.
The secret ingredient here is customer segmentation; grouping customers with shared characteristics in order to provide more personalized, targeted campaigns.
"There are great ways we can do segmentation that dives more into personal interests that go beyond what someone might be interested in buying," says Zach Stuck, founder of e-commerce growth marketing agency Homestead Studio.
Customer segmentation is the key to making your customers feel understood, while also increasing conversions.
Customer segmentation is an essential part of creating a DTC marketing strategy that meets customers where they are. Yet all too often, we see DTC brands either miss the full potential of customer segmentation, or fail to implement segmentation entirely.
In this article, we deep dive into what customer segmentation looks like, why it’s important, and how to avoid common mistakes while segmenting your ecommerce customers—so you can have DTC marketing that people Tweet about.
Customer segmentation is created based on demographics like age, gender, and location. They can also include interest-related segments based on the customer’s lifestyles and preferences. For instance, where do they get their information: ebooks? Emails? Social media?
Customers’ behavior patterns and actions play a critical role in segmentation. Are they repeat customers? Are they new to the site? Are they online window shoppers?
Take this hyper-personalized DTC ad shared by product marketer Emily Brooks as an example:
It worked because it’s super-personalized and targeted. For one, it included the names of the couple. Second, it had the number of years the couple was together. Finally, it said that the appearance of the image can be changed.
Customer segmentation takes the data from all of these customer profiles and creates specific segments that can then be used for targeted campaigns.
Customer segments differ from ‘personas’ in that they are more categorical. Whereas personas focus on specific details of a customer and are often based on interviews with real customers, customer segments are based more on quantitative data that is analyzed and distilled into groups.
Personas help you understand the unique motivations of your customers—customer segments ensure that your marketing campaigns reach the right person.
1. Decide on the defining characteristic of your customer segment. In this example, we see Operating System, Device Type, and Location. We also see that those categories are, respectively, Mac OS, Mobile and Tablet, and India and Singapore. Other examples include which browser the customer is using, or what day of the week you’re targeting.
2. Once you create the filters, you can apply them and the segmented results are shown. (Yes, as easy as that)
3. From here, you’re free to explore the data. If it’s a target market you want to use as a custom segment, you can save this filter as a new custom segment. (You can also change the filters at any time to create a new segment.)
For DTC marketers, the ‘Why’ behind customer segmentation really comes down to two major factors:
The e-commerce market is a crowded space—especially for DTC brands.
The pandemic accelerated e-commerce and DTC sales exponentially. In a 2021 article, McKinsey Associate Partner Jason Shangkuan wrote, “E-commerce sales penetration in the United States more than doubled to about 35 percent in 2020 from around 16 percent the previous year, the equivalent of roughly ten years of growth within a few months.”
Basically, if you’re not using customer segmentation to reach the right audience, someone else will.
Marketing efforts that are designed without the customer in mind can feel at best gimmicky, and at worst completely irrelevant and even tone-deaf. It’s imperative that modern marketing efforts of DTC brands are based on quality data, and designed specifically around thoughtful customer segments.
Customer segmentation isn’t just good for keeping you ahead of the competition; it’s good for your bottom line, too.
When customer segmentation is in action, the results are undeniable; marketers who send segmented campaigns gain up to 760% increases in revenue.
Through customer segmentation, brands see:
Improved customer retention and loyalty
Higher conversion rates
Lower customer acquisition costs
Marketing automation platforms, like Freshmarketer, allow you to segment the data using filters, so you gain deeper insight into your customer segments.
To stay ahead of competition and boost your conversion rate, customer segmentation should be the foundation for your messaging, advertising, and customer outreach.
Yet even after the segments are designed, several potential issues could limit the success of your campaigns. Here’s how to master customer segmentation and reach its full potential for your DTC marketing campaigns.
Just like Goldilocks, your customers have varied interests, behavior patterns, and needs. They want things to be just right or as they prefer. Segmentation can allow you to speak directly to your customers – what they care about.
But you need to find the sweet spot—when you don’t, you’ll end up with a segment that’s too broad or too narrow.
When you create a segment that’s too broad, your campaigns will lack personalization. For a lot of your customers, the messaging will be irrelevant. Your campaigns could fail as a result of this poor targeting. You also won’t be able to interpret data insights in a meaningful way, because the segment is so varied.
Defining a narrow segment can be equally problematic. You could end up targeting consumers that don’t really have buying power, or the number of customers in a narrow segment can be too few to make an impact on revenue, causing conversion numbers to drop. Even though the campaign spoke to your audience, the audience size was too small and your sales suffered.
The art is found in segmenting a group that is narrow, but not too narrow. Focus on clearly defined segmentation categories — for instance, geographic, demographic, psychographic, and behavioral segments.
You’ll want to make sure you’re targeting a decent-size pool of customers with confirmed buying power. The best way to do that? With robust, high-quality data.
No matter which stage your company is at, you should have the basic data down for your customers—like name, gender, and address. But not having enough data, or data that shares key insights and creates a narrative, won’t help you build strong audience segments.
Take into account all of your distribution channels when collecting data, and follow the customer from discovery to purchase. A few key customer segments to keep in mind, particularly for DTC e-commerce brands, are as follows:
In addition, track who is coming to you from where—is it newsletters, ebooks, special segments? Who is a loyal customer, and who’s just there for the trends? It’s helpful—dare we say necessary—to use a platform (like Freshmarketer) to collect the data for you.
By leaning on the power of an analytics platform, you’re not only gathering quantitative data—which is needed to create thorough customer segments—you’re doing it automatically through filters you create within the platform. This frees you up to concentrate more on what the insights and patterns are telling you, and how to adjust your marketing efforts accordingly.
It’s important to know who your customers are in order to segment them effectively. But you also need to know how they act.
This could look like:
When customers get to your home page, where do they go next?
Customers of a select interest-based demographic never went beyond one purchase. Why?
Where does your audience like to spend time? Is it TikTok, Instagram, company blogs, or email?
Understanding your customers’ behavior, like browsing patterns, email preferences, and social media affinities, along with their identities can provide you with far more valuable insights than just one ever could.
Forecasters expect multichannel sales to make up close to 46% of all e-commerce sales by 2023, up from 40.3% in 2019. So it becomes crucial to understand your buyers’ communication preferences. For example, not all customers will be responsive to email campaigns or social media campaigns. It’s important to segment based on what buyers prefer; send out email campaigns to those who have a high engagement rate with email. Target social media campaigns with a younger audience.
Multichannel marketing campaigns help you effectively send out campaigns on SMS, email, WhatsApp, and chat to reach your customers on their preferred channels.
To help you dive deep into these insights, look for a strong marketing and automation tool to bring into the fold.
Freshmarketer can help you create seamless audience segments and improve your conversion rate.
The way your customers behave across your channels today, be it email, social, or digital, won’t look the same in five years, or even six months.
If you create customer segments but don’t work to refine them as your company evolves, they’ll be rendered meaningless over time.
You’ll want to check in with your customer segments at least every six months. Take into account any updates, such as:
The addition of new products or features
A change in messaging strategy
Updated KPIs or business goals
Brand identity or website redesign
As your company grows, all of these updates will help you attract the right customers and further boost your engagement.
The key to surviving in the cluttered DTC space is to remain relevant – meeting your customers' evolving needs with the right solution.
Your business goals, or your ‘north star’ of what you’re trying to accomplish, should inform all aspects of your marketing and decision-making. That said, your customer segmentation should align with your business goals, too.
For example: if you want to increase customer loyalty, create segments based on one-time and infrequent buyers. This allows you to target customers who are drawn to your product or service but may need some extra love to take them from infrequent buyers to loyal customers.
On the other hand, if you want to increase app downloads, target only those who browse your site from a mobile device. If you target everyone, you’re wasting time and resources on those who might only shop from a computer or maybe don’t even have a smartphone (if any of those folks are still out there.)
Align your customer segments with the goal you want to accomplish, and you’ll have the right metric for success.
There are countless reasons why your distribution strategies and campaigns can benefit from customer segmentation: personalized emails boost open rates, SMS offers can lead to immediate conversions, and so on.
In looking at the big picture, a campaign that resonates with one customer demographic may not work well with another. By creating customer segments, you can develop campaigns that reach every audience and make them feel understood and valued.
You are most likely to see higher conversion rates, which in turn leads to lower customer acquisition costs.
You can’t just create segments without a strategy, however. If you do, you could make common segmentation mistakes, like creating overly broad or narrow segments, operating from a lack of data or low-quality metrics, ignoring the importance of customer behavior, or not updating your segments as your company evolves.
Make sure to develop segments that are just right using categories like demographics, interests, or behaviors. Leverage data for insights that can help inform your customer segments, and connect them to your distribution strategies.
Use machine learning and automation platforms to understand your customers’ journeys across your channels. When your business evolves, make sure you’re checking in regularly on the segments you’ve created and pivot them accordingly.
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