The Problems With Customer Segmentation

January 31, 2020

The Problems With Customer Segmentation

Consumers today are demanding more of their favorite brands - from offers tailored to their personal preferences to ways they can engage at the store, online and in social media. And those brands that do this well are rewarded with long-term customer loyalty and increased revenue.

So what's the secret to success? It's personalization. You need to engage and appeal to consumers with messages tailored uniquely to them.

But for many brands, their efforts at personalization are not going far enough. Using common characteristics - such as demographics, geography, psychographics, behavior and personas - to break customers into smaller groups does not guarantee that you'll be able to appeal to them on an individual basis.

Segmentation in Marketing

These types of customer segmentation models fall short on many accounts. Messages and offers built for these broader segments often do not resonate well across the board, since they fail to take into account other distinctive factors that influence the individuals themselves.

Even microsegmentation, where brands break down customers to even smaller cohorts, does not result in the level of personalization consumers crave. Individuals in these more targeted groups will still receive the same offers or blanket discount on products, regardless of their underlying motivations or preferences, or what drives them to engage with the brand.

Microsegmentation has other inherent limitations as well:

  • It's inefficient and time-consuming - Much manual effort is needed to create, fine-tune and deliver offers, resulting in months-long waits to launch campaigns.
  • It's not agile - Brands can't quickly respond to changing trends or other customer insights.
  • It's not scalable - Rarely can brands handle more than 30 distinct cohorts because the manpower and time to do more is not cost-effective.

It’s about one-to-one marketing

To get consumers' attention and gain their loyalty, you need to move beyond basic type of customer segmentation to true 1:1 personalization. This is not possible without the help of technology, specifically artificial intelligence (AI) and machine learning (ML).

AI and ML can help automate much of the manual work required by marketers, shaving months off the time it takes to launch a campaign and allowing them to continually fine-tune offers to spur consumers to action. These technologies also enable marketers to adjust variables to optimize offers with the best combination of incentives, increasing efficiency.

In a newly released white paper, we offer a deeper dive into the problems with macrosegmentation and microsegmentation when attempting to reach consumers on a personal level. We also share insights into how AI and ML are being applied to achieve true 1:1 personalization that improves the offers you deliver and boosts customer loyalty.

To learn more, download the white paper, "Where Segmentation Falls Short."