Feature
The Gist
- Privacy vs. personalization. Regulations and privacy concerns shape the future of personalized marketing strategies.
- Technology drives segmentation. Emerging tech enhances customer segmentation with real-time data and predictive analytics.
- Values influence loyalty. Societal and environmental values increasingly impact customer segmentation and brand loyalty.
In the 2002 film "Minority Report," the lead character, played by Tom Cruise, undergoes an eye transplant. As he runs through a shopping mall in 2054, he is bombarded with advertisements and personalized promotions based on quick eye scans.
For marketing and customer experience research professionals, such true personalization is impressive. We're not quite halfway to 2054, and it doesn't seem we are heading toward such personalization. However, it does seem customer segmentation is at a turning point.
Privacy Laws Challenge Global Marketers
Regulations surrounding data privacy and protection continue to create obstacles for marketers as they consider customer segmentation. First, there was the General Data Protection Regulation (GDPR), covering the European Union, followed by the California Consumer Privacy Act of 2018 (CCPA), passed in one state. Yet, these laws affect anyone doing business in those geographies. Efforts to improve transparency in how data will be processed, stored and shared exist, but the legalese often leads people to simply scroll past the pages of text to acknowledge the terms and conditions.
Further hindering data-driven segmentation is the need to protect customer information. Even within the same company, data is isolated to prevent any exposure of details that could be linked to an individual.
Related Article: Mastering Customer Insights Through Data Segmentation
Data-Driven Methods Transform Customer Segmentation
Traditional segmentation used zip codes to infer income, family status and household size. Access to more demographic information like age, gender, education and income helped better target potential audiences. However, this approach did not truly personalize offers. As more data became available and computing power improved, the data-driven approach allowed for analyzing large volumes of data and identifying patterns at a deeper level than traditional segmentation methods.
Related Article: 5 Ways Data-Driven Insights Are Reshaping Customer Segmentation
Retail Analytics Spark Major Privacy Concerns
A little more than a decade ago, such analysis by a retailer led to a father discovering his teenage daughter was pregnant due to the coupons in his mailbox. This incident resulted from a deep understanding of the combination of products purchased under the household identification, leading to the assumption of a pregnant female and the distribution of targeted offers. The realization that a retailer knew so much about a household raised significant privacy concerns, prompting retailers to include random items in their offers to make them seem less intrusive.
Related Article: How and When to Use Email Segmentation and Personalization
Personalization vs. Privacy in Customer Segmentation
However, there is a growing sentiment that companies must provide personalized offers without knowing all the details about the lives and habits of their customers. This seemingly conflicting set of standards — customers wanting privacy while receiving increasingly personalized offers — is driving the need to rethink customer segmentation.
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Related Article: Personalization and Segmentation: How They're Different and Why It Matters
Tech Enhances Customer Value and Segmentation
Clearly, firms will benefit from understanding the customer lifetime value. Without exposing individual customers' data, each customer can be assigned to a segment based on past spending and potential future spending with a company or in a specific product category. This approach will be further enhanced by several emerging trends that leverage technology:
1. Omni-Channel Segmentation: This goes beyond integrating in-store and online purchasing. It's a holistic approach that includes social media channels and mobile applications to gather more information about customers’ everyday behaviors, which, in turn, informs companies about their needs. For example, visit a website about a product, then switch to a social media site, and you're presented with an offer for the same product you just searched for. Or, walk into a retail location and receive an offer on their mobile app with an incentive.
2. Real-Time Segmentation: With "on-the-fly" updates to customer information, businesses can respond to immediate changes in behavior or interactions. Traditionally, printer companies set up repurchase reminders based on expected ink depletion times. Now, with connected devices, these reminders are based on the actual volume of ink remaining in the cartridge. Reminders can be delivered via email, or even sent to other connected devices for an audible alert. This timely engagement can boost sales opportunities and enhance brand loyalty.
3. Predictive Analytics & AI: Artificial Intelligence is revolutionizing industries by leveraging historical data to create predictive models of future customer needs, much like the earlier retail example. However, when these models are combined with real-time updates, the personalization of offers to customers can become even timelier. For instance, instead of waiting for an ink cartridge to reach a low level, an increase in usage over time can help predict the exact date when new ink will be needed, prompting a purchase just in time to avoid any "ink downtime."
New Tools Multiply Customer Segmentation Options
I remember when I first worked with customer segmentation; there were 64 different household types commonly used across various retailers, each with its own name. With the advent of newer segmentation tools, each household could potentially be its own unique segment, resulting in thousands of segments with even more subsegments. All of this complexity arises even before developing a customer journey map based on those segments and personas.
Feedback Enhances High-Volume Customer Segmentation
There are many considerations that continue to influence customer segmentation. An essential aspect, often overlooked by high-volume transactional brands, is integrating customer experience feedback. While sales data typically come from a Customer Relationship Management (CRM) tool, which often links directly to customer experience responses, this type of connection should also be established for high-volume transactions. Knowing whether a customer is a promoter or detractor can help locations understand the root causes of discontent among different segments.
Moreover, if frontline employees can access this customer information, it can aid in addressing specific issues. This data can also reveal customers' intended behaviors (as opposed to documented ones), their affinity for competitors, and needs beyond the current offerings.
Segmentation Deepens with Psychographic Insights
In addition to the aforementioned strategies, integrating psychographic and contextual segmentation is crucial to creating empathy at scale within each customer segment. This approach goes beyond merely knowing a shopper's birthday; it encompasses understanding additional buying occasions and recognizing when a customer might need extra help, such as choosing the "right" birthday gift for a teenager in the household. In healthcare, a close associate has observed that mental health questions are likely to become a standard part of hospital intakes. This move aims to segment customers for both immediate and ongoing treatment, tailoring care to each individual’s specific needs and circumstances.
Sustainability Shapes Future Customer Segmentation
Finally, there will be a growing awareness of the role of societal 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 Must Update Segmentation Strategies
As the next evolution of customer segmentation unfolds, it is imperative for brands to regularly review and update their segmentations, customer personas and associated customer journey maps. These updates should reflect the rapid changes that outpace the models they support. This is particularly crucial as evolving privacy expectations and the desire for greater personalization challenge the traditional frameworks of customer segmentation.
