How AI-Powered Segmentation Can Increase Marketing ROI

All brands vie to target customers with intelligent marketing, but a few get it right.  Imagine if at the height of the pandemic, after spending a week browsing for a bigger apartment to shift into, you come across your dream house through a Facebook ad—a classic scenario when you’ve been targeted with intelligent marketing. However, the opposite scenario would be receiving the same ad a week after you lost your job, and when you had no interest in looking for a new home.

Unless your brand has limitless marketing budgets, intelligent marketing is necessary to ensure that your brand message, products and promotions are being targeted to the most relevant audience likely to be interested in making a purchase, thereby improving marketing ROI. Intelligent marketing also helps brands craft their message and products based on understanding the various evolving customer segments of the target market.

The last decade has shown us that ‘relevance’ has been the underpinning theme of marketing in the digital-first era. A majority of consumers (88% according to a survey of  1,500 U.S. consumers conducted by Marketing Insider Group) say that personally relevant content improves how they feel about a brand This is also reflected amongst marketing experts. A survey of marketing professionals in North America shows that 62 percent of respondents said improving audience segmentation to enable more precisely targeted messaging was a top priority. Personalizing customer engagement and content for different customer segments improves conversion rates by a whopping 70%, and its impact ripples across the entire consumer lifecycle: from acquisition costs, customer loyalty, engagement levels, average order values to repeat purchases. Segmented marketing can improve your productivity and the effectiveness and ROI of your marketing campaigns overall.

Why do brands need AI-powered Customer Segmentation?

In order to increase the chances of people engaging with content, brands must target the content to the right people in the right way, rather than targeting the entire audience with a luke-warm message. Yet this is a monumental task today since there is extreme noise in the digital world, and an overwhelming amount of data to sift through. Additionally, the rapidly changing trends and events of today make it difficult to truly know who customers are as they evolve.

It isn’t a recent phenomenon for marketers to customize their products and content based on broad static filters, like geographic location, organization, or even income, but this kind of targeting has typically been one-dimensional and doesn’t take into consideration more nuanced, personal-level factors about the person being targeted.

Artificial Intelligence has been a fundamental influence in transitioning from traditional segmentation, giving way to deeper, dynamic segmentation that incorporates new deeper data points and insight layers that speak to a person’s motivations—not just what they do, but why they do it. 

For example, being a t-shirt manufacturing company, you might learn that most of your customers are in the age group 20 to 35, and a significant number of them share an interest in a recently launched Video Game. You may also learn that many of your customers are interested in environmental pages, and have recently liked posts related to environmental causes. With artificial intelligence powering your marketing segmentation, you can personalize engagement for various micro-segments of customers. Different factors determine why a customer is coming back to your business. The same customer can show different kinds of attributes from trip to trip. It is important to understand what is their intent and then personalize their content.

The biggest tech giants – from Facebook to Amazon, to Netflix – have invested billions in getting the right content in front of every user. You may have noticed this when Netflix recommends shows you might like based on your previous viewing habits. Google “auto-fills” suggestions based on searches you’ve previously made. Facebook tailors your news feed based on the items you’ve engaged with.

Leveraging AI for Smart Segmentation

Collecting customer data to divide them into segments can be done using various tools and processes, based on the brand’s size and requirements.

A traditional method for gathering data is requesting surveys from existing customers—but frequent requests will only serve to irritate customers. Fortunately, retailers can obtain data in less intrusive ways today with digital technology, like capturing how consumers interact with their website, their priorities, interests and preferences. By leveraging a Customer Data Platform, brands can combine first-hand data along with partner data or third-party data from multiple channels.

A typical AI-driven approach  to customer segmentation would involve the following steps:

1. Start with a broad segmentation of your customers, such as demographic, geographical, organizational, etc.
2. Build on this persona. Grow robust micro-segments based on other identifiers (interests, values, income, etc).
3. Overlap different micro-segments to create rich user profiles. For example, target high-income earners who recently searched for homes in a specific location.
4. Create engaging content and product strategies for different segments based on the perceived ROI of the segment.

Existing customer personas can be strengthened further by layering attributes like:

• Time spent on various channels (online, offline)
• Acquisition Path (how the customer came to your store or website)
• Psychological drivers
• Personal values
• Media consumption
• Brand affinity
• Affinity to loyalty programs
• Purchase History
• Geographic locations
• Product propensity
• Income
• Where they shop
• Preferred hours for engagement

The list goes on.

Granular micro-segments help draw out important nuances that improve decision-making across the organization and throughout the customer lifecycle. Based on the capacity for a segment to drive value, brands should tailor products, services, and experiences for top segments.

Typically, a customer’s lifecycle value relies specifically on the frequency and recency of purchases. The idea of using these metrics comes from the RFM analysis. Recency and Frequency are critical behavior parameters. Companies are interested in frequent and recent purchases because frequency affects the client’s lifetime value and recency affects retention. Therefore, these metrics can help us to understand the current phase of the customer’s lifecycle.

The Advantages of Automatic AI-Driven Segmentation

Using artificial intelligence to segment your customers offers a number of advantages over traditional manual segmentation.

• Lowering your cost per click– Facebook’s Relevance Score has shown that the better you are at targeting the right ad message to the right audience, the lower your cost per click will be. Different platforms have different tools, like Alexa’s Keyword Difficulty tool to measure audience interest and competition. Look for phrases that are popular with low competition to find a sweet spot.
• Going beyond human bias– We all have subconscious biases. AI can also go beyond assumptions to find hidden patterns in data that a human marketer may be unable to spot
• Dynamic and scalable– Automatic updating of segments in a rapidly changing market. A highly scalable method, which allows processing an unlimited number of consumers and size of segments
• Greater personalization thanks to more nuanced insights

Conclusion

Customer segmentation is a vital component of brand strategy and the marketing process, no matter the method chosen for segmentation. However, AI/ML-based algorithms create extremely precise and nuanced micro-segments and can take into account behavioral data from all sources and channels. This provides retailers with a scalable way of understanding how their customers interact with the brand and products, without getting inundated with data. Want to target the most engaged customers within a 20-mile radius of an event, or those with more affinity to spend? That’s a breeze with Artificial Intelligence-powered segmentation. Today, the vast amount of consumer data being generated shows no indication of slowing down. This makes AI-powered segmentation the obvious choice for effective marketing heading into the future.

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Vicki is a highly regarded senior leader with over 25 years experience across B2C & B2B marketing, loyalty & e-commerce, travel, media & technology. Prior to joining Capillary, Vicki led high-performing commercial teams at Expedia Group, Sabre & DMGT before moving into loyalty & customer engagement technology. She holds an MBA with distinction, and certification in Strategic Management & Leadership from the Chartered Management Institute.