“If we have 4.5 million customers, we shouldn’t have one store. We should have 4.5 million stores.” – Jeff Bezos
Reading Jeff Bezos’ visionary quote from 1998, we honestly should have seen it coming.
20 years later, personalization is one of the marketing hot topics and it has become widely accepted that it’s a powerful force for delivering a first-class customer experience. Amazon, Apple and other big brands have adopted sophisticated recommendation engines driving more and more revenue. And marketers all over the world are switching focus from product to customer, making relevant experiences their top priority.
Surprisingly, in a survey conducted by Sailthru, 75% of marketers stated that segmentation is the bare minimum you should do to fulfill personalization requirements. Although personalization and segmentation appear to be very similar, knowing the difference between the two could be the step you need to significantly impact your conversion rate and customer loyalty.
Personalization versus Segmentation
Segmentation is one of the marketing strategies which involves grouping customers into segments. Usually, the grouping is done based on consumers’ common demographics, behaviors, gender, and other identifiable characteristics. The primary goal of segmentation is to build a communication strategy which will resonate with customers’ expectations in the targeted cluster. It may be as simple as creating different content to different countries like delivery details, or gender-specific products.
Segmentation is helpful in increasing relevancy of marketing communications, potentially customer engagement and conversion rates. However, the more in-depth you go with the data analysis the more segments you create (i.e. fathers with children over 5 years old, who live near mountains and are interested in camping, who are purchasing my products once a month and are spending <$35 per purchase, etc.). And there is a limit to how many segments you can manually process, understand and manage over time. Which means that at some point you stop optimizing.
Personalization, on the other hand, is building experiences and messaging to the individuals themselves, not the segment they exist. The difference between segmentation and personalization is that the latter focuses on one single user rather than a group of people with common traits. You can view personalization as a “segment of one”.
Gartner defines personalization as “a process that creates a relevant, individualized interaction between two parties that is designed to enhance the experience of the recipient.”
The definition of personalization has evolved over time. Personalization is no longer just the use of customer’s name in marketing emails and it has been significantly automated, reducing costs from the manual labor involved in segmentation.
Now, personalization is leveraging customer’s personal and behavioral data and has the goal to deliver an experience that meets specific needs and preferences.
Researches have shown that visits where the shopper clicked a personalized recommendation comprise just 7% of visits but create 24% of orders and 26% of revenue (Saleforce 2018). However, the research is not referring to segmentation but to a pure execution of personalization where a relevant and meaningful experience is being offered to each customer. And now we have the technology to build it.
So how can you make the step from segmentation to personalization?
At the core of the personalization journey is the customer and a customer-centric approach. Start looking into customer touchpoints to understand his pains, preferences and complaints. “Ideally, personalization is based on what a brand knows specifically about a customer. The greater that knowledge, the more powerful the personalization becomes.” (Gartner, 2017)
Next, make personalization your priority. Organizations that view personalization as a strategy, rather than a buzzword or just a marketing tactic, are more likely to mobilize multiple departments to develop it (Sailthru, 2018). You won’t be able to do it alone, so start evangelizing personalization across teams and functions.