Best Practices in Interactive Marketing:
A Strategic Approach to Segmentation and Web Self-Service

As more and more companies adopt Web-centric business models, the Web has become a primary avenue for customer interactions and a central expression of brand. The best websites today are more engaging, collaborative and interactive than ever before—built to attract visitors and retain customers through the use of new strategies and technologies and the personalization of relevant content. However, while most of us are making significant investments in initiatives to drive traffic to our websites, we’re not getting the results we should expect: abandonment rates are high, site visitors are unsatisfied and conversions are low.

How do we help Web visitors find what they are looking for? How can we deliver a truly outstanding online experience? How can we identify our high-value customers? How can we improve the performance of our campaigns? Which messages and offers will resonate with long-term customers? The good news: these are questions that can be addressed with technology that exists today. This technology helps you segment your customers, effectively target content and offers and test your marketing strategy for relevance and effectiveness on an ongoing basis.

Online segmentation and content targeting provide a methodology for interactive marketers to deliver experiences that are more relevant to groups of high-value customers and, in doing so, improve business performance. While multifaceted, the process that forms the foundation of segmentation and content targeting is straightforward:

• Segment your market and/or customer base into "buckets";
• Select the segments that will generate the highest value as your targets;
• Develop specific content, offers and navigation for those targets;
• Leverage targeting rules to dynamically deliver a contextual online experience;
• Track behavior of visitors to your websites;
• Analyze this behavior to inform your segmentation strategies;
• Optimize, or incrementally improve, critical aspects of your initiative; and
• Continue the process, over and over, to evolve your strategies.

In many ways, this is a new approach to old concepts pioneered by companies with significant direct marketing requirements. The difference? Today it’s done at Internet speed using a set of newly developed best practices, best-of-breed technologies and automated systems and processes. Doing it well is one of the keys to success in today’s digital marketplace.

The business case is rock solid. According to Harvard Management Update  (November, 2006), companies who follow these strategies grow at three times the rate of companies that don’t: "Over a five-year period, businesses that successfully tailor product and service offerings to desirable customer segments post annual growth profit of about 15%. By contrast, companies that fail to connect the right value propositions to the right customer segments realize annual profit growth of only 5%."

A Strategic Approach to Segmentation
Strategic online segmentation is predicated on establishing well-defined business goals. These specific business and operational goals must be translated into key performance indicators (KPIs): metrics relevant to those goals. In a nutshell, the strategic purpose of segmenting your customers and targeting content to them is to improve your KPIs—and, by proxy, to improve your business performance.

KPIs vary according to business objectives, organizations and industries. They can represent financial metrics (transaction volume, value, revenues), usage metrics (number of visits, resources utilized) or communication metrics (leads generated, e-mail traffic). Typically, a mix of these metrics is required to gauge progress against business goals. It is important to keep in mind that KPIs must be relevant, measurable and actionable. Those that don’t have the potential to drive action or change are of relatively low value.

So, how does segmentation relate to KPIs? Let’s look at a fairly simple hypothetical situation. A company sells $1 million annually of products for camping; let’s call them "Ucamp." Using surveys, Ucamp gathers data about the profiles of people visiting their website and find that they fall into two primary buckets: 1. a segment of loyal customers who are high-value because they continue to return to the site to purchase products; and 2. a segment made up of people who have visited the site more than once but have never purchased. Informed by this research, Ucamp posts two business goals with related KPIs: increase the sales to high-value customers by 20% and convince 10% of new site visitors to purchase a product. Ucamp develops separate creative campaigns for each of these segments. By checking the KPIs related to the business goals (number of repeat purchases; number of new-customer purchases), they learn if their campaigns are effective. They continue to test and refine their campaigns until they achieve their goals. It’s as simple and as complicated as that.

Segmentation: The First Step
Segmentation is the process of dividing your market into a manageable number of distinct groups with common attributes. These divisions allow online marketers to target segments for relevant offers and promotions. You use as much knowledge as you have at your disposal to take a stab at what will be effective for a particular segment.

Segment attributes may already exist in a CRM system or user store or they can be captured "on the fly" as individuals interact with your website. The list below describes common attributes used to segment both consumers and businesses.

Consumer Market Attributes

Geographic:
-Land or region
- Rural or metropolitan
Demographic:
- Age, sex, marital status
- Income, occupation, education
- Religion, nationality, ethnic group
Psychographic:
- Social status
- Lifestyle type
- Personality type
Profile:
- Purchase history
- Membership level
- Registration requests
- Preferences
Behavioral:
- Keywords used on a search engine
- Sourcing site
- Products or categories viewed
- Click path

Industrial/Business Market Attributes

Industry
Intermediary or final consumer
Type of corporation (public or private sector)
Size of corporation
Geographical location
Intensity of product use
Organization of purchasing function:
- Centralized or decentralized
- Purchasing policies, rules and criteria

Deciding what information is relevant for your segmentation strategy depends on what you are trying to achieve. Information can be gathered either explicitly, based on information the customer has given you, or implicitly, gathered without the customers’ direct knowledge. For example, companies trying to increase existing customer share-of-wallet might use profile and purchase history data (captured explicitly) to up-sell and cross-sell. Other companies look for implicit information that reveals typical behaviors—people who buy soda typically buy potato chips—to fine-tune their interactive marketing strategies.