Segmentation vs. Personalization

Reading: 3 mins

During campaigns, you need to think about both.

When preparing personalized video campaigns, we often encounter situations where marketers approach personalization in the same way they’ve approached segmentation in the past. But the reality is, there is a fundamental difference between personalization and segmentation.

Segmentation is dividing a base of (potential) customers into smaller groups that usually share a common demography or geography or are in the same purchasing decision phase. Dividing into smaller, relatively homogeneous groups makes it easier for product creation or a better targeted communication.

Personalization, on the other hand, is not aimed at a group, but at a specific customer. It can use personal data or details, purchasing history or typical shopping behavior.

What is the basic difference between the two approaches? With segmentation, marketers try to find what connects the customers based on data inputs. With personalization, the goal is to try and find out what makes each customer different from the others.

For example, during a segmented campaign, a bank can communicate a piece of general information - "Invest with us in mutual funds"- to a credit-worthy group of customers. But with personalized communication, the bank can recommend to each individual customer, based on known data, which investment product is suitable for them, how much they should invest and what is their closest branch to sign a contract, including a personal advisor with whom they may have met before.

It's not that personalization is better than segmentation or vice versa but each approaches the way they use data differently and uses different communication channels. If we stay with the bank example above and use a segmentation campaign, a marketer can use a sponsorship spot prior to a streamed golf tournament. In the case of personalization, the marketer would be forced to use a more direct channel with the existing customers such as e-mail, MMS or message within the bank‘s internet banking portal. Both approaches are the same in their need to work with available data.

When marketers approach personalization in the same way that they have been used to working with segmentation, and when they try to make their lives easier by deleting customer data that they could have otherwise used in their communication, it creates a problem with the results. It’s important to remember that customers who are the same age or are from the same area do not necessarily all want the same thing. In such cases, personalization loses its effect because it does not bring each customer a specific, relevant and direct offer. This is confirmed by Forrester researchers who say that "Segmentation-based personalization provides a bad experience for most customers."

In conclusion, when working with personalization, forget everything you know from your days with segmentation. However, that certainly doesn't mean that you must choose one or the other to communicate your brand. Both have their own merits. The path to personalized communication is more complicated on the technical side, but the benefits can outweigh that. According to McKinsey, personalization can cut acquisition costs by half, and increase sales by 5-15%, while reducing marketing budgets by 10-30%. That’s already solid motivation to adjust our set ways of thinking.

Danny Holman, Motionlab