Specialty Retailers: Looking to Improve Marketing Results? Try Segmentation

Mihir Kittur, Co-Founder and Chief Commercial Officer, Ugam,

Online shopping has given retailers copious amounts of customer data, which when segmented the right way, can be extremely valuable for marketing promotions, whether via email, direct mail or text. This is especially true for specialty retailers -- understanding the hobbies and interests of your customer base will not only make you closer to your customers, it will encourage repeat purchases.

Retailers often segment their customer data into homogeneous groups that have similar traits, needs, and behaviors. This allows them to optimize their product offerings, marketing and sales strategies to meet the specific requirements of the segments better and more cost efficiently. This can be done based on demographics, the lifecycle of the customers, or on their behavioral attributes.

Historically, these programs have often been more heuristic or ad hoc in nature, and have failed to take into account the totality of a customer’s behavior. But as e-commerce has made new data sources available, segmentation efforts have become more holistic – and now include other factors such as coupon usage habits, average shopping cart size, and shopping frequency.

We recently worked with one specialty retail chain to modernize and build up its analytics capabilities around three focus areas: its loyalty rewards program, its direct mailer targeting, and its customer segments. Here are the tactics we deployed to help this specialty retailer meet its goals.

1. We set goals to ensure we gathered the right data
With the retailer’s loyalty rewards program, as is often typical of such programs, the primary objective was to collect more data about shoppers and use that for future marketing efforts. For direct mail, the goal was to find a way to increase incremental sales and improve targeting strategies. The goal surrounding customer segments was to better understand them across various dimensions and to identify the preferences and traits of each segment and then adjust marketing efforts accordingly.

2. We sorted the customer base groups
We sorted the retailer’s customer base into five segments, which included: coupon-savvy, sporadic buyers, profitables, big baskets, and MVP customers. The sporadic buyers and the coupon-savvy were among the least profitable, with both groups making few transactions, shopping just a couple times per year. The coupon-savvy group exclusively bought with coupons, while the sporadic buyers were coupon-insensitive yet still didn’t spend very much.

The “big baskets,” on the other hand, tended to buy a considerable amount when they shopped, while the “profitables” would buy more expensive merchandise—both groups were also insensitive to coupons. Finally, the MVPs spent the most and shopped the most often.

3. We took action
A look at the coupon-savvy segment revealed that the average customer in this group shopped around twice a year and was more receptive to direct mail than email or SMS. Thus, our recommendation after reviewing the data was that the retailer should use direct mail to boost the number of transactions and, where possible, send coupons with slightly higher margin offers.

For the other segments, our analysis determined that the use of loyalty reward programs should be used to engage sporadic customers for better category penetration, as well as to engage the big baskets group for better frequency.

Mass marketing efforts could be used to attract and grow the number of customers in the profitables group. And the demographic data collected on this group could be used to identify look-alikes — those the retailer might be able to attract and expect to behave similarly.

For the MVP group, the recommended action was targeted marketing and the goal was to protect and retain, identifying and engaging high-value and potentially at-risk MVPs, while also reactivating lapsed customers. Outreach to this set could be triggered automatically if the customer hadn’t shopped for a certain period of time, such as six months or a year. Personalized offers could also be used to cross-sell shoppers in each of the big spending groups.

While the specific segments and their characteristics will vary, any specialty retailer making this type of effort will likely gain a heightened understanding of its customers and their purchase habits, along with the ability to better align marketing strategies and improve profitability.

Some of the content in this article originally appeared in Internet Retailer on June 4, 2017.


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