Segmentation and the savvy shopper – demographic data is a start, but is it enough?

With retail sales recovering modestly back in February, a sense of hope has since filled the air after a stormy few months. But the tail winds have not entirely blown over. In the UK, Lloyds Commercial Banking department has warned that consumers remain very cautious and will only spend if the offer is ‘absolutely right’.

To help retailers work around tightened customer budgets, they need to offer their customers the deals that most appeal to them, or risk losing out on the sale. To do so, they need to get to know their customers as individuals and find out what the ‘absolutely right’ deal means for each one.

Stepping beyond the demographic data

Creating the customer experience that works for each customer is a challenge. While demographic data is helpful, it is important to recognise that generalised information, like age and gender, is not enough. Stereotypes about large groups don’t offer sufficient and accurate insight.

In retail, there has been a longstanding assumption that women will pay more than men. With many retailers sticking a higher price tag on, for example, Valentine’s cards addressed to ‘husbands’, it is clear that this notion still exists. But data from 66.5 million retail customers across Europe has revealed that this is far from true. In fact, women save on average more than 7 per cent due to a preference for discounted items and, despite making 2.5 per cent more orders than men, their purchases tend to be less expensive.

It is clear, then, that women are incredibly savvy shoppers, favouring discounts and remaining loyal to retailers which increases their chance of personalised rewards. But while it’s true that women are more likely to return to the same retailer after their first purchase, it shouldn’t be taken for granted. If retailers want to best serve and retain their female demographic – or any customer for that matter – they must give them a reason to stay loyal. A trend within a certain demographic is simply that – a general direction in which something is developing or changing. It cannot be applied to everyone!

With this in mind, segmentation based on gender isn’t specific enough to ensure retention. Instead, customer behaviour should drive strategy – what makes each individual tick, regardless of age or gender? Creating customers segments that reflect their preferences paves the way to customize rewards and deals and to create the perfect experience for each individual. Gender is just one category of many in each segmentation.

Segmentation raises another issue: most companies view segmentation as a method of grouping similar customers together at a given point in time, but they completely disregard the route that each customer has taken to reach his or her present segment. Marketers can better equip themselves by undertaking the practice of micro-segmentation, which focuses on the dynamic nature of customer behaviour. Essentially, it is a more advanced form of segmentation which groups small numbers of customers into extremely precise segments, and monitors how customers migrate between micro-segments, and what are the effects of these migrations.

Product, price or the customer experience?

According to a Walker study, by 2020 customer experience will be a more important brand differentiator than product or price, and up to 86 per cent of customers are willing to pay more for a positive experience.

The question on everyone’s mind is how can retailers create an engaging and exciting experience that works for each and every customer? The most important thing is to get to know customers as individuals, to work out what appeals to them and what will encourage them to develop a long-lasting relationship with a brand. For instance, while some customers are self-acclaimed bargain-hunters, discounts don’t appeal to all individuals, and they don’t always encourage shoppers to return. Luxury shoppers who browse for top-quality items may be turned off by reduced prices, seeing discounts as a sign that the brand isn’t fashionable or high quality. And, of course, all shoppers kick themselves when they buy an item at full price, only to see it heavily discounted in the same outlet a few days later. For high-spending customers who are not on the look-out for discounts, savvy brands can offer different rewards, such as VIP access to a new and coveted collection by a designer in which the customer has shown interest previously.

With this in mind, discounts clearly don’t always create the right customer experience for everyone. Marketers need to strategise so that they engage with their customers in a way that works for them personally. This can be achieved by making the most of data, as it provides the opportunity to get to know customers as individuals, and allows brands to communicate with them accordingly.

Demographic data, timed and personalised

For instance, online lingerie brand Adore Me split their customer base into 66 distinct persona types and communicated with each in a way that worked uniquely for them. This resulted in Adore Me more than doubling its number of active customers, and in turn, increasing the average order amount by 22 per cent.

By following Adore Me’s example and communicating in a well-timed, personalised way, marketers can refresh their customer experience offering, to ultimately gain more value. A great way to do this is to keep things relevant to customers’ preference. Many customers will respond well to recommendations that match their taste according to previous purchases, or that align with the standard of their typical shopping habits.

The science of data can be combined with the art of marketing to start engaging conversations and, in turn, nurture customer relationships to ensure a long-term relationship with the brand. In a world where consumers are ever-evolving and retailers are fighting to keep their head above water, agility must be embraced. Marketers need to adapt quickly to changing trends, but most importantly, individual needs. It’s crucial to cater to customers’ expectations, otherwise they may abandon and go where they get the treatment they expect.

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