Unfortunately, it appears that the most widely used segmentation methods are not the ones that provide the greatest return on investment (ROI). Even as technological advances make it increasingly possible to segment consumers on the basis of their behaviors and purchases, many retailers continue to rely on traditional—and not especially effective—measures.

Specifically, most retailers still gather and implement demographic data about their customers, such as their ages, genders, and locations. Yet the returns on personalizing marketing offers on the basis of such demographic information are not especially promising. Instead, according to a survey of more than 700 experts, the best returns can be gained from segmenting and personalizing offers on the basis of people’s prior purchase histories. Expressed preferences and online behaviors appear nearly as effective.

Yet despite these beliefs about the most appropriate methods for segmentation and personalization, few retailers are implementing them. For example, less than one-quarter of the survey participants offer personalized search results, even though evidence indicates that such personalization has a substantial impact on the conversion rates from search engine results.

Discussion Questions

1. What are the traditional approaches used by retailers to segment customers? 
2. What approach might be more effective than the traditional ones?

 

Source: Marketing Charts Staff, Retail Wire, December 8, 2014