Engaging Retail Customers On Their Terms

By Mikel Chertudi

Traditional marketers know that marketing, at its very core, is about connecting with prospects and customers in a meaningful way--on the customer's terms. The challenge facing online marketers is to make sense of the vast information that's available with e-commerce--information that traditional offline marketers only dream of. Armed with this data, online marketers can identify their key customer segments to connect and build relationships that benefit not only their organization, but also their visitors and customers.

SEGMENTATION BENEFITS CUSTOMERS
Retailers would love to create one-to-one relationships with each of their customers, and in some ways that's possible. However, in most cases, it's just impractical. But since online shoppers share many of the same demographics, psychographics and behaviors, online retailers can create meaningful groups or segments of shoppers and online visitors that are significant as well as manageable.

Online customers demand that the products and information they are presented with is relevant. How do you feel when an online store you frequent sends you an e-mail promotion with offers and recommendations for products that have nothing to do with previous purchases you've made or the profile you've shared with them? Nothing drives an online shopper away faster. Knowing who your customers are and what they need is an absolute requirement in today's competitive online world.

Not long ago, I was shopping for light fixtures online. I even put an item or two in my shopping cart, but decided to leave the site before placing the order. When I revisited the site a few days later I was offered a discount on lighting fixtures and I was provided additional information on a new line of lighting fixtures that the store was now carrying. This was an unexpected benefit that enhanced my shopping experience.

Online retailers have access to a wealth of data that is constantly pouring into their websites. Businesses that can successfully measure, segment and digest thousands--or perhaps millions--of customer transactions in a fast and efficient way gain significant advantages. When segmentation is done well, customers will feel more comfortable having a relationship with you.

MARKETING SEGMENTATION 101
A definition from Wikipedia states that market segmentation "is the process in marketing of dividing a market into distinct subsets (segments) that behave in the same way or have similar needs. Because each segment is fairly homogeneous in their needs and attitudes, they are likely to respond similarly to a given marketing strategy. In other words, they are likely to have similar feelings and ideas about a marketing mix comprised of a given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way."

What are the requirements for successful segmentation? Just remember the acronym ADAMS:

• Accessible: it must be possible to reach it efficiently.
• Differential: it must respond differently to a different marketing mix.
• Actionable: you must have a product for this segment.
• Measurable: size and purchasing power can be measured.
• Substantial: the segment has to be sufficiently large and profitable.

Proper segmentation can lead to significantly improved marketing effectiveness. With the correct segmentation, the right lists can be purchased, advertising results can be improved and customer satisfaction can be increased.

SEGMENTATION VARIABLES
So now that we've outlined the requirements for successful segmentation, let's define segmentation variables. Here are a few examples:

• Demographics - A person's name, age, gender, address, occupation, social class, etc.
• Psychographics - Characteristics of a person's personality--their values, attitudes, interests and lifestyles.
• Behavior - A person's actions and activities.

In short, demographics tell us who an audience is, psychographics describe their attitudes and opinions, and behavior tells us what they are doing. By combining these variables in a variety of ways, an online marketer can begin building specific segments based on an audience's profile or persona. By developing hypothesized tests made up of multiple combinations of the marketing mix, online marketers can create more relevant experiences for each segment. In essence, retailers can deliver the right message, to the right person, at the right place and at the right time through multiple and relevant engagement experiences.

SEGMENTATION FOR YOUR RETAIL SITE
Because online marketing is highly trackable for retailers, the easiest segmentation variables to get at and measure tend to be behavioral. If registration or purchase information is collected with a shopping cart, lead form or account registration, additional psychographic and demographic data can be associated to enrich the behavioral data to optimize the marketing mix for each customer segment.

Retail sites optimize heavily around not only getting the visitor to place an order, but also to increase the average order size through promotional cross-sell techniques. As a result, many resources are dedicated to help visitors find products via onsite search technologies as well as combining complimentary products via shopping cart optimizations. Segmentation for such sites might include:

• Performing an offsite product search within a search engine (by knowing the keywords)
• Onsite product search
• Product page views
• Cart additions/abandons/removals
• Shopping cart process stage abandons
• Check outs
• Selecting varying shipping and handling rates
• Response-to-order confirmation upsells
• Entering promotional codes

Additional segmentation dimensions can be quantifiable in nature. An example would be segmenting purchasers by average order value tiers to identify characteristics that the tiers share in common. To add qualitative data to such metrics, conduct surveys to gauge and correlate additional psychographic and demographic information to better build profiles representing each segment. Behavioral segments that respond to a specific e-mail campaign or site promotion by adding products to the shopping cart, but later abandon and don't purchase, could be better understood through exit pops or email surveys asking whether they declined to purchase because of price, usability, excessive or slow shipping, credibility or privacy issues, etc.

Once retail segments are understood, actions may be taken to optimize less profitable segments. For example, those who added products to shopping carts, but didn't purchase could be sent a promotion for the same products--just like the discount offer I received when I was shopping for lighting fixtures.

ONLINE RETAIL SUCCESS
For online retailers to be successful, they must continue to test and refine marketing-mix variables at segment levels. Retailers that understand this concept, but aren't practicing it, are simply leaving profits and growth on the table. For retailers who don't know much about segmentation, test a few of the hypotheses that may have come to mind while reading this. And for those retailers who are experts at all things segmentation, I hope this has been a nice refresher for online retailing success. You've just been successfully segmented into three groups--under which do you fall? Good luck segmenting!

Mikel Chertudi is senior director of online marketing at Omniture Inc. For a free copy of his "Online Marketer's Segmentation Guide" and other best practices guides, please visit www.omniture.com/er2007/guides.