Someone recently asked our CEO: If you’re trying to reach Gen Z and millennials, where does that customer journey start and why?
The easy answer here is: You’ll find Gen Z and most millennials on their phones. But acquisition strategies are developing beyond the high-level view of channels, demographics, or total spend. To be their most effective, retailers need to move beyond segmentation as a whole toward the superior method of personalization.
So let’s talk about personalization — specifically, how it differs from segmentation in practice and what makes it so effective. Using data-based evidence, you’ll get a fuller picture of how your business can do more to reach consumers and drive revenue with each new transaction.
Personalization strategies are already proven to work today — personalized correspondence via email, SMS, and other channels shows 6x higher performance rates than segmented or non-specialized communication strategies. But future-minded retailers aim to expand that personalization beyond messaging into experiences and promotions for each individual customer.
Let’s look at how segmentation and personalization match up head-to-head.
Most brands today would love to implement a true personalization strategy — and many claim they do (albeit inaccurately). In reality, most “personalization” strategies are just dressed-up, slightly more tactical versions of segmentation.
Retailers must increasingly focus on the individual, using personalization to hone in on what makes each unique customer tick and increase profit margins on a per-user basis. Only through this individualized approach can businesses ensure they’re changing behavior, driving more value for their stores, and doing it all profitably.
Meet Joanna and Tom. They’re both millennials and started their customer journey online. Joanna is a single woman shopping for herself, and Tom is a father of two. Here’s a snippet of their shopping journeys at the grocery store they both frequent:
Tom always puts paper towels in his basket when he’s doing his regular shopping; he doesn’t have time to shop around at a competitive store. Meanwhile, Joanna comes in for fruit but never puts paper towels in her basket — not because she isn’t buying them, but because she’s just not buying them from your store. Instead, she visits the big-box store a few blocks away for a bulk discount on paper products.
Let’s discuss how a retailer might approach the Joanna-Tom conundrum using segmentation and personalization.
Personalization allows you to change one mind at a time by meeting each user’s — in this case, Joanna’s — unique value point without impacting sales that would’ve already taken place (like Tom’s). Inversely, segmentation would have cannibalized profit rather than helped you achieve this incremental sale.
Let’s take this one step further and compare segmentation versus personalization data.
In the example below, we have a regional chain of gas stations segmenting customer incentives by offering a loyalty program with consistent discounts and promotions. We analyzed more than 2,500 gas stations from this brand and its well-developed loyalty program, which offers members a discount of $0.03 to $0.05 per gallon and the opportunity to make non-fuel purchases that earn future gas discounts.
Here's a comparison of the loyalty program's effectiveness with that of gas stations that have partnered with Upside and use transaction data to provide personalized promotions:
When comparing the three tiers of promotional strategy, personalization from Upside was the most effective at driving incremental profit:
What does this mean for your business?
Loyalty program segmentation can boost raw numbers of transactions — but the risk of cannibalization is high. On the other hand, when you can target a segment of one, you get more transactions with higher profit margins, generating incremental profit from entirely new sales.
Upside lets you:
Better technology is empowering retailers with the opportunity to personalize the shopping experience in real time. Upside is a prime example of these tools in practice. The data proves it’s time to transition from broad segments to “segments of one.” Only through personalization can you drive non-cannibalizing, incremental profit that catapults your business ahead of the competition.