Technology is changing the way we market to customers and prospects alike. But the fundamental problem of efficiency remains: how can CMOs identify and reach the target audience that is most likely to respond favourably to their marketing proposition?
Technology has recast the marketing game. But the fundamental problem of efficiency remains – how can CMOs find and reach the audience of consumers most likely to buy what they’re selling, efficiently?
Complicating this challenge is the proliferation of new communication channels. There are now more unique channels for communicating with your audience than ever. As a result, we have seen an increase in the fragmentation of audiences, as consumers decide how, when, and on which device they interact with the outside world. Augmenting your offline marketing with a great website and entertaining emails no longer achieves the cut-through it once did.
As channels have fragmented rapidly over the last decade, marketers have been stuck examining the ever-expanding mix of channels individually, and then developing a distinct approach specifically for each channel. This fragmentation has made co-ordination even more difficult: how do you co-ordinate a holistic marketing strategy, in such a disparate environment, where further fragmentation is certain?
The problem has generated three distinct problems for CMOs:
- Infrastructure incompatibility: current infrastructure does not allow for co-ordination across channels to be done easily at scale. It is difficult to co-ordinate communications with customers through different channels using existing technology. Often, technical solutions were built as one-offs, to deal with web or email interactions. These solutions did not consider the need to view and co-ordinate communications to the customer across all channels.
- New technical skills: With marketing leading the organisation in the demand for new IT solutions, different skills are required to understand the technology available and make informed choices about which solutions to implement.
- A different mix of skills to complete a marketing team: A fully-functioning marketing team requires a new different mix of skills from those 10 years ago. In addition to traditional marketing skills, today’s team needs to include individuals experienced in statistics, marketing analytics, and marketing technology. CMOs must also decide which of these skills to retain in-house and which are better provided by an external specialist.
The reality of commercial marketing is operating a full-function marketing team with a limited budget. No one can have it all. Very few businesses have the budget to invest in wide-scale original research to find out what marketers need to know about their customers and prospects. Typically, brands buy another organisation’s knowledge (research) about a specific target market, and then use that information to shape their decision about how to approach that target market. They will also marry third-party data and internal research, relying on their own in-house skills, experience and knowledge to pull the threads together to create a picture of who their customers and potential customers are.
Take segmentation for instance. Today, segmentation remains fairly unsophisticated. Market research is used to determine who the target audience is. The results of the research are mapped back to demographic segmentation, which becomes the linchpin of the brand’s approach to marketing campaigns in the activation stage.
As individuals, we all know that just because we, as individuals, happen to fit into a particular group, based on demographic characteristics, it doesn’t necessarily mean we are going to behave the same way as others in the same group. Unfortunately for marketers, a lot of waste occurs when we assume that demographic segmentation will neatly define the target audience. There are better, more efficient ways to segment audiences.
Analysis of marketing campaigns by Red Planet has shown that segmenting an audience by needs and behavioural characteristics achieves significantly better outcomes than segmenting by demographics alone. Needs based/behavioural segmentation offers a more nuanced approach. What we do, or our patterns of behaviour, appear to be a far stronger indicator of how we are likely to respond to a marketing campaign than which demographic group we fit into.
Behavioural segmentation uses transaction data, first-party data along with third-party data, and market research to create a detailed picture of the way the audience behaves. Patterns of behaviour are then identified and used to understand and define the target market.
There are two key challenges to being able to shift towards needs and behaviour-based characteristics rather than demographic segments for an organisation:
- The access to the right information to be able to create this style of segment – and the capability to conduct that type of work successfully; and
- Once created, the ability to act on the segmentation in a coordinated way across the market
These challenges have led to a fragmentation of how segmentation is applied in organisations. Typically:
- Need-based segmentation is used for market-wide strategic purposes – as it has been impossible to use that type of segmentation at a customer level
- Behavioural segmentation is used for email marketing as it is impossible to connect those same behavioural segments into channels outside of owned channels; and
- Demographic based segmentation has been used for broader marketing purposes, as this is the manner that media can be purchased consistently across channels
Given that needs-based and behavioural-based segmentations outperform demographic-based segmentations, the question is: “What is required to be able to benefit from needs and behaviour segmentation techniques consistently across all activities?” Solving this challenge relies on three key factors:
- Reliable data set: Reliable data for a population large enough from which to draw statistically significant conclusions.
- The use of linked data to the declared audience/population also provides the deeper insights compared to the use of disconnected and disparate data sources.
- Sophisticated analysis: Seasoned analysts who understand the data, how it connects, and the opportunities that specific behavioural traits represent to a business in the real world.
Once you have segmented your customers into behavioural and needs groups, you can use these groupings to find the strongest prospects outside your existing customer database – rather than those with the most similar demographics.
Red Planet’s analysts are able to find strong leads by identifying other groups of consumers from their 11 million strong base that exhibit the same behavioural characteristics as your target audience. Rather than simply buying lists of leads that match a specific demographic group, you are widening your search beyond demography and refining it to match the behavioural characteristics of those people with the strongest propensity to act on your offer.
There are two clear advantages to needs/behavioural segmentation. The first is that the segments are built on key drivers of choice irrespective of where a consumer might sit in a blunt demographic model. This saves money by avoiding consumers who might fit in a target demographic, but who are never likely to buy. It also helps boost sales by allowing consumers who sit outside traditional demographic segments to be targeted.
By identifying customers from beyond a traditional demographic cohort, but based on their behavioural traits, Red Planet’s clients have reported superior increases in sales compared to previous campaigns where traditional demographic segmentation was used.
About the authors
Vaughan Chandler is the Executive Manager at Red Planet (a Qantas Loyalty business) which is a corporate member of the Which-50 Digital Intelligence Unit. Members contribute their expertise and insights to Which-50 for the benefit of our senior executive audience. Membership fees apply. Andrew Birmingham is the director of the Which-50 Digital Intelligence Unit, a Red Planet Partner.