What is Customer Micro-Segmentation?
Customer micro-segmentation is the practice of dividing a company’s customers into groups relevant to a particular business. The goal of segmenting customers is to decide how to relate to customers in each segment in order to maximize the value of each customer to the business.
Micro-Segmentation is a more advanced form of segmentation which groups small numbers of customers into extremely precise segments, based on various factors, including behavioral predictions. Marketers can then direct specific marketing actions to each micro-segment to maximize the effectiveness of every contact with each customer.
Guide to Advanced Customer Segmentation
What is the Difference Between Micro and Macro Segmentation?
While many segmentation strategies exist, two main ones stand out, micro and macro segmentation. The difference between both segmentation strategies lies in the granularity level each one required. While macro segmentation focuses on high level customer data such as location, language or source, micro segmentation focuses on customer specific data such as preferred products, history with the brand and time since last purchase.
Naturally, due to the differences in these approaches, segments resulting from macro and micro segmentation strategies will differ in size and homogeneity. Macro segmentation will result in larger segments with a higher level of heterogeneity, making it difficult for marketers to practice marketing personalization. On the other hand, micro segmentation will lead to small segments each with very few, homogenous customers.
Although marketers usually begin by using macro segmentation strategies, as they mature and become more sophisticated, they begin to use micro segmentation as their core strategy.
Lifecycle Stage Groups and Segmentation Layers
Optimove utilizes a very advanced micro-segmentation approach based on an initial high-level segmentation of customers into distinct lifecycle stages. For example, the customers of an online gaming company might be segmented into six lifecycle stages: fun, new, active, star, churn and reengaged.
Next, Optimove dives deeper and segments customers in each lifecycle stage group into distinct segmentation “layers.” This segmentation is achieved using cluster analysis on sets of attributes which share a common context. Some segmentation layers are behavioral, while others might be demographic in nature. The process is performed in a different manner for each lifecycle stage group, since customers in each lifecycle stage need to be segmented differently.
After completing the initial lifecycle stage and layer segmentation, Optimove places customers into one or more relevant clusters within each segmentation layer. Each customer will then be associated with a string of different clusters. Customers with the same pattern of cluster associations are then grouped together as a micro-segment.
Using Micro-Segments to Optimize Marketing Actions
Micro-segments typically contain very few customers each, allowing for highly personalized predictive analysis and marketing action optimization. By tracking and carefully analyzing how different marketing actions affect the spending behavior of different micro-segments, it becomes possible to predict the varying effectiveness levels of different marketing actions on different micro-segments.
The goal of this process is to determine, in advance, which marketing actions will have the most desirable impact on each group of customers.
The Guide to Advanced Customer Segmentation
Go in depth on advanced segmentation with this guide which was written based on analyzing tens of thousands of segments across Optimove’s customer base.
Optimove’s Unique Approach to Customer Micro-Segmentation
One unique aspect of Optimove’s micro-segmentation is a focus on the dynamic nature of customer behavior. In other words, Optimove continuously recalculates the segmentation of every customer and tracks how customers move from one micro-segment to another over time.
In other words, most companies view segmentation as a method of clustering similar customers together at a given point in time, but they completely disregard the path or route that each customer has taken to reach his or her present segment. By analyzing customers based on their movement among segments over time, Optimove achieves far more accurate segmentation than any other known method.
Furthermore, the combination of this dynamic segmentation approach with Optimove’s ability to create extremely homogenous and compact micro-segments results in an unparalleled degree of customer segmentation accuracy. When factoring in Optimove’s core focus on customer lifetime value in all calculations, it is easy to see why Optimove’s ability to predict the response of every customer to any marketing action is a generation ahead of any other marketing action optimization solution.
Frequently Asked Questions
How many RFM segments are there?
To determine how many RFM (Recency, Frequency, Monetary) segments there are, you need to divide your customers into tiers within each of the three dimensions (R, F and M).
It’s recommended to create three or four tiers for simplicity when determining the results. With three tiers per dimension, there will be 27 customer segments (3x3x3). When there are four tiers per dimension, there will be 64 customer segments (4x4x4).
What is an ideal RFM score?
An ideal RFM score is the highest score in each of the three dimensions (R, F and M). So, if a business uses a 1 to 5 scale, with 5 being the highest, then the perfect RFM score is 555.
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