Why Audience Segmentation Matters—And Where It Falls Short
For today’s consumers, personalized marketing has become table stakes. According to a 2021 report from Segment, 60% of shoppers will become repeat buyers after a personalized retail experience. And those expectations are on the rise: in 2017, that number was only 44%.
This makes sense. The more you know about your audience, the more tailored and compelling you can make your campaigns and offers. For years, marketers have approached personalized marketing through audience segmentation—categorizing audience members into specific segments based on shared attributes.
And while traditional audience segmentation still has its place, data privacy concerns are on the rise. Segment reports that 55% of consumers say trustworthiness and transparency are the most important traits they consider when deciding whether to shop with a particular brand. At the same time, 7 in 10 consumers say they’re comfortable with personalization—as long as brands are using their own data, not information purchased from a third party.
That’s why modern marketers have to consider both the benefits and possible pitfalls of audience segmentation, and explore new approaches that use first- and zero-party data, directly and freely provided by the consumers themselves.
What is Audience Segmentation?
Let’s start with the basics and define audience segmentation: the practice of dividing your audience into groups based on common characteristics such as age, occupation, location, behavior, and interest.
Traditionally, marketers deploy four types of audience analysis and segmentation: demographic, geographic, behavioral, and psychographic.
Demographic segmentation looks at basic information, like gender, age, family size, income level, and occupation. For example, around the holidays, a global hotel brand might market its luxury resorts to high-earning couples, while targeting middle-class families with a free breakfast promotion at its two-star chain.
Geographic segmentation breaks down audience members by where they live, whether by specific zip codes or blanket regions like rural or urban. Picture how a retailer like Nike might use geographic segmentation to personalize an October marketing email: promoting puffer jackets to New Englanders, waterproof rain gear to Pacific Northwesterners, and golf attire to Floridians.
Behavioral segmentation uses purchasing habits, product usage, website interactions, and other consumer behaviors into account when dividing an audience. For example, a B2B software company might display an ad offering a free trial to a consumer who visited its pricing page, but stick to promoting its latest research report to someone who visited the blog.
Psychographic segmentation divides an audience based on qualitative interests, values, lifestyles, and personality traits. Using this approach, a meal kit delivery service that has collected psychographic insights might promote their new biodegradable packaging to audience members who care about the environment, but focus on highlighting convenience and efficiency to busy parents.
There is a fifth type of segmentation, closely related to psychographics, that savvy marketers are beginning to adopt: identity marketing. We’ll dive into that new approach shortly.
7 in 10 consumers
say they’re comfortable with personalization—as long as brands are using their own data, not information purchased from a third party.
What are the Benefits of Audience Segmentation?
Ultimately, audience segmentation helps marketers achieve key business outcomes like higher conversions, repeat purchases, and lower customer churn. Here’s how segmentation drives these results.
Understanding Customer Needs
Understanding your customer’s needs and pain points is the very first step to personalized marketing. Using distinct segments allows marketers to drill down to more specific problems their product might be able to solve—especially when layering these segments on top of one another.
For example, a clothing retailer knowing that a consumer has school-age children (demographic data) in rural America (geographic data) could envision a common problem: those kids waiting for the bus on a cold, snowy day.
Tailoring Customer Messaging
Rather than a one-size-fits-all approach, tailored messaging that addresses distinct needs will provide a personalized experience that will make your customers feel seen, understood, and compelled to respond.
That same clothing retailer could target those rural parents with an ad campaign showing dry, cozy kids happily boarding a bus in their waterproof hooded coats—alongside a soaking wet, red-nosed neighbor sneezing in a thin jacket. And if the parent has been browsing the retailer’s website, maybe the ad is accompanied by a link to the warm parka they were checking out the day before (behavioral data).
Either way, the retailer’s solution to the customer’s problem comes through loud and clear.
Bottom Line: Improving Revenue Performance
Data shows that when a brand shows customers it understands their needs by tailoring its messages, it drives conversions, improves response rates, and increases brand loyalty. For example:
- 91% of consumers are more likely to shop with brands that provide relevant offers and recommendations.
- 72% of consumers report only engaging with marketing messages tailored to their interests.
- 70% of millennials are frustrated by brands sending irrelevant emails.
It’s easy to see why audience segmentation has become the norm. But marketers have to be conscious of where those insights come from. If consumers consider that personalization unwelcome and uninvited, brand loyalty may be the last thing on their minds.
How Third-Party Data Can Complicate Audience Segmentation
In traditional marketing audience segmentation, many brands are relying on third-party data that the customer did not proactively consent to give—or that the brand has been able to verify. Here are a few common pitfalls of audience segmentation:
Basic demographic and geographic data is usually easy and inexpensive to get, but it’s often not high-value and doesn’t signal high intent. In our school bus campaign example, those parents could easily have a sturdy bus shelter, use a carpool, or even homeschool their kids. Marketers don’t actually know their customers’ circumstances and are simply inferring what the demographic and geographic data could mean.
Behavioral data is rampant with privacy concerns, and consumers are paying more attention than ever to how companies collect and share their data. Eight-five percent of US consumers say data privacy is a growing concern, and 40% don’t trust companies to ethically use their data.
Nearly two-thirds of B2C marketers couldn’t express high confidence that the data they collect was meaningful and accurately represented the customer.
More advanced segmentation is also expensive and challenging to implement. The audience segmentation software that powers personalized marketing is notoriously complex and isn’t cheap. Only 2 in 10 marketers reporting that they use their marketing automation software to its full potential. One Forrester study found that only 14% of B2C marketers had customer data from all touch points in a single repository. In that same study, nearly half of marketers said their siloed data limited them to basic personalization, such as using the customer’s first name.
And third-party data from Facebook or data management platforms is often based on unverified data. At best, this data provides a temporary snapshot of consumers’ behavior, which doesn’t deliver lasting insight into their intent or interests. This leads to marketing organizations lacking trust and confidence in their data. Nearly two-thirds of B2C marketers couldn’t express high confidence that the data they collect was meaningful and accurately represented the customer.
Finally, campaigns relying on paid ads through third-party ad platforms are likely to become much less effective as tech platforms like Apple and Google respond to increasing privacy concerns. Only 15% of users are opting into Apple’s new third-party tracking, ad blocker usage is increasing drastically, and Google plans to get rid of third-party cookies by the end of 2023.
While third-party data will always have a place in marketing, the tide is turning. Forward-thinking marketers are pursuing the new gold standard of zero-party data with tactics like identity marketing.
Identity Marketing: The Zero-Party Data Approach to Audience Segmentation
Identity marketing is a new approach to audience segmentation that secures zero-party data by offering a valuable, exclusive promotion to a consumer community whose members share a specific identity attribute, like their profession, affiliation, or life stage. College students and the military are two of the most common communities that brands target with identity marketing offers.
This zero-party data is trustworthy because it comes directly from the consumer, who proactively offers it to a brand in exchange for a specific reward. This reciprocal exchange makes zero-party data even more reliable than first-party data, which is gathered passively. And it’s especially reliable when brands use a verification service like SheerID to ensure the information provided is accurate.
Zero-party data can also be a competitive advantage. When a customer tells you they belong to the military or are a college student, that verified knowledge belongs to your brand—not to a third-party platform that you have no control over.
Identity marketing delivers especially valuable information about who your customers are and the community they identify with. These attributes—I’m a healthcare worker, I’m a teacher, we’re a military family—are deeply personal and drive meaningful interactions with brands that lead to lasting relationships over time.
And unlike traditional audience segmentation tactics, identity marketing is based on attributes that are the foundation of people’s relationships and communities. This allows brands to engage with and build awareness within key professional communities, such as a sportswear brand creating an exclusive offer for licensed athletic trainers.
It’s also relatively straightforward to add behavioral and transactional data that your brand owns to identity marketing to make your customer profile data more valuable. For example, footwear brand ASICS layers purchase history and loyalty program data on top of identity marketing data to provide tailored content and product recommendations—driving a significantly higher customer lifetime value for loyalty members.
ASICS combines behavioral, transactional, and identity marketing data to drive a significantly higher CLV for loyalty members.
The Benefits of Audience Segmentation Through Identity Marketing
Brands can use the zero-party data they acquire through identity marketing campaigns to deliver powerful personalization based on emotionally important attributes—not surface-level demographics or unverifiable behavior signals. This personalization drives ongoing engagement, lowers customer acquisition costs, and increases loyalty.
Identity marketing drives customer re-engagement. For example, offering a military discount gives you the opportunity to connect with those customers throughout the year on special holidays like Veterans Day, and to tailor your messaging to reflect the values and interests that many military families share. These meaningful interactions can lead to much higher brand loyalty over time.
Offers that Go Viral
Since identity marketing inherently targets closely connected communities, customers naturally share the offers with other members. This drives new customer acquisition while keeping costs low. Our research shows that:
- 83% of Gen Zers would share a personalized offer with their friends.
- 96% of the military would share an exclusive discount with others in the military community.
- 98% of teachers who receive a personalized offer would tell a colleague about it.
Increased Loyalty and Purchase Value
When customers receive an identity-based offer, they feel recognized, valued, and appreciated by a brand, which leads to higher loyalty and customer lifetime value.
- ASICS saw a $12 increase in average order value from customers who redeemed an exclusive identity marketing offer.
- Fitness brand P.volve saw a 55% increase in customer retention among first responders and medical workers who subscribed with a Health Heroes discount, compared to the average user.
- NFL Sunday Ticket reports a 75% renewal rate among students who used a student discount to subscribe to the service.
Fast and Efficient Implementation
Identity marketing is fast and easy to implement, especially when you work with an experienced provider. Brands that use SheerID’s Identity Marketing Platform launch their campaigns in less than a week.
For example, a senior operations manager at ASICS was able to build out the brand’s identity marketing offers in SheerID in an hour, delivering code snippets that were simple for her web team to add to the website.
See for yourself how simple it is. Try SheerID for free.
A User-Friendly and Secure Brand Experience
Consumers who are verified through SheerID have a streamlined, positive experience because verification occurs seamlessly within the brand’s purchase process. Digital verification also ensures that only eligible customers can redeem an offer, which prevents discount abuse and protects a brand’s margins. When Headspace began using SheerID to verify their discount for teachers, the meditation company reduced instances of fraud by 41%.
As audience segmentation strategies continue evolving to overcome third-party data challenges, identity marketing gives brands a new way to engage and acquire customers, increase loyalty, and drive key business results. Schedule a consultation with an identity marketing strategist to learn how personalized offers could move the needle at your business.