Customer segmentation and the need for good data

By February 1, 2013Consumer Internet

There was a good post on Gamesbrief a couple of days back about customer segmentation – i.e. dividing the customer base into groups based on behavioural characteristics and targeting each group with different communication campaigns. The article starts by saying that most game developers intuitively understand that player segmentation is important, and goes on to say that getting started can be daunting, but is actually easier than many people realise. My immediate thought was that these points apply to consumer internet generallly, not just games, and that consumer internet developers may be further back on the learning curve than games developers.

Our former portfolio comapny Lovefilm had a very effective customer segmentation programme which divided customer into groups depending on how engaged they were with the service – added no films to the list, added 1 to X films to their list, added more than X films to their list, regularly added new films to their list, and so on – and each of these groups got different emails designed to push them on to the next level of engagement with the overall goal of reducing churn. I haven’t seen many consumer internet companies get as sophisticated as that, whilst most either don’t do anything or maybe have separate emails for newbies (a set of welcome emails), and/or run the odd campaign designed to reactivate dormant members.

Some good use cases for segmented messages:

  • Welcome programmes which help users get familiar with the basics of a service – starts with the sign up flow, should increase the percentage of new users returning in the first week or two
  • Tips for more experienced users – should increase engagement amongst the heavy users and inrease downstream retention
  • Gifts for the best customers
  • Reactivation campaigns

Like most areas of consumer internet execution getting this right isn’t rocket science, but it does require good data, clear thinking, and hard work over an extended period of time to design the campaigns, measure their effectiveness, and then optimise. Reading this post back, the requirement for good data stands out as the biggest stumbling block for most companies. Good data pays dividends in so many areas and if I had one piece of advice it would be to bear than in mind from day one. Too many companies end up with services that are having some early success but struggle to optimise because it is too difficult to get good data out and they don’t have the time and/or resources to re-write their code and fix the problem.


  • Ronin_Jim

    Interesting piece Nick. Segmentation is the break and butter of the marketing departments of larger organisations all over the world – knowing what to say to who (and when) is vital. These organisations usually spend a lot of money trying to obtain customer data that enables them to effectively segment their customers.

    Ironically, most online start-ups can to a much better job at this as their business model usually revolves around interactions that constantly supply the sort of data needed to conduct effective segmentation. The problem for most small firms is that they don’t structure captured data in an effective way to make use of it.

    If start-ups start capturing data properly right from the start, and built this habit into all their business functions, they should be able to do relatively cheaply (Google Analytics is just the start) what the Protor and Gambles of need to invest millions on research to achieve.

  • Great observation. Consumer internet businesses are lucky that all customer interaction occurs on their site and is trackable. It’s one of their advantages over their offline competitors. Maybe that is why many vertically integrated manufacturer/retailer businesses are having success. ASOS is one, our portfolio company Graze another.

  • Ronin_Jim

    Important point that too many start-ups mistakenly equate “marketing” with “communications” when the latter is merely an element of the former. Proper segmentation is also a vital aspect of product development.

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  • It amazes me how many companies (large and small) do exactly as you have mentioned… send a welcome email, maybe a follow up but then segmentation stops, the one reason I unsubscribe from so many email newsletters is due to their lack of content targeting.

    Secret Escapes lets you take a holiday break from emails with an easy slider (2 weeks – 3 months), there is nothing more depressing of getting deals on hotels when you don’t/can’t take them, Fab uses sailthru to ensure emails are tailored to you.

    Is it education within companies, marketing departments or technology partners that is needed to get everyone delivering relevant content/experiences to get the more engaged audience they all want?

  • A combination of education and great tools to make it easy. At the moment I think it is a bit too hard and complicated for many companies (i.e. the ones that lack the skills/desire for excellence).

  • very true, I hope my startup can become such a tool but like you said it is all about the desire for excellence and if industries aren’t being challenged by new innovative companies they will continue at 70% as that is ‘good enough’.

    Again great write up