Beyond the basics: How micro-segmentation transforms email campaigns

Every day, we receive numerous emails. Some we eagerly anticipate, while others simply land in our inboxes. Many emails come because, at some point, we subscribed to a newsletter or provided a business with our contact details to receive a discount, for example. The emails we look forward to receiving, we open and read closely and, depending on the sender, decide whether to take action. For instance, I have a few favorite brands whose newsletters I always anticipate, such as Sephora, Pandora, and Zara. These brands interest me because I often buy them, and their emails genuinely catch my attention.

However, the more I read these emails, the more they start to feel monotonous: promotions, special offers, holiday reminders, and discounts. Although these emails are useful, they’re repetitive and eventually become tiresome. As a customer, I want more. I want to receive emails that aren’t just mass-marketed but personalized, including offers that truly interest me. This raises a question: Can brands make these emails more unique for each of us? They absolutely can! The key is micro-segmentation.

What is micro-segmentation?

Micro-segmentation is a strategy that enables brands to engage with customers on the deepest possible level. For it to work, brands must know a customer’s purchase history, their interests, how much time they spend on the site, the pages they visit, and many other factors. Such data enable brands to create more relevant and personalized campaigns.

(Source: Email from Sephora)

But here’s the question: Is it really worth implementing this approach? Does everyone need it, and is it worth the effort? To answer these questions, I consulted with an expert who regularly uses micro-segmentation in her work and achieves intriguing results. Together, we’ll discuss important questions regarding this approach and the problems it addresses.

Our expert is Galina Panasyuk, an email marketing specialist working on a project in the travel industry. This field not only has a strong need for micro-segmentation but also benefits from significantly optimized marketing efforts. Galina shares her experience, discusses her case studies, and explains how micro-segmentation impacts business results.

Key barriers to micro-segmentation

Although micro-segmentation is a powerful tool for increasing demand, upselling, and cross-selling, its implementation is surprisingly uncommon. So, it’s worth asking why brands rarely use this approach.

Campaigns need enormous datasets to effectively segment at the micro level. These data must not only be extensive but also high-quality. A rich set of attributes is necessary to identify genuinely specific segments. The process of finding unique micro-segments requires substantial investment. This includes the costs of analytics, infrastructure to store and process the data, and specialists capable of interpreting the results.

Importantly, investments in micro-segmentation don’t always lead to a noticeable increase in ROI, as hyper-personalization might not yield sufficient results to offset its implementation costs.

To initiate work with micro-segments, a company must understand the unique characteristics that might exist within its database. This isn’t always obvious, and the challenge intensifies if traditional segments (demographic and geographic) don’t work. But even if a company finds unique micro-segments, it doesn’t always lead to expected results. Sometimes, micro-segmentation results are so minor that they don’t justify the investment.

Another common challenge is identifying high-potential segments in large datasets, such as spotting customers whose purchasing behavior resembles a B2B approach within a B2C database. Such nuances require deep analysis and a clear understanding of specific patterns, like purchase frequency or product category preferences.

To identify micro-segments, we must study our database for unique characteristics and patterns that could indicate potential responses. This may include purchasing behavior, purchase frequency, or preferences. One of the biggest challenges is identifying and understanding these patterns. If we can pinpoint small but significant segments that respond well to marketing offers, this can significantly impact the results.

When companies begin micro-segmenting

Micro-segmentation usually comes into play once a company has worked through the basic segments — when the main customer groups and their behavioral traits are understood, including who buys and who browses, their purchase frequency and seasonality, and general preferences.

When standard segmentation methods have been exhausted and are already generating revenue, a company will seek more specific approaches to identifying unique customer groups, such as using a more personalized approach to identify narrower segments that could enhance conversion rates.

The main driver of micro-segmentation is the desire to boost revenue by creating more relevant, conversion-oriented content. If the company realizes that further growth is possible through enhanced personalization, then micro-segmentation is a logical step.

Importantly, however, micro-segmentation is only feasible with sufficient, up-to-date customer data. This includes gathering and enriching the database, regularly updating it, understanding customer life cycles, and analyzing specific behavioral patterns. Additionally, the process for updating and segmenting the data should be automated to allow companies to test hypotheses faster and quickly implement successful approaches.

It’s also essential to recognize that micro-segmentation is not a one-time action but a continuous testing process. Companies must determine how many resources (time, specialists, technology) they are willing to invest in this process and how prepared they are for frequent hypothesis testing.

Characteristics and optimal timing for launching micro-segmentation campaigns

Micro-segments are defined not by their size but by their unique characteristics. Micro-segmentation is focused on identifying groups that can be classified by narrower, more specific traits, so such segments cannot be large.

While micro-segmentation doesn’t always deliver revolutionary results, it can significantly enhance the returns on database marketing efforts. Small segments with high response rates can sometimes generate as much revenue as larger segments.

Micro-segmentation can begin at almost any stage. The key requirement is that the company has clear strategic goals, aims to increase conversions, and possesses enough data to work with.

Ideally, a company should adopt micro-segmentation after it has exhausted all standard segmentation methods and is seeking growth opportunities beyond basic data. Once the company realizes that personalization is the key to increasing conversions and it has the necessary data and resources, this is a good time to implement a micro-segmentation approach.

The micro-segmentation process

At the outset, it’s crucial to understand why you’re conducting micro-segmentation and which segment is likely to deliver the highest conversion. This might include increasing purchase frequency or retention or tailoring offers to specific customer groups.

Determine the point in the customer lifecycle at which micro-segmentation will be most valuable. For instance, you may target active customers whose activity could increase further or those showing signs of churn, who might respond to personalized offers.

Let’s go over the optimal approach for identifying the necessary micro-segments:

1. Define criteria according to available data. Use, for example, behavioral and demographic data for clients who make frequent purchases, and focus on new clients’ general preferences.
2. Analyze customer behavior. Look for anomalies or distinct traits that can be utilized. If certain clients travel frequently, they may be corporate (B2B) clients or regular business travelers.
3. Formulate hypotheses according to differences. For example, if clients frequently visit specific countries, this could indicate family travel or business obligations. Such hypotheses help in creating test groups that will respond to targeted offers.
4. Create test micro-segments. Test whether a segment of corporate travelers, for example, responds to business-oriented offers.
5. Run targeted campaigns for micro-segments. Track metrics, like conversion and engagement, to see if the selected group shows interest and potential.
6. Evaluate campaign results and adjust hypotheses as needed. If a segment underperforms, review its characteristics and data. If successful, consider automating campaigns for the segment and potentially scaling by creating look-alike audiences.

Expand campaigns by adding new data, such as interest in B2B offers or frequent travel patterns. Set up a system to automatically update and revise segments, allowing quick adaptation to changes in customer behavior.

Regular testing is crucial, especially as the company introduces new services or products that impact segmentation. An equally important factor in this process is assessing the resources needed to manage micro-segments, ensuring a balance between the cost and effectiveness of personalization.

Equally important in this process is assessing the resources required to manage micro-segments to ensure a balance between the costs of personalization and its effectiveness.

Goals for key performance indicators (KPI)

Since the aim of micro-segmentation is to enhance returns and increase revenue, the primary objective should be tied to specific business metrics. This could be conversion to purchase, registration, ordering, or any other action with a direct financial impact.

Remember that micro-segments allow for making improvements in small steps but can collectively make a significant contribution. Therefore, each goal is best formulated to increase profits from a specific segment within a comprehensive strategy.

For each micro-segment, the hypothesis should anticipate the achievement of a specific business result, whether a higher purchase frequency, an increase in the average order value, or repeat visits.

Key KPIs for micro-segmented campaigns

1. Conversion. This is the main indicator for assessing how successfully a segment moves from engagement to action, whether this involves a purchase or registration.
2. Average order value or revenue per user. This metric aids in assessing whether revenue from a specific micro-segment is increasing.
3. Rate of return or repeat visits. If the goal of micro-segmentation is to enhance customer retention, it is essential to evaluate how often customers make repeat purchases.
4. Funnel efficiency. Analyzing micro-indicators at each funnel stage (email opens, clicks, time on site) allows for identifying which stages can be improved for greater conversion.

Tools for tracking KPI performance

1. Analytical data platforms: 
   • BigQuery and Tableau are used to analyze large volumes of data and visualize the results. These platforms provide a deeper understanding of micro-segment behaviors and highlight patterns;
   • Google Analytics or Mixpanel are used to analyze interactions on websites to understand how micro-segments behave on various pages and how this correlates with their path to conversion.
2. ESP and testing tools: Email marketing platforms, like Mailchimp, Klaviyo, or enterprise-level ESP platforms, typically have built-in functions for A/B testing and personalizing content for micro-segments.
3. API integrations and technical testing: APIs facilitate delivering personalized content to customers, but the API data must also be tested to ensure that the correct information is displayed to segments.
4. Tools for optimizing send time: ESPs with send time optimization features or specific algorithms can help in selecting the best time to deliver messages to micro-segments. This can improve open and click rates.

Each email should be tested not only for segment alignment but also for execution quality to avoid errors that could diminish customer trust and loyalty. As data are collected, the hypotheses should be reviewed to adapt the content and approaches to achieve better results. Successful hypotheses can be scaled to similar micro-segments.

Whom micro-segmentation is not suitable for

When margins are low, the costs of implementing and maintaining micro-segmentation may exceed the potential revenue gains. For example, in low-margin retail or fast-moving consumer goods (FMCG), standard personalization is often more viable than deep micro-segmentation.

If a company has already implemented machine learning systems that account for personal preferences, micro-segmentation may not provide significant benefits. Such systems can capture behavioral patterns better and faster than manual micro-segment analysis.

Another crucial aspect is the availability of customer data. If you cannot identify unique patterns in the data, in-depth segmentation is unlikely to be cost-effective.

Furthermore, if there is no opportunity to hire data specialists or set up automated systems, the analysis volume required for micro-segmentation may be overwhelming. In such cases, it is better to focus on simpler forms of segmentation.

Whom micro-segmentation is suitable for

Micro-segmentation is particularly beneficial in sectors with high margins, such as luxury goods, premium services, and tourism, where each purchase generates a significant profit. In these cases, micro-segmentation allows for precisely adapting offers and increasing the revenue from each customer.

Micro-segmentation is also suitable for the following:

1. B2B sector and areas with few leads.
   
   In the B2B segment, where each client can represent substantial value, micro-segmentation aids in identifying individual needs and developing targeted offers for each micro-segment. For example, in B2B, the specifics of clients or leads of a particular manager can be taken into account, enabling the creation of more effective strategies for various groups.
2. Companies with irregular or rare purchases.
   
   For example, in the automotive, real estate, and even certain types of insurance industries, purchase frequency is low, but value is high. Micro-segmentation allows for gaining deeper insights into what motivates customers and better meeting their unique needs.
3. Specialized mass market segments.
   
   Micro-segmentation can be effective in some niche categories of eCommerce. For instance, when dealing with specialized products (e.g., health goods, hobbies), micro-segments can help to increase loyalty and the average transaction size through more relevant content and offers.
4. Sectors with well-verified data and client characteristics.
   
   For example, in financial services, insurance, and telecommunications, unique client characteristics can be identified, and the marketing can be tailored to these attributes. In these industries, micro-segmentation can enhance customer satisfaction and reduce churn.

Approaches to segmentation for distinct business and marketing objectives

If you’ve decided to implement micro-segmentation, it is usually advisable to rely on the two pillars of segmentation approaches: business tasks and marketing.

Business-oriented approach

Underpinning the business-oriented approach is the assumption that the company already has a product or service, and the objective is to find segments that will likely be interested in this offer. Here, the primary focus is on the product, followed by identifying the right audience.

Advantages: This approach has a simple structure since the product is already in place, and efforts are directed at finding the appropriate audience, which simplifies adapting marketing campaigns.

Key tasks:

1. Verifying the relevance of data and ensuring that it is sufficient to form relevant segments.
2. Assessing the business’s ability to meet the needs of identified segments and willingness to enhance client data for more precise segmentation.
3. Comparing current offerings with the needs of micro-segments to understand how well existing products address audience demands.

Marketing-oriented approach

The marketing-oriented approach starts with a database analysis and segmentation to identify segments with the highest growth potential. New offerings are then developed or existing ones are adapted to fit these segments.

Advantages: This approach provides a deeper understanding of the customer base, which can yield unique insights for new products or services tailored to specific segments.

Key tasks:

1. Analyzing and testing hypotheses to assess the potential of identified segments.
2. Working closely with the business and product teams to determine if an offer can be created or adapted to meet the identified needs.
3. Evaluating the time and resources required to implement new solutions, ensuring alignment between the segment’s potential and available business resources.

Assessing whether the company can offer something valuable to a new micro-segment is crucial. If the product line is unprepared or cannot be adapted, segmentation may waste resources. For example, if a segment of customers interested in business travel is identified, but the company lacks services for corporate travelers, that segment will remain untapped.

Important note: During testing, close collaboration with other departments is essential for quickly assessing the feasibility of working with a specific segment. For example, the product team may suggest new solutions or adaptations of existing products tailored to the segment’s specifics.

Actions to take when an email is sent to the wrong segment

If you’ve made an error, don’t rush to act. First, analyze the segment’s reaction to the mistaken message. The impact may be less severe than expected; customers might not notice the error or may react neutrally. Review metrics (opens, clicks, unsubscribes) to gauge the actual level of negative response.  

Regardless of the reaction, here is a step-by-step response protocol:

1. Alert customer service and support teams: Inform your call center, support, and anyone else who might receive customer feedback about the error. This will enable them to respond promptly to complaints and maintain a positive customer experience.
2. Record and analyze negative feedback: Track any negative feedback and determine how many customers noticed the mistake. Sometimes, only marketers notice these errors, and if the offers are still relevant, customers may not see any difference. This analysis helps to gauge the level of critical impact.
3. Acknowledge your mistake and pursue damage control: If the error is noticeable, consider sending an apology email with a corrected offer or a small bonus. A swift acknowledgment with an offer can go a long way in maintaining trust.

Only those who do nothing make no mistakes, but it’s still worth safeguarding against errors by taking the following steps:

1. Thoroughly check all data before each send: Ensure that the data are current and accurate, especially if they are auto-synced. Review API, analytics, and segmentation settings to maintain accurate data.
2. Develop fallback content: Prepare a standard content fallback option in case data don’t sync properly, preventing clients from receiving incorrect information.
3. Review segments and content carefully before sending: Double-check segments and content, especially if the data have been updated or transferred to a new system. A simple recheck can prevent critical errors.
4. Regularly audit segments for overlap or duplication: This prevents clients from receiving conflicting or redundant offers due to their inclusion in multiple segments.

Micro-segmentation cases

Case 1. Geographic segmentation for dynamic pricing

We identified microsegments using customers’ geographic locations, focusing on departure airports and tailoring prices to different destinations. Rather than applying a standard price across all offers, prices were generated using specific geographic data, making the offers more relevant to the customer.

Results: Conversion rates increased by 0.5–1.5%. While this growth may seem modest, for a high-margin product (in this case, tickets), it significantly boosted revenue.

Conclusion: Geographic-based micro-segmentation can improve customers’ perception of offers, making them more credible and appealing. Even minor conversion improvements justify this effort.

The image below depicts dynamic pricing based on geographic segmentation. Each customer receives a customized list of travel offers from their departure city, making the email more relevant and personalized. It’s challenging to display this fully here because the block is dynamically inserted for each customer depending on their city.

The code would look like this:

Case 2: Special offers for expats

We identified a segment of expats by analyzing the frequency of flights to specific destinations, such as India. Customers who traveled more than three times to the same location within a year were considered expats. To validate this hypothesis, we sent a survey to these customers for confirmation. We subsequently tailored special offers on flights to Indian cities that are particularly popular among expats.

Results: The conversion rate for booking requests increased by nearly 1%, a notable improvement for this niche segment.

Conclusion: Deep segmentation based on behavior and travel frequency allows for identifying segments with specific needs and crafting highly targeted offers that resonate strongly with the audience, significantly increasing engagement.

Wrapping up

In conclusion, we can say that successful micro-segmentation requires a careful approach and meticulous fine-tuning. Even the slightest improvement can significantly boost results, making this an essential tool for companies striving for maximum efficiency and personalization.

And to compose perfect emails rapidly, there’s always Stripo!