Segmentation is a business process in which marketers split a market of customers into relatively homogenous groups (called segments) based on specific parameters. Segmentation can be based on geographic, psychographic and demographic parameters, as well as behavioral data. As a tool in loyalty programs, it is used to manage members and create targeted marketing campaigns. There are plenty of approaches and possibilities for creating segments, but there are certain groupings that every segmentation strategy should include:

Segments based on member personas. Personas in marketing context are fictional characters, which marketers create based on their research to represent the different types of similar members. Program operators who have well-defined personas can create segments based on them. Creating this group allows marketers to shape the customer base per the set goals, but there must be a large amount of qualitative data to do so.

Segments based on spend. Set several levels of members’ spend and divide the base of participants into these groups. Thanks to this method, the program operator can clearly define who spends the most (usually 10-20% of the program audience) and who generally spends less.

Segments based on brand activity. Transaction frequency and recency, participation in promotions, redemption of points, and other activities that the loyalty program members carry out with the brand can be measured and used to create segments. This will help to divide members into groups with different levels of engagement. Based on this, the program operator has a clear picture of which participants are actively engaged, and which are inactive for a long time (and their accounts should be closed).

Segments based on locations. The simplest type of segmentation is called geographic segmentation, in which members are grouped based on the area in which they live. Unfortunately, not every operator collects location data. In these cases, geographic segmentation can be hard to apply. This method makes it possible to target location-based offers and create marketing campaigns appropriate to each region.

Segments based on product categories. This segmentation method is about dividing members according to what kind of products they buy. Not everyone who purchases goods from a specific product category will be interested in products from others. This segmentation allows the program operator to avoid sending inadequate offers and reduce the budget for shipping campaigns. It is also an important tool for cross-selling and up-selling.

As you can see, these are just a few possibilities for creating useful segments. The more accurate data a program operator has, the better the segmentation can be. On the other hand, the more complex the segmentation rules, the more challenges there are to manage. The key to success is to use only segments that are relevant to a specific business.

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