Malcolm Gladwell, in his famous TED talk, "Choice, Happiness, and Spaghetti Sauce," makes the case for segmentation. He discusses how, in the food industry, companies moved away from the quest to find one product that would please everyone, to create derivatives of the same product for clusters of users with different tastes and preferences.
By tailoring variations of a product to the tastes of different customers, companies managed to dramatically enlarge their brand's market share.
But is what's true for food also true for customer marketing?
We set out to investigate just how powerful segmentation is in regards to customer marketing campaigns. My company conducted a cross-site study to measure the correlation between the granularity of target groups and campaign uplift. Would presenting a different offer to small groups of consumers with similar attributes generate more uplift than sending the same offer to all consumers?
We assumed that the more granular a segmentation, the more the offer can be tailored to customers' specific needs and wants, and therefore higher engagement would be achieved.
A personal value proposition
Our data set consisted of over 30 million customers and 2,000 campaigns, delivered to target groups ranging in size from one customer per group to groups of over 100,000 customers. For each target group size, we measured the average campaign uplift.
We plotted the results—average uplift per customer and the extent of each group's results volatility—on a graph.