Ever receive a piece of mail that was personalized but that just didn't speak to you? Ever have an ad pop up on your mobile device that would be better suited for your 10-year old daughter? Ever go to your favorite website, which you login and visit daily, and the banner ads appeal to the other side of the country?
These are all examples of how profiling, segmentation and modeling probably hasn't been done to reach you with the most relevant messaging possible. So what do these terms mean? I've outlined the differences, and in future entries will delve deeper into the application.
Profiling leverages a wealth of data to determine what elements are statistically different between segments. Profiling is a very good baseline analytical project from which to gain customer insights and develop marketing strategies. Profiling can also be used to determine pre-selection criteria to use for targeting and to develop a priori segmentations. Profiling can provide the building blocks to open the doors to modeling and segmentation strategies that will allow your approach to lead to hyperpersonalization.
Modeling is predictive mathematics. The process involves utilizing the name and address of customers and append hundreds of variables including demographics, lifestyle characteristics, socioeconomic variables and aggregate credit information. The modeling process allows you to leverage hundreds of variables to determine which variables are most predictive. Modeling creates a formula consisting of weights for each of the final variables that add to a score of 0-100. Modeling is best used to target predictive behavior.
Segmentation is the art of dividing a universe into like, or similar, clusters. For the purpose of this discussion, it is similar clusters of customers. By tailoring the offering (creative/communication, product, channel, price) to different segments, you are able to better identify and meet the needs of more customers. Custom build customer segmentations are extremely powerful for marketing strategies and campaigns. Building segmentations is a very creative process, as the very best segmentations are highly aligned with goals and strategies and are built to be leveraged to drive profitability.
All three of these are critical to best-in-class marketing. Profiling is excellent for communicating with stakeholders to develop strategy. Modeling is best leveraged to determine who receives a treatment, for example a direct mail piece. Segmentation is best used to determine how to talk to them; what to say; what images, colors, and styles to use; and how to motivate them to action. Often, companies make the mistake of choosing one approach over the other, when in fact, all three work synergistically to produce the best marketing campaigns.