In Chapter 4 I review 8 key strategic decisions that all organisations should consider when reviewing their e-channel strategies:

• Decision 1: Market and product development strategies.
• Decision 2: Business and revenue model strategies.
• Decision 3: Target market strategy.
• Decision 4: Positioning and differentiation strategy (including the marketing mix).
• Decision 5: Multi-channel distribution strategy
• Decision 6: Multi-channel communications strategy
• Decision 7: Online communications mix and budget
• Decision 8: Organisational capabilities (7S)

More details and reviews on Internet Marketing:Strategy Implementation and Practice book

Decision 3: Target marketing strategy

Deciding on which markets to target is a key strategic consideration for Internet marketing strategy in the same way it is key to marketing strategy.

Target marketing strategy involves the four stages shown in Figure 4.12, but the most important decisions are:

• Segmentation/Targeting strategy – A company’s online customers have different demographic characteristics, needs and behaviours to its offline customers. It follows that different approaches to segmentation may be required and specific segments may need to be selectively targeted.
• Positioning/Differentiation strategy – Competitors' product and service offerings will often differ in the online environment. Developing an appropriate online value proposition as described below is an important aspect of this strategy.

Figure 4.12 Stages in target marketing strategy development

In an Internet context, organisations need to target those customer groupings with the highest propensity to access, choose and buy online.

The first stage in Figure 4.12 is segmentation .

Segmentation involves understanding the groupings of customers in the target market in order to understand their needs and potential as a revenue source so as to develop a strategy to satisfy these segments while maximising revenue.

Dibb et al. (2001) say that: Market segmentation is the key of robust marketing strategy development . . . it involves more than simply grouping customers into segments . . . identifying segments, targeting, positioning and developing a differential advantage over rivals is the foundation of marketing strategy.

In an Internet marketing planning context, market segments will be analysed to assess:

1. their current market size or value, future projections of size and the organisations current and future market share within the segment;
2. competitor market shares within segment;
3. needs of each segment, in particular, unmet needs;
4. organisation and competitor offers and proposition for each segment across all aspects of the buying process.

Stage 2 in Figure 4.10 is target marketing. Here we select segments for targeting online that are most attractive in terms of growth and profitability. These may be similar or different according to groups targeted offline.

Some examples of customer segments that are targeted online include:

• the most profitable customers – using the Internet to provide tailored offers to the top 20 per cent of customers by profit may result in more repeat business and cross-sales;
• larger companies (B2B) – an extranet could be produced to service these customers, and increase their loyalty;
• smaller companies (B2B) – large companies are traditionally serviced through sales representatives and account managers, but smaller companies may not warrant the expense of account managers. However, the Internet can be used to reach smaller companies more cost-effectively. The number of smaller companies that can be reached in this way may be significant, so although individual revenue of each one is relatively small, the collective revenue achieved through Internet servicing can be large;
• particular members of the buying unit (B2B) – the site should provide detailed information for different interests which supports the buying decision, for example, technical documentation for users of products, information on savings from e-procurement for IS or purchasing managers and information to establish the credibility of the company for decision makers;
• customers who are difficult to reach using other media – an insurance company looking to target younger drivers could use the Web as a vehicle for this;
• customers who are brand-loyal – services to appeal to brand loyalists can be provided to support them in their role as advocates of a brand as suggested by Aaker and Joachimstiler (2000);
• customers who are not brand-loyal – conversely, incentives, promotion and a good level of service quality could be provided by the web site to try and retain such customers.

Such groupings can be targeted online by using navigation options to different content groupings such that visitors self-identify. This is the approach used as the main basis for navigation on the Dell site (Figure 4.13) and has potential for subsidiary navigation on other sites. Dell targets by geography and then tailors the types of consumers or businesses according to country, the US Dell site has the most options. Other alternatives are to setup separate sites for different audiences – for example, Dell Premier is targeted Purchasing and IT staff in larger organizations.

Once customers are registered on a site, profiling information in a database can be used to send tailored e-mail messages to different segments as we explain in the Euroffice example in the later section on the customer lifecycle.

Figure 4.13 Dell Singapore site segmentation

The most sophisticated segmentation and targeting schemes are often used by E-retailers, who have detailed customer profiling information and purchase history data and they seek to increase customer lifetime value through encouraging increased use of online services through time. However, the general principles of this approach can also be used by other types of companies online. The segmentation and targeting approach used by E-retailers is based on five main elements which in effect are layered on top of each other. The number of options used and so, the sophistication of the approach will depend on resource available, technology capabilities and opportunities afforded by the list:

1. Identify customer lifecycle groups.

Figure 4.14 illustrates this approach. As visitors use online services they can potentially pass through seven or more stages. Once companies have defined these groups and setup the customer relationship management infrastructure to categorise customers in this way, they can then deliver targeted messages, either by personalized on-site messaging or through E-mails that are triggered automatically due to different rules.

First time visitors can be identified by whether they have a cookie placed on their PC. Once visitors and then registered, they can be tracked through the remaining stages. Two particularly important groups are customers who have purchased one or more times. For many e-retailers, encouraging customers to move from the first purchase to the second purchase and then onto the third purchase is a key challenge. Specific promotions can be used to encourage further purchases. Similarly, once customers become inactive, i.e. they have not purchased for a defined period such as 3 months, they become inactive and further follow-ups are required.

Figure 4.14 Customer lifecycle segmentation

2. Identify customer profile characteristics.

This is a traditional segmentation based on the type of customer. For B2C e-retailers this will include age, sex and geography. For B2B companies, this will include size of company and the industry sector or application they operate in.

3. Identify behaviour in response and purchase.

As customers progress through the lifecycle shown in Figure 4.14, by analysis of their database, they will be able to build up a detailed response and purchase history which considers the details of recency, frequency, monetary value and category of products purchased. This approach, which is known as RFM or FRAC analysis is reviewed in more detail in Chapter 6. See Tesco.com case study for how Tesco target their online customers.

4. Identify multi-channel behaviour (channel preference).

Regardless of the enthusiasm of the company for online channels, some customers will prefer using online channels and others will prefer traditional channels. This will, to an extent be indicated by RFM and response analysis since customers with a preference for online channels will be more responsive and will make more purchases online. Drawing a channel chain (Figure 2.10) for different customers is useful to help understand this. It also useful to have a flag within the database which indicates the customers channel preference and by implications, the best channel to target them by. Customers that prefer online channels can be targeted mainly by online communications such as e-mail, while customers who prefer traditional channels can be targeted by traditional communications such as direct mail or phone.

5. Tone and style preference.

In a similar manner to channel preference, customers will respond differently to different types of message. Some may like a more rational appeal in which case a detailed e-mail explaining the benefits of the offer may work best. Others will prefer an emotional appeal based on images and with warmer, less formal copy. Sophisticated companies will test for this in customers or infer it using profile characteristics and response behaviour and then develop different creative treatments accordingly. Companies that use polls can potentially use this to infer style preferences. To summarise this section, read the Mini-case study – Euroffice segment the Office supplies purchasers illustrates the combination of these different forms of communication.

Mini-case study – Euroffice segment Office supplies purchasers using ‘touch marketing funnel’ approach

Euroffice (www.euroffice.co.uk) targets small and mid-sized companies. According to George Karibian, CEO, ‘getting the message across effectively required segmentation’ to engage different people in different ways. The office sector is fiercely competitive, with relatively little loyalty since company purchasers will often simply buy on price.

However, targeted incentives can be used to reward or encourage buyers’ loyalty. Rather than manually developing campaigns for each segment which is time consuming, Euroffice mainly use an automated event-based targeting approach based on the system identifying the stage at which a consumer is in the lifecycle, i.e. how many products they have purchased and the types of product within their purchase history. Karibian calls this a ‘touch marketing funnel approach’ approach, i.e. the touch strategy is determined by customer segmentation and response. Three main groups of customers are identified in the lifecycle and these are broken down further according to purchase category. Also layered on this segmentation is breakdown into buyer type – are they a small home-user, an operations manager at a mid-size company or a purchasing manager at a larger company? Each will respond to different promotions.

The first group, at the top of the funnel and the largest are ‘Group 1. Trial customers’ who have made one or two purchases. For the first group, Euroffice believe that creating impulse-buying through price-promotions is most important. These will be based on categories purchased in the past.

The second group, ‘Group 2. The nursery’ have made three to eight purchases. A particular issue, as with many e-retailers is encouraging customers from the third to forth purchase, there is a more significant drop-out at this point which the company uses marketing to control. Karibian says: ‘When they get to group two, it’s about creating frequency of purchase to ensure they don’t forget you’. Euroffice sends a printed catalogue to Group 2 separately from their merchandise as a reminder about the company.

The final group, ‘Group 3. Key accounts or ‘Crown Jewels’ have made nine or more orders. They also tend to have a higher basket value. ‘These people are the Crown Jewels’ and will spend an average of £135 per order compared to an average of £55 for trial customers’. They have a 90% probability of re-ordering within a six-month period. For this group, tools have been developed on the site to make it easier for them to shop. The intention is that these customers find these tools helps them in making their orders and they become reliant on, so achieving ‘soft lock-in’.

Figure 4.15 Euroffice E-mail (www.euroffice.co.uk)

Source: Adapted from the company web site press releases and Revolution (2005)

E-consultancy subscribers may also find this online targeting and segmentation briefing useful. Plus I wrote this post on E-mail segmentation and targeting in 2003, but it's still useful I think.

Online segmentation using web analytics

Segmentation is a fundamental marketing approach, but is often difficult within web analytics to relate customer segments to web behaviour because the web analytics data isn’t integrated with customer or purchase data, although it is possible in the most advanced systems such as Omniture, Visual Sciences and WebTrends.

However, all analytics systems have a capability for segmentation and it is possible to create specific filters or profiles to help understand one type of site visitor behaviour.

We cover segmentation using web analytics systems in Chapter 9 of the book.

In brief the common options are:

• First time visitors or returning visitors
• Visitors from different referrer types including:
  • Google natural
  • Google paid
  • Strategic search keyphrases, brand keyphrases, etc
  • Display advertising
• Converters against non-converters
• Geographic segmentation by country or region (based on IP addresses)
• Type of content accessed, e.g. are some segment more likely to convert?For example, speaking at Ad Tech London ’06, MyTravel reported that they segment visitors into:
  • Site flirt (2 pages or less)
  • Site browse (2 pages or more)
  • Saw search results
  • Saw Quote
  • Saw Payment details
  • Saw booking confirmation details

I have also interviewed Hugh Gage about online segmentation options using web analytics

Web analytics expert Hurol Inan also discusses how he aproaches segmentation in his client consulting projects (with some examples)

• View Hurol Inan's article on identifying segments through web analytics