A core tenet of business is, the firms who do well are the ones who can communicate and deliver real value to customers. Often determining the value proposition starts with the business defining their target customer and tailoring their product and their marketing to that customer. This process of targeting can occur either by segmentation or by personalization. Even though these terms are often used interchangeably, they are quite different and yield different results.

Segmentation versus personalization: What’s the difference

Segmentation is the process of examining the market and defining key segments based on unifying demographic features and personas. Customer segments can include millions of people grouped together by age, location, occupation, income, interests, and other identifying characteristics. Business utilize a combination of personal experience, market research, focus groups, and other techniques to develop personas for each of their market segments.

On the other hand, personalization is based on a single customer’s buying preferences. The goal of personalization is to create a highly customized experience for the customer and to market and make product suggestions on their unique buying history. To achieve this requires sophisticated data tracking and gathering tools that can monitor purchases and generate unique marketing and advertising that highlights the products a customer is already buying and which recommend similar products of interest.

When to choose segmentation versus personalization

To be effective, marketing needs to be targeted to the right audience. Sometimes, it isn’t enough to simply target a market segment. Personalization is very effective at influencing a buying decision because it is so customized to a specific consumer’s wants and needs. According to research by CMO.com, 75% of customers prefer marketing tailored to their interests. Companies who are able to provide tailored experiences see an increase in sales of at least 20%.

However, personalization isn’t easy and requires a great deal of infrastructure to do well. As an expense, it isn’t feasible for all businesses in all industries to implement this strategy. In these cases, segmentation still works well as a marketing targeting strategy. Segmentation allows a business to tailor their marketing and advertising to a key demographic without the added expense and resources required by personalization tactics.

As markets and technology change, the way we go about targeting customers will continue to change. The technology that supports cross-channel data collection and reporting continues to evolve, becoming more sophisticated and less expensive. Digital forward businesses are already taking advantage of these tools with positive results. As customer demand for this approach grows and technology becomes less expensive to implement, personalization will become the standard. In the meantime, review your organization and customer base and choose the approach that best meets your situation and needs.