that online different approaches to strategic market segmentation may be an opportunity and

specific segments may need to be selectively targeted through online media channels, the
company website or email communications. As we will see, personal development and
lifecycle targeting are common approaches for online targeting.

● 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. However, there should also be clarity
on the core brand proposition.

The first stage in Figure 4.15 is segmentation. Segmentation is a management technique

which allows businesses to focus their efforts on the customers they can serve best. When
creating digital marketing plans it is useful to distinguish between strategic market
segmentation and online tactical segmentation which is used for online targeting. Strategic
market segmentation can be defined as (Jobber and Ellis-Chadwick, 2013): the identification
of individuals or organisations with similar characteristics that have significant implications
for determining marketing strategy. In an Internet marketing planning context, market
segments should be reviewed to assess:

● the current market size or value, future projections of size;

● the organisation’s current and future market share within the segment;

● needs of each segment, in particular unmet needs;

● competitor market shares within the segment;

● organisation and competitor offers and propositions;

● likelihood of a segment engaging with the organisation’s offer across all aspects of the
buying process;

● usage of the site and conversion to action through web analytics. Options for segmenting
online customers by activity levels, which is an online tactical marketing segmentation
approach, are covered in more detail in Chapter 6 and segmenting site visitors through web
analytics systems are covered in Chapter 10. Stage 2 in Figure 4.15 is target marketing. Here
we can select segments for targeting online that are most attractive in terms of growth and
profitability. These may be similar or different compared with 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 the 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, e.g. 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 that 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 that are brand-loyal – services to appeal to brand loyalists can be provided to
support them in their role as advocates of a brand.

● Customers that are not brand-loyal – conversely, incentives, promotion and a good level of
service quality could be provided by the website to try and retain such customers.

Some segments 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 4.16) 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 having the most options. Other alternatives are to set
up separate sites for different audiences – e.g. Dell Premier is targeted at purchasing and IT
staff in larger organisations. Once customers are registered on a site, profiling information in
a database can be used to send tailored email messages to different segments, as we explain in
the Euroffice example in Mini case Study 4.3. The most sophisticated online tactical
segmentation and targeting schemes are often used by e-retailers, which have detailed
customer profiling information and purchase history data and 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 or segment layers, and so the sophistication of the approach, will
depend on resources available, technological capabilities and opportunities afforded by the
following.

1. Identify customer profile-based demographic characteristics This is a traditional

segmentation based on the type of customer. For B2C companies this will include age,
sex and geography. For B2B companies, it will include size of company and the
industry sector or application they operate in.

2. Identify customer lifecycle groups Figure 4.17 illustrates this approach. As visitors
use online services they can potentially pass through seven or more stages. Once
companies have defined these groups and set up the customer relationship
management infrastructure to categorise customers in this way, they can then deliver
targeted messages, either by personalised on-site messaging or through emails that are
triggered automatically by different rules. First-time visitors can be identified by
whether they have a cookie placed on their PC. Once visitors have registered, they can
be tracked through the remaining stages. Two particularly important groups are
customers that have purchased one or more times. For many e-retailers, encouraging
customers to move from the first purchase to the second purchase and then on to 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 three months) further follow-ups are required.

3. Identify behaviour in response and purchase value As customers progress through the
lifecycle shown in Figure 4.17, database analysis can be used by the marketer to build
up a detailed response and purchase history which considers the details of recency,
frequency, monetary value and category of products purchased. Grouping customers
by their current and future value and techniques such as FRAC and RFM analysis can
be used to develop strategies to retain valuable customers and migrate lower value
customers to higher value in future (see Chapter 6).