Benchmark Report

Email Segmentation for eCommerce

The secret to effective marketing is no secret: it’s getting the right message to the right person at the right time. Which, of course, is easier said than done. The key to executing on a hyper-targeted, highly relevant, and effective marketing strategy lies in segmentation. Figuring out how to slice up your marketing universe into groups of people who are motivated by the same things sets you up to optimize the return on every communication with your customers — and to do it at scale.

In other words, when you’re doing email segmentation well, the sum of the parts will be greater than the whole.

Adopting a segmentation strategy not only ensures you’re approaching your high value customers with personalized, relevant messaging, it also increases the deliverability of all your email through higher open rates and lower unsubscribes.

This segmentation study analyzes Klaviyo customer data to demonstrate the effectiveness of email targeting and define top performing segments. It is focused in three main areas:

  1. The power of segmentation
  2. The breadth of segmentation options
  3. Segmentation in popular verticals

Overview

We analyzed over 2.5 billion emails – 2,619,441,297 to be exact – sent by US-based Klaviyo customers between October 1 and December 31, 2017. These segmented and unsegmented email campaigns were reviewed to determine performance against four metrics:

  • Unique open rates – the average number of recipients who opened the email. In other words, the communication captured their interest;
  • Unique click-through rates (CTR) – average number of recipients who clicked on a link in the email. These recipients were engaged enough to take an action;
  • Revenue per recipient (RPR) – the average amount of money spent by email recipient. This conversion metric is the important business value indicator;
  • Unsubscribe rate – the average number of clicks on the unsubscribe link in the email. These non-retained subscribers represent a loss of potential revenue.

The key business measure here is revenue per recipient (RPR). Focusing only on total email revenue often leads to poor email marketing practices like batch and blast. These practices may result in short-term revenue gains, but low open rates and the damage to sender reputation/deliverability, in addition to high unsubscribe rates, have long-term negative consequences.

We assume that when lists are highly segmented to a small portion of the overall base, those campaigns are being sent to engaged subscribers. In some instances, we have pulled unengaged subscriber data into our results. For example, win-back and re-engagement campaigns are a best practice for keeping healthy lists, but the performance of these segments will be much lower than campaigns sent to engaged segments. Some of these segments have been included in the overall results.

Segments defined

The creation of targeted lists can be achieved through demographic segmentation (eg. gender and geography) and, most effectively, through behavioral segmentation (eg. browse and purchase activity). When you combine these data points to define a segment – possibly men in California who have purchased once in the last 30 days – you can create very effective targets.

Not every segment is created equally. A “segment” that blasts an email to 79% of your list can’t be expected to yield the same results as a highly targeted VIP segment sent to 5% of your list.

With that in mind, we looked at three segmentation categories:

  • Highly segmented: emails sent to <20% of list
  • Segmented emails: sent to 20-90% of list
  • Unsegmented emails: sent to 90%+ of list

The holiday season is the busiest time of year for ecommerce stores, when many retailers move out of the red and into the black for yearly profit margins. With this in mind, we decided to look at this important quarter to give unsegmented campaigns the best chance of outperforming small segments. Let’s see what we discovered!

Highly segmented emails perform best

Across the board, highly segmented and segmented email campaigns earn higher open rates, click through rates, and revenue per recipient – and lower unsubscribe rates – than unsegmented email campaigns.

Even with the strong performance of unsegmented Black Friday and holiday sales emails, highly segmented email sends performed better by a sizable margin in all areas.

The following results are aggregated from all business verticals and a seemingly endless variety of list segmentations.

Average open and click through rates of highly segmented email sends were almost double the rate of unsegmented lists: 16.17% vs 9.95% for open rates, and 1.99% vs. 0.92% average CTR.

The bottom line results, however, were most impressive. Highly segmented lists return more than 3X the revenue per recipient of unsegmented lists: $0.19 vs. $0.06.

The unsubscribe rate for unsegmented campaigns is 2x that of highly segmented campaigns, further demonstrating why a batch and blast email strategy is detrimental to subscriber and customer retention.

High performing segment breakdowns

The aggregate data on billions of emails tells us that targeting works. To make this information more actionable, we looked into the definitions of the segments that performed well. Each segment definition is made up of conditions.

For example, a VIP segment might be defined by 3 conditions:

  1. people who have spent more than $2000 over the year, OR
  2. purchased more than 4 products over the year, AND
  3. have been a customer for more than 6 months.

The more specific your conditions and definition are to your target audience, the more likely you are to motivate that segment to take action.

Let’s look at some conditions the highest performing segmented campaigns have in common:

  • target 5% or less of the full email list,
  • defined by two or more conditions,
  • include specific recipient behavior, and
  • define the timeframe of the recipient behavior.

 

Email success fluctuates between industries, so we looked at the three verticals with the highest volume of email sends for the quarter to determine how their campaigns performed.

Fashion & apparel

Fashion and apparel was the largest industry we analyzed, with 16,330 emails.

In this vertical, the average CTR of highly segmented email campaigns was nearly 2X greater than unsegmented sends. And the average RPR of highly segmented campaigns was nearly 3X greater than unsegmented, and the unsubscribe rate was almost ½ that of unsegmented.

Low performance came from poor segmentation, including “anyone who has engaged within the last 800 days.” A rule of thumb for defining an engaged customer, is anyone who has engaged in the last 120 days (4 months). Depending on the business, this timeframe changes, but segmenting on 800 days (almost 2 years) is way too broad. If someone hasn’t engaged with your brand in over 1.5 years, they’re not usually a good place to focus your efforts. Segmentation this untargeted will bring down your results, and it did affect overall RPR of this vertical.

A full 60% of the top performing fashion and apparel campaigns were sent to segmented and highly segmented lists. These top campaigns garnered an average open rate of 54.21%, average CTR of 6.77%, and average RPR of $91.81.

 

High performing segment breakdowns

There are three common elements of top performing fashion and accessory campaigns:

  • targeted to under 5% of the total list,
  • contain 2 or more definition conditions, and
  • include specific recipient behavior.

Jewelry & accessories

The second highest volume of emails were sent by our jewelry and accessories customers.

In this industry, highly segmented campaigns performed 2X better than unsegmented ones for open rate, CTR, and RPR.

The high unsubscribe rate of the highly segmented lists is due to the poor performance of email campaigns sent to small groups of unengaged targets. These campaigns pulled down the average performance across the board.

Unsegmented campaigns for Cyber Weekend sales worked well for jewelry brands, illustrating the Q4 anomaly of high performing unsegmented campaigns. The highest revenue generating unsegmented campaigns were for holiday sales. One holiday sale campaign sent to about 28,000 recipients generated over $48,000.

An important note, however, is that these high volume sends also generated high unsubscribes, demonstrating that focusing on a short-term holiday win can negatively impact the performance of the following quarters.

Sixty per cent of the top jewelry campaigns were sent to segments, and those received an average open rate of 59.23%, CTR of 25.84%, and RPR of $32.03. Looking at all emails in this category, the targeted campaigns hit their mark.

High performing segment breakdowns

The top performing jewelry and accessory segments had similar attributes:

  • less than 1% of the total email list,
  • segment on customer behavior, and
  • contain at least two conditions in the segment definition.

 

The highest performing campaign was segmented by a number of behavioral considerations – the number of orders placed and purchase amount – and further targeted by ensuring the recipients were not included on three other lists. This type of highly focused targeting pays off with high RPR.

Health & fitness

Health and fitness brands make up our third largest group, made of up companies selling health supplements, exercise equipment, and exercise videos.

For this category, CTR and RPR performance of highly segmented campaigns resulted in a 2X lead over unsegmented campaigns.

While unsegmented email campaign performance rallied due to Black Friday and holiday sales, nearly half the recipients unsubscribed, affecting post-holiday sales and customer retention opportunities.

In this category, 70% of the top performing campaigns were sent to segmented and highly segmented lists, and those top campaigns averaged 29.87% open rate, 3.97 CTR, and $47.33 RPR.

High performing segment breakdowns

The top performing health and fitness campaigns were structured differently than other industries’ top performers, but had similar traits:

  • target less than 3% of the total mailing list, and
  • defined by a single pre-segmented condition.

 

Of interest here is that the segment definitions are focused on a pre-existing segmentation: members of a specific program, or a group that already received a segmented variation of an email. Thus even though there are only one or two conditions in the segment definition, these are highly segmented campaigns.

Elements of segmentation

When it comes down to it, there are really two ways to approach email marketing. It’s either “blast and decay,” where you’re sending out untargeted campaigns and not paying attention to who isn’t paying attention to you. That might seem harmless, but you’re actually setting yourself  up to slowly but surely erode your sender reputation and create email deliverabilty issues.

The better approach is “target and grow” — using the data that you have at your disposal to segment your marketing and make sure you’re getting the right message to the right person at the right time.

Simple math leads many marketers to assume sending the same email offer to their list will net them better results than creating different emails for smaller segments. But that’s not true.

When you communicate to people with something they care about, they’ll reward you for it.

A smart segmented strategy will make you more money and drive more sales than sending a single email to everyone on your list. Relevance wins, every time.

Next steps

Here are 5 easy steps to an effective segmentation strategy:

1. Focus on engaged audiences

The overall performance of all three categories – highly segmented, segmented, and unsegmented – was affected by the poor performance of campaigns aimed at unengaged audiences. Decide the optimal timeframe to consider a recipient unengaged, and don’t include unengaged audiences in campaigns (unless you’re specifically focusing on win-backs or other final chance targets, and you don’t expect high returns). Your resources are better allocated to defining and executing campaigns for all levels of engaged customers, and focusing your segmentation efforts first on your smaller. high-value audiences.

More information on Understanding and Improving Customer Engagement

2. Define your goal and strategy

This should go without saying, but the goal isn’t to create segments, the goal is a business need. After the goal is defined, decide how email is going to play into that goal in your marketing strategy by defining your audience, your offer, and your message. The segment is the way you execute against your goal and strategy.

More information on Goals and KPIs

3. Define your segments

This is how you use the data you have about your customers. Define your audience segments with a minimum of 2 conditions, and base those conditions first on a person’s time-bound behaviors and then demographics. Effective examples of behavioral targeting include past purchase frequency, purchase amounts, and abandoned cart history.

Pull this segment from your master list. Using the data from the benchmark, if your segment is more than 20% of your list, look for other logical ways to pare down the audience to achieve the best targeting possible.

More information on Ways to Segment

4. Review performance metrics

As always, gather your data and test. If you’re receiving lower performance than expected, make correlations about those who purchased and those who didn’t, and optimize your ongoing segmentation with that information.

5. Learn advanced practices

Once you’ve mastered the basics of email segmentation, level up to advanced practices for building segments and creating an easy operational framework.

Learn how to Map Your Email Segmentation Strategy

So, what the heck is Klaviyo?

It’s pronounced “clay-vee-oh.” We’re a data-driven email automation platform that makes it easier to communicate with your shoppers and customers by sending incredibly targeted messages with minimal effort — and track exactly how much revenue each email is driving for your store. On average, for every dollar an online store spends on Klaviyo, they generate $94 in store revenue. Learn more at Klaviyo.com

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