Silverpop's CEO explains the benefits of segmenting email lists, and lists ways to do it.

Marketers are so conflicted these days. Many express concern about growing their email lists, and they spend a lot of time and effort gathering addresses to add to their databases. In fact, Silverpop just completed a survey about list growth, and found tremendous interest among marketers regarding which tactics are most successful. But marketers are also very concerned about being relevant in their communications, which often requires targeting very narrow groups of customers. And therein lies the conflict.

Certainly, a large list can be a good thing. But only if you take the time to cut it down to size. And by that, I mean segment. How you segment your lists is as important -- or more so -- than the creative you send and the offer you deliver. Dividing your email list into smaller groups of like-minded individuals can dramatically improve the relevance of your campaigns. And sending highly relevant messages to your target audience not only improves ROI, it helps with that list growth problem because marketers who send relevant messages tend to enjoy lower opt-out rates than those who blast the same message to everyone on their list.

Despite the fact that segmentation has long been a basic tenet of direct mail advertising, it's still a rarity to find email databases comprised of strategically delineated, robust segments. And yet, interactive marketers have an even easier time segmenting audiences than their offline counterparts. Today's technologies make segmenting and targeting with relevant content easier than ever before.

Segmentation needs validation through testing, and email allows for greater precision and flexibility in testing than other forms of marketing. Email testing is more cost effective than its offline counterparts, and results are obtained much faster. Segmenting and testing cycles that can take weeks in direct mail campaigns can be done in a matter of hours online.

Segmenting is basic marketing. At the very heart of the process is the effort to improve your knowledge about customers and prospects. The act of segmentation requires you to understand what makes each customer unique from the universe of recipients and how subsets of customers vary from one another. You must understand such things as:

• What messages will be most likely to cause them to react favorably to your product or service?
• Are there groups within your database more receptive to a discount offer, and others more likely to purchase when free shipping is offered?
• Is a portion of your target audience early adopters who need to be among the very first to hear about your new products?
• How often do they want to hear from you?
• How engaged are they with your products or services?

A segment of a larger database must be separated based on actionable data. For example, dividing up your lists by gender is only valuable if men and women use your products in different ways or require different promotional offers to entice them to buy. A solid and valuable segment is one in which members of the group share similar characteristics and will respond in similar ways to promotional messages.

Ultimately, your segments should be fluid. As you gather more actionable insights about customers and prospects, you can group and re-group segments to continually provide targeted, relevant communications.

Take the task of segmenting on one step at a time. Begin with a single important attribute to divide up the master list and continue to subdivide until you reach divisions that include groups of like-minded individuals expected to respond to your emails in similar ways.

As you further segment, commonly used methods include:

• Demographics: quantifiable customer characteristics including age, gender, education and income level
• Geographic: city, state, distance from your store, et cetera.
• Preferences: for example, the frequency and types of messages that most interest members of the group
• Online behavior: a customer's email use, past opens or clickthroughs, web page visits and conversions
• Customer type: whether the customer is a repeat buyer, inactive or a new customer
• Customer satisfaction: a customer's past experiences with your company
• Timing or event-based: a customer's recent action or an upcoming event such as a purchase or a subscription renewal

Some marketers implement a simple segmentation process that treats frequent openers differently from those who only occasionally or rarely open messages. Another strong segmenting technique is to divide groups based on what they click on within promotional messages or e-newsletters.

You can also segment new registrants from those who have been on your list for some time. Fossil, the company offering an extensive line of fashion watches and accessories, sends new registrants a "Welcome Series" of emails that introduces customers to the full array of products the company offers. The last email of the series includes a survey asking customers what they look to Fossil for-- whether it's watches, purses, sun wear or other items. Survey responses help Fossil better segment and improve product offerings to customers.

I recount another example of a truly impressive segmentation program in my book, "The Quiet Revolution in Email Marketing." A few years ago eBags, the world's largest online retailer of bags and accessories, set out to identify the day and time the company should send promotional emails to generate the highest response rates and online sales. Larry Martine, then eBag's director of retention marketing, hypothesized that the best time to reach each individual customer would be the same day and time that the customer had originally opted in. Martine and his team surmised that if the customer's schedule afforded them time to opt-in, it might also be the best time for them to consider an offer and make an online purchase.

Testing this segmentation strategy, eBags sent promotions to each recipient on the same day of the week and time of day as they had originally opted in. The results were astonishing. Compared with the control group, clickthroughs in the test group climbed 20 percent, conversion rates jumped 65 percent, and the average order size increased by 45 percent. The average revenue per recipient climbed 187 percent relative to the control group.

Clearly, while segmenting your list takes more time and effort than simply sending the same messages to everyone, it's obviously well worth the effort. Your ability to implement segmented campaigns will give you a significant competitive advantage over the many marketers who fail to realize the full potential of online, interactive marketing.

Bottom line: Think small to realize big profits.

Bill Nussey is president and CEO of Silverpop. Read full bio.