AI-Driven Customer Segmentation: How to Target the Right Audience

how to use ai for customer segmentation

Knowing your customers is important in today’s fast and competitive business world. While traditional methods of customer segmentation have worked okay, the rise of artificial intelligence (AI) has totally changed the game. With AI, e-commerce businesses can be even more precise and efficient in their customer segmentation. In this blog post, we’ll dive into the amazing benefits of AI-driven customer segmentation and see how it can help you reach the perfect audience every time.

Benefits of Customer Segmentation with AI

Customer segmentation is when businesses divide their customers into smaller groups based on similar characteristics or needs. This helps businesses create personalized marketing messages and products that are more relevant to each group of customers.

Conventional approaches to customer classification oversimplify customer actions by relying solely on basic transactional or demographic data, neglecting to consider the diverse motivations, preferences, and conduct that influence customers’ choices. With conventional customer segmentation methods, you can divide your customers by age, location, or past purchases. But the extent of segmentation still depends on your understanding of customers and resources for tailored marketing.

AI overcomes these limitations by analyzing vast amounts of data combined for creating precise customer segments. It would not be an exaggeration to say that AI technology has taken the customer segmentation process to the next level. Having a larger volume of data at your disposal allows you to create incredibly precise segments, even down to a single individual, and deliver highly targeted marketing messages to each of these segments.

AI is much faster than humans at segmenting customers. It can effortlessly group customers based on their interests, needs, and behaviors, allowing for more effective marketing campaigns and increased sales. AI can also predict customer churn, personalize marketing campaigns, increase customer lifetime value, and reduce marketing costs. Let’s look at the benefits of AI-powered customer segmentation for e-commerce businesses in more detail.

AI Adds Extreme Accuracy to Customer Segmentation

Are you tired of broad categorizations that fail to accurately target your niche audience? Look no further than AI-driven customer segmentation. With precision that goes beyond traditional methods, AI uncovers micro-segments within larger groups, allowing businesses to reach even the most specific audiences.

AI uses data mining uses to analyze large amounts of data from different sources like customer behavior, market trends, and competitor activities. The information gathered can help you with advertising strategies. AI also uses predictive analytics to forecast future consumer behavior and market trends based on past data.

As a result, AI can segment audiences into more granular groups based on demographics, interests, behavior, and other factors. This allows you to tailor their messages to specific audience segments, improving ad relevance and performance.

AI Extracts Real-Time Audience Insights with High Precision

AI also provides real-time insights, enabling businesses to respond swiftly to changing customer behaviors and market trends. This means you can stay ahead of the competition and keep your customers satisfied. Basically, here are the main elements that enable AI to deliver highly precise data.

  • Real-time analytics. Artificial Intelligence offers real-time insights into advertising performance, enabling you to make prompt adjustments as required. This helps to prevent the waste of resources on poorly performing campaigns.
  • Customized reporting. AI can generate customized reports that provide comprehensive information on campaign performance, helping you identify areas for improvement with ease.
  • Data cleaning. AI algorithms are capable of cleaning and preprocessing data to eliminate duplicates, rectify errors, and handle missing values. Clean data is crucial for obtaining accurate insights. It applies both to the target audience itself and how customer segments are targeted. For example, you may target the right audience with the wrong keywords and not even know that. AI will successfully spot the issue and craft an efficient keyword list for use in your ad creatives and campaigns.
  • Deep learning. Deep learning models, such as neural networks, can be utilized for intricate tasks like sentiment analysis and image recognition, providing profound insights into audience behavior. Also, AI-powered NLP models can analyze text data in real-time to determine audience sentiment toward a product, brand, or topic.
  • Privacy compliance. AI systems can be designed to comply with data privacy regulations (e.g., GDPR) by implementing data anonymization and encryption techniques while still providing valuable insights.

AI Helps Optimize Advertising Costs

Let’s talk about ad cost efficiency first. With AI, you can understand customer preferences better. Your marketing efforts will be focused on audiences that are more likely to convert, reducing wasted resources and increasing your ROI.

AI offers amazing capabilities for A/B testing of ads. You can let AI do the work of figuring out which ad variations perform the best both in terms of budget and combinations of ad creatives. AI not only moves money from bad ads to good ads but also optimizes overall ad spend.

AI speeds up the optimization process and creates personalized ad creatives in real-time based on user data. This means that each user sees the most relevant content, leading to higher engagement and conversion rates.

AI Enables a Smooth Customer Experience

But the benefits of AI-driven customer segmentation don’t stop there. AI can enable you to run highly personalized marketing campaigns that foster a stronger connection between the brand and the customer. Here’s how AI can overhaul how your customers interact with your e-commerce business.

  • AI can study big sets of data to find patterns and trends in groups of customers. This can help you give individualized experiences, like suggesting products, content, and deals. Doing this can make customers happier and more loyal.
  • AI-powered chatbots and virtual assistants provide 24/7 customer support, answer customer queries, and resolve issues quickly, improving accessibility and responsiveness.
  • AI predicts customer needs and behavior. This allows you to address issues proactively, offer relevant products or services, and optimize inventory and resources.
  • AI-powered suggestion systems and knowledge bases recommend products or information that match personal preferences, boosting chances to sell more products or services.

When customers feel understood, they are more likely to remain loyal and recommend the brand to others. All the above-mentioned AI tools take customer experience to a whole new level.

Customer Segmentation Using AI Enables Innovation and Business Growth

With AI-driven customer segmentation, you can even reveal new opportunities for product or service development—using customer segmentation can help you innovate and expand your offerings. By understanding customer pain points and desires, you can innovate to meet previously unmet needs.

By looking at feedback and behavior data extracted with AI, you can create products and services that are tailored to specific groups of your customers. As a result, you can ensure stable business growth and be more successful in the long run.

what are the benefits of AI for customer segmentation
7 Benefits of AI for Customer Segmentation

7 Tips for Successful AI-Driven Customer Segmentation

To do well in AI-powered customer segmentation, you need to have clear goals like making targeting more accurate or increasing conversion rates. You must gather good data from different places like CRM systems, website analytics, and surveys. Using machine learning to find important patterns in your data can give you useful information. Check the seven tips on how you should approach customer segmentation with AI below.

  1. Define the goals. Determine what you want to achieve with AI-driven segmentation, such as improving targeting or increasing conversion rates.
  2. Collect the data. Gather a variety of data from sources like CRM, website analytics, and surveys.
  3. Utilize machine learning. Allow AI algorithms to analyze your data and uncover patterns and insights.
  4. Check the customer feedback. Obtain input from customers to refine your segments.
  5. Integrate into marketing. Utilize segments to personalize content and offers in your campaigns.
  6. Prioritize data privacy. Adhere to data protection regulations like GDPR or CCPA and ensure data security and transparency.
  7. Test and improve. Continuously experiment to enhance the accuracy and effectiveness of your segmentation.

How to Use AI for Customer Segmentation [Real-Life Use Case]

BrightBid is an AI engine that provides e-commerce businesses with a whole set of optimization tools for Google Ads, Google Shopping ads, and Microsoft Advertising. Here’s how our AI engine helped out Amity with ad strategy, bidding, and customer segmentation.

Amity is a global tech company that helps other tech teams build in-app communities easily with their Amity Social SDK (software development kit). They work worldwide, mainly targeting CTOs and CMOs in the B2B sector. BrightBid assisted them in expanding to 69 markets using paid search, reducing their Cost per Lead by 47%.

However, Amity faced a challenge in 2022. Many of their broad keywords included the term “Chat,” like ‘ChatSDK’ and ‘ChatAPI,’ which caused confusion when ChatGPT was launched in November 2022. This resulted in irrelevant clicks, prompting a rapid overhaul of their paid search campaigns.

BrightBid helped Amity by excluding irrelevant keywords, adjusting bids, and pausing previously high-performing terms. This resolved the issue of irrelevant clicks. We also shifted our strategy to prioritize keywords that were not historically strong but began performing well in the new situation.

During this time, BrightBid AI introduced over 151,000 bid optimizations, effectively reaching the right audience and achieving higher-quality visitors with better conversion rates, thus reducing their cost per Sales Accepted Lead (SAL).

By improving the campaign structure, creating more relevant ad copy, using better keywords, and refining audience targeting, our AI successfully lowered the cost of acquiring leads. These optimizations encompassed various factors such as geographic location, device specifications, and user interests, thereby maximizing the effectiveness and precision of our advertising campaigns. In conjunction with a refined approach to audience targeting, BrightBid AI successfully achieved a reduction in expensive leads.

How to Use AI for Customer Segmentation
How to Use AI for Customer Segmentation

As a result, in just a year Amity was able to achieve the results below by using BrightBid AI tools, including customer segmentation with AI.

  • Impressions: -1.2%
  • Clicks: +12.6%
  • Average CPC: -34.1%
  • Amount SAL (Sales Accepted Lead): +39.3%
  • Cost per SAL (Sales Accepted Lead): -46.7%
  • Average Time on Page: +13%
  • Bounce rate: -21.32%

Amity challenged us with their toughest markets, including the UK, France, Germany, Netherlands, and Canada, which had high costs per Sales Accepted Lead (SAL) due to intense competition. We aimed to reduce the cost per SAL by 20% and succeeded.

Target the Right Audience Every Time


Kate Cox

BBC World Business News featured a celebration of Google’s 25th anniversary

BBC World Business News featured a celebration of Google’s 25th anniversary, highlighting its journey from a Stanford student project to the global tech giant we know today. Here’s our CMO Kate Cox talking about the incredible impact Google has had on information access, its role as a verb in everyday language, and the democratization of…

Read Article

“Google turns 25: but can it still dominate the next decade?”

Google was 25 years old on 4/9/23. It turned marketing upside down when it launched in ways we couldn’t have predicted and were definitely too slow to realise at its launch. Many big businesses, worth millions or billions, owe their success to Google as its given them a forecastable and scalable way to grow as…

Read Article

“Google changed the world but search is on for the next big hit”

25 years since Google launched and overturned marketing as we knew it. Now around 30p in every £ spent on marketing goes to Google. Great piece from Tom Whipple The Times this weekend explaining the rise and rise of Google and BrightBid are quoted. ‘Kate Cox is chief marketing officer at a company, BrightBid, that…

Read Article

”From gloom to glory: What’s fuelling UK firms’ surging trading confidence?”

Our Founder Gustav Westman was quoted in Business Leader’s article on how UK businesses are continuing to weather the economic storms with increased investment in tech and resurgence confidence for the UK to deliver on the emerging promise of AI capabilities. “Business confidence is better than expected following intermittent stretches of uncertainty, and owing to…

Read Article

”AA/WARC Report reaction: Lights, camera, action”

New figures from the Advertising Association/WARC Expenditure report reveal that, despite the tough conditions, marketers are refusing to be buffeted by the economic headwinds, with plans to plough more spend – especially digital – behind this summer’s big sporting events and blockbuster movies. Gustav Westman comments on the continued growth in digital marketing in Decision…

Read Article

“Tech will allow marketers more time to do what they do best”: 9 experts on how AI can solve brands’ H2 marketing puzzle

“Q2 2023 AdSpend was a picture of cautious confidence with investment remaining robust. The latest IPA Bellwether report honed in on brands’ intention to use AI to drive efficiency – with the use of AI-powered technology identified as a core opportunity. Here’s our founder Gustav Westman ‘s hot take on the quarter in Performance Marketing…

Read Article