Case Study | AI-Powered Customer Segmentation for a Leading Retailer

Functional Topic

AI Customer Segmentation

Project Industry

Retail

Needed Support

Artificial Intelligence Consultant

Duration

3 Months

The Challenge

A European retail chain faced significant challenges in understanding and catering to its diverse customer base across multiple regions. Their existing segmentation relied on outdated methods, using broad demographic categories such as age and income level, which failed to capture actual purchasing behaviors.

As a result, marketing campaigns lacked relevance, leading to suboptimal engagement and low conversion rates. Additionally, high-value customer groups were not clearly identified, making it difficult to target them effectively. The company needed a robust AI customer segmentation model based on behavioral data to improve campaign precision, allocate marketing resources efficiently, and drive customer loyalty.

Role of Consultport

The retailer engaged with Consultport to provide a consultant capable of designing and implementing a cutting-edge customer segmentation system. Within 48 hours, Consultport provided four highly qualified Artificial Intelligence Consultants with experience in AI-driven retail analytics.

The selected consultant brought eight of experience in marketing in the retail industry, having also managed past projects for AI customer segmentation and AI in marketing. The consultant had previously implemented segmentation solutions for Fortune 500 companies, with expertise including machine learning algorithms, customer data integration, and building actionable models for marketing teams.

The Approach

The consultant adopted a structured methodology to transform the retailer’s customer segmentation process with AI:

1. Data Consolidation and Cleaning

The consultant began by consolidating customer data from multiple sources, including point-of-sale systems, the CRM platform, website analytics, and loyalty programs. Using Snowflake for data integration and Python scripts for preprocessing, they cleaned and standardized datasets to ensure accuracy and consistency. This step resulted in a comprehensive database of customer behaviors, such as purchase frequency, average basket size, product preferences, and seasonal buying patterns.

2. Advanced Segmentation with Machine Learning

Then, the consultant developed and trained an AI-driven clustering algorithm. This model analyzed purchasing behaviors, frequency of interactions, and channel preferences to classify customers into actionable segments.

Key customer segments identified included:

Value Seekers: Customers who prioritize discounts and promotions.
Loyal Spenders: Repeat buyers with high average order values.
Occasional Shoppers: Infrequent buyers with specific product interests.
Trend Enthusiasts: Customers driven by new product launches.

The model also generated a predictive layer, identifying customers likely to switch segments (e.g., occasional shoppers moving to loyal spenders) based on their engagement trends.

3. Integration and Actionability

The consultant integrated the AI customer segmentation model into the retailer’s CRM (Salesforce) and marketing automation tools. This allowed the marketing team to run targeted campaigns for each segment, such as exclusive promotions for value seekers or early-access offers for trend enthusiasts.

Additionally, a live dashboard was built using Tableau, enabling the team to visualize segment performance metrics such as revenue contribution, churn probability, and engagement rates in real-time.

The Results

After one year of the project’s completion, the implementation of AI-powered customer segmentation delivered transformative results:

Enhanced Campaign Precision

Targeted campaigns based on the new segments resulted in a 20% increase in conversion rates compared to generic campaigns.

Improved Customer Retention

Identifying and addressing the needs of high-value customers, such as loyal spenders, reduced churn rates in this segment by 15%.

Efficient Resource Allocation

Marketing budgets were redirected toward high-impact segments, reducing unnecessary spending and maximizing ROMI.

Team Empowerment

The marketing team gained access to real-time insights through the Tableau dashboard, enabling agile decision-making and better resource management.

The segmentation system designed by the consultant completely changed how we view and engage with our customers. For the first time, we can focus on the right groups with campaigns that truly resonate.

— Director of Marketing