TM AudDev
TM AudDev
of Customer
Segmentation
Alan Weber, principal of Data to Strategy Group, wrote in a past issue of Target Mar-
keting that, “Housefile segmentation fits into a strategy to grow the customer base,
increase loyalty and grow share of customer. In some ways, it drives the strategy; in
other ways, it reflects the strategy. For example, an organization with a goal of rapid
growth would look more at lifetime value and future sales than an organization with a
goal to maximize cash flow today.”
Knowing which customers have the potential to become more valuable helps to
grow loyalty within the housefile. Here are some of the things you need to look
for to spot a target ready to move up to a more valuable segment:
> Does the customer look like—demographically, or firmagraphically in B-to-B— a “best
customer”?
> If she is buying only one or a few items, could she be sold a greater variety of items?
> If you have only one contact name, or no contact name (not unusual in B-to-B), would
reaching more people in the organization increase sales potential?
2
The best timing of offers often varies substantially between segments. To know
when to test, the marketer should understand:
> How seasonal is the market by segment? Typically, seasonality takes on two components.
Best customers tend to buy more regularly, and often less seasonally, than occasional
customers or first-time buyers.
> How often do customers buy? The more often they buy, the more appropriate it is to
contact them frequently. The less often they buy, the less appropriate it is to contact
them too frequently.
> How soon do they buy again after a purchase? For most consumable goods and
services, customers are more likely to return sooner rather than later. A quick follow-up
offer generally is effective.
To understand which triggers are most effective, marketers need to look for
specific customer behaviors that correlate with high or low spending. Typical
differences include:
> Average order. Some customers make many small purchases; some make a few large
purchases. In general, average order is a more effective segmentation tool than total
monetary value (overall spending). A recency-frequency-average order segmentation
usually will be substantially more effective than a recency-frequency-monetary
segmentation.
> One item vs. many. In general, the greater the variety of things customers buy, the
greater the likelihood they are to return. By contrast, a large customer who buys only one
item often has a high likelihood of defecting.
> Time on file. New customers often behave differently than customers who are set in
a pattern. New customers often try many different things; they are ripe prospects for
cross-selling.
3
One Is Not Enough
With today’s society so fragmented with respect to media consumption and demo-
graphics, marketers will see better results from segmentation efforts when they layer
various segmentations. Don Ryan, senior partner at iKnowtion, pointed out in an issue
of Tipline that building relationships with customers, as opposed to promoting prod-
ucts, “means understanding customer characteristics, attitudes and behaviors. And
no one segmentation scheme can depict all that.”
Taking this concept a bit further, David Vergara, director of product marketing at
SPSS, an IBM company, noted in Target Marketing the importance of adding predic-
tive analytics to segmentation activities. He explained that “the result is a better un-
derstanding of what products and services customers are likely to want next.”
A database of static customer information is valuable, but until key active knowledge
gained from feedback is applied—like preferences or motivations—there’s an incom-
plete picture of the customer.
4
Capturing feedback from any touch point—in any language—provides a clearer
understanding of customers’ needs, preferences and attitudes, and improves the
segmentation process.
6. Deploy and Share Results Throughout the Business. The final step
is to create an environment in which an organization can manage and automate its
analytical processes and easily deploy the results across the enterprise—thus improv-
ing productivity and collaboration and increasing ROI.
This includes the ability to automate the database scoring process, publish and dis-
tribute output and reports, and integrate the analytical process into other business ap-
plications. For example, when a customer calls a call center, that agent should be able
to pull up information on that specific customer and know what type of offer should
be made at that particular time.