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Accenture - Winning The Lotto A fresh look at customer segmentation report - April 2013
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Accenture - Winning The Lotto A fresh look at customer segmentation report - April 2013



Accenture - Winning The Lotto

Accenture - Winning The Lotto
A fresh look at customer segmentation report - April 2013



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    Accenture - Winning The Lotto A fresh look at customer segmentation report - April 2013 Accenture - Winning The Lotto A fresh look at customer segmentation report - April 2013 Document Transcript

    • Winning The LottoA fresh look at customer segmentationAccenture Interactive – Point of View Series
    • Winning The LottoA fresh look at customer segmentationNo one doubts the value of goodcustomer segmentation. Theinsights it provides can identifymarket opportunities, improvethe targeting and relevancy ofcommunications, inform productand service development, and alsoguide overall investment strategiesacross the customer portfolio. Withdigital technologies fueling bigdata, and tech-savvy consumersopting out of mass-marketingcampaigns, segmentationstrategies need to be more robustand compelling than ever.In today’s increasingly fragmentedmarketplace, being able to identify newmarket opportunities and capitalize on them,through personalization and relevance—both in terms of needs and timeliness—areparamount. Customer segmentation isrecognized as an essential capability fora business that wants to deliver tailoredofferings and communications that generateand meet consumer demand. Why then, areso many companies struggling to achievethe value that segmentation promises?Why are segmentation strategies rarelyembraced enterprise-wide or able to drivemore impactful initiatives? And how canorganizations gain deeper insights into themarketplace and customers to ensure thattheir marketing initiatives will deliver theanticipated return on investment (ROI)?
    • Customer attributes fromFromto overpossible optionsmillionbillion6000%Up togrowthFind the ‘best’toFirst, consider a complex “wrinkle” in customersegmentation which often goes unnoticed.Take a typical customer segmentation efforttoday. A company wants to identify customersegments with significant growth potentialfor a particular product. It has captured 50customer attributes such as age, gender,location, account tenure and other customerlevel information. From this relatively smallset of attributes, the company wants toidentify the “best” six attributes to base thesegmentation upon—a surprisingly complexendeavor. Selecting the best six out of fifty isakin to playing a lottery—50 numbers… picksix… with more than 15 million ways to lose.With the advent of big data creating manymore sources and attributes to consider, thechallenge only grows. For example, doublingthe size of that same dataset doesn’t justdouble the possibilities; in fact, it causes thepossible options to grow from 15 millionto over a billion, a growth of over 6000percent. Traditional analytic methods such asclustering require the person developing thesegmentation, who is often a statistician, todetermine the best set of attributes facingthese odds. It’s no wonder that segmentationbased on traditional approaches often losetheir relevance within six months.In addition, there is also the issue of whatdoes “best” mean? Paradoxically, the lottoeffect, while seeming like an added obstacle,in fact provides the opportunity to searchfor the optimal attributes based on businessobjectives. Imagine a more advancedapproach to customer segmentationdevelopment— one that handles infinitenumbers of attributes, and factors in thebusiness objectives at the start of a projectto ensure that the resulting solution isaligned to those objectives. Leveragingartificial intelligence technology, nextgeneration customer segmentation isnow a reality.The lotto effect
    • Attributes selectedby an analystObjectives selectedby the BusinessOutcomeOne dimensionSegmentation FocusOutcomeOptimized Segmentationwith 360° ViewSegmentationAnalyticsARTIFICIAL INTELLIGENCE OPTIMIZERMANUALEVALUATIONSSegmentationAnalyticsVSToo often, segmentation efforts resultin a solution that is too focused on a singledimension of customer information, suchas attitudes, value, or behaviors. Advancedsegmentation, however, should have abalance across all the various customerdimensions, while also being actionable.Most importantly, customer segmentationneeds to reflect business goals (see Figure 1).One of the key values of leveraging artificialintelligence technology for segmentationdevelopment is the flexibility it provides. Thisis critical because the segmentation strategyneeds to address three fundamental issueswhile simultaneously balancing customerdimensions and business objectives.1. Who to focus on?The resulting segments must be highlydifferentiated across core valuedimensions such as revenue, cost,profitability, tenure and other aspectsto guide investment strategies.2. What to offer and what to say?Each segment needs a rich, unique, andcomprehensive profile to inform product,offer and messaging strategies.3. Where to find them?In order for the solution to be actionable,the segmentation must be developedso that it can be applied to a customerdatabase or target customers in amass-marketing campaign.Artificial intelligence technologies can beadapted specifically to address these issues.By using advanced data mining techniquesthese technologies are able to find optimalsolutions based on business objectives,insight quality, and actionability. Thisprovides a unique approach that bridgesadvanced analytics to business goals, whilein turn enabling strategies that drivesignificant market impact.A new way to play the gameAttributes selectedby an analystObjectives selectedby the BusinessOutcomeOne dimensionSegmentation FocusOutcomeOptimized Segmentationwith 360° ViewSegmentationAnalyticsARTIFICIAL INTELLIGENCE OPTIMIZERMANUALEVALUATIONSSegmentationAnalyticsTraditional MethodsNext GenerationApproachFigure 1: Segmentation: Traditional versus Next Generation ApproachEven with the best intentions, objectivesoften evolve as segmentations are developed,for example, when additional clarity is gainedduring the review of a preliminary solution.Instead of manually “tweaking” thesegmentation strategy through traditionalmethods, artificial intelligence technologiescan be fine-tuned to ensure the resultingsolution is optimal for the new set ofobjectives. The end result is a solution that isboth driven by the business objectives andempowered by analytics.To understand the full potential of artificialintelligence technologies, consider thefollowing example using Accenture’sproprietary solution, OptiCluster. Taking ahighly-rated previous customersegmentation project carried out usingtraditional methods for a large NorthAmerican retailer, OptiCluster was used todetermine how the results would differ. Thesolution was to provide customer insightsand guide merchandising strategies. In all,there were 240 attributes, including
    • 1201101009080706050125 150 175 200 225 250 275 300Average RevenueAverageCostSegment Size1201101009080706050125 150 175 200 225 250 275 300Average RevenueAverageCostSegment Sizeshopping behaviors, customerdemographics, and profitability metrics.However, the goal was to find a measurablybetter solution by simply using two typesof attributes: customer demographicsand shopping preferences. This avoidedany bias that profitability metrics canimpart on a solution.As illustrated in Figure 2, OptiCluster helpedin understanding “who to focus on” bydifferentiating segments across the valuedimensions of revenue and cost. In theclient’s original solution, only one fairlysmall segment showed any significantdifference from the other segments. Bycontrast, OptiCluster found a solutionwith significant differentiation across thesegments, including much larger superiorand poor performing segments. As a result,the client would be able to fine tune itsmarketing and merchandising strategiesthrough better profiling, targeting,messaging, and offerings development.Equally important is the fact that theidentified individual customer segmentshave rich holistic, yet unique profiles.Gaining this level of insight into customersegments is critical to developing offeringsand messaging strategies. In the optimalsolution from OptiCluster, every profiledimension showed significant improvementin clarity. In fact, when looking across allprofiling attributes, the indices from thecustomer segmentation that OptiClusterfound had increased by more than 80percent. The more rigorous a segmentationapproach, the stronger the foundation isfor a more personalized brand experience,as it allows marketers to make theirofferings and messaging highly relevantto the target audience.Figure 2: Impact of OptiCluster on Segmentation ResultsOriginal ResultsOptiCluster Results
    • While traditional analytic approachesgenerally focus on the question of whatto offer and the key messages to use,the limited dimensional segmentations ofdemographics, attitudes, or behaviors, endup sacrificing the question of who to focuson. The absence of a value dimension suchas profitability, revenue, and Net PromoterScore (NPS), makes it very difficult todevelop an investment strategy for eachcustomer segment. It also makes it nearlyimpossible for marketing to win supportfor the segmentation strategy across theenterprise. While other business unitsmay find segment profiles of interest (forinstance, what are Gen Y’s attitudestowards our brand?), this isn’t sufficientto change behaviors. However, if thebusiness sees a substantial financial impactfor addressing the needs of a customersegment, then the segmentation canprovide the necessary leverage to drivealignment and mobilization to address theirneeds (such as set up a web chat customerservice capability). The results arepotentially huge.Hitting the jackpotCase Study 1One electronics retailer was able toidentity a half billion dollar loss it hadincurred in a single year from a segmentthat was not identified using traditionalsegmentation methods. In the absenceof a value dimension within its previoussolution, the company had decided toinvest equally across the customer base.This significantly eroded its higher valuecustomers. Once an advanced customersegmentation analysis was completed,the company was able to develop aneffective strategy to address the issue.As a result, the company was able tonot only take action to recover from theloss, but also better manage customersgoing forward. By making necessaryoperational changes to call centerdashboards, interactive voice responseservices (IVR) and performance metrics,the company provided personalizedservices aligned to customer segmentsand their associated value.Case Study 2In another case, the optimizedsegmentation for a financial serviceprovider revealed strategic informationabout two key segments: while a uniquesegment—only five percent—of itscustomer base accounted for 50 percentof the company’s profits, anothersegment was eating into 10 percent ofcompany profits. With the additionalinsights provided by a segmentationthat balanced value, demographics,preferences, and behaviors, the companywas able to refine its marketingmessages to the target audiences. Inaddition, the company was also ableto fine-tune its customer acquisitionstrategies to improve its longer termcustomer portfolio. The result? A massive600 percent ROI by the second year.This approach to segmentation provedso useful that the company executivesmade it an integral part of their strategicplanning in subsequent years.
    • Beating the oddsSegmentation strategies will vary for eachcompany depending on their brand, market,and priorities. By leveraging artificialintelligence technologies, analytics can nowbe aligned with unique business objectivesto determine the optimal segmentation.Through the more precise narrowing of the“best” attributes, segment profiles will beboth richer and more comprehensive. Andmarketing strategies based on next generationcustomer segmentation will be more effectivein personalizing and targeting offerings andmessaging to relevant customers.With the advent of big data and moreadvanced analytics, customer segmentationtechniques based on traditional approacheswill fast become obsolete in today’s multi-dimensional world. Not only do companies riskwasting their investment on the segmentationeffort, but more importantly they risk beingmisled on where value exists in the marketand among their customers.To learn more about nextgeneration customer segmentationstrategies, contact:Jeriad Zoghbyjeriad.zoghby@accenture.com
    • Copyright © 2013 AccentureAll rights reserved.Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture.About Accenture InteractiveAccenture Interactive helps the world’s leading brands drive superior marketingperformance across the full multichannel customer experience. Working with over4,000 Accenture professionals dedicated to serving the marketing function, AccentureInteractive offers integrated, industrialized and industry-driven marketing solutionsand services across consulting, technology and outsourcing powered by analytics.Follow @AccentureSocial or visit accenture.com/interactive.About AccentureAccenture is a global management consulting, technology services and outsourcingcompany, with approximately 261,000 people serving clients in more than 120 countries.Combining unparalleled experience, comprehensive capabilities across all industries andbusiness functions, and extensive research on the world’s most successful companies,Accenture collaborates with clients to help them become high-performance businessesand governments. The company generated net revenues of US$27.9 billion for the fiscalyear ended Aug. 31, 2012. Its home page is www.accenture.com.This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of suchtrademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademarks.Information regarding third-party products, services and organizations was obtained from publicly available sources, and Accenture cannot confirm the accuracy orreliability of such sources or information. Its inclusion does not imply an endorsement by or of any third party.The views and opinions in this article should not be viewed as professional advice with respect to your business.