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Business Segmentation

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BTB Customer Segmentation and Analysis

BTB Customer Segmentation and Analysis

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  • 1. How to Apply a Business Segmentation Product to Build Relationships and Discover Market Potential
  • 2. Market Segmentation •  A Market Segment is a subgroup of organizations that have one or more characteristics in common that cause them to have similar product or service needs. •  Market Segmentation is the process of dividing the market into meaningful, relatively similar and identifiable segments and groups.
  • 3. What Does Segmentation Do? % Decile
  • 4. What issues are indicators of a need for segmentation services? •  Rapid customer base churn •  Product/services sold across a wide spectrum of consumers or industries •  Multiple channels of distribution (field/telephone sales, brokers, et. al.) •  Low market penetration •  Unclear understanding of what constitutes the “best” customer set •  Low response rates on solicitation •  Low approval/acceptance rates
  • 5. Some Tools for Segmentation •  Regression •  CHAID •  Basic Demographic Profiling •  RFM Analysis •  Proprietary Cluster Systems
  • 6. Which is the “Best” Solution? •  Each method has pros and cons •  Any segmentation problem has a marketing decision or implementation objective •  Apply the method that will meet the marketing requirements ▫  Evaluate customers, prospects, or both? ▫  Require continuous scores or are segment-defined scores acceptable? ▫  Time and cost constraints?
  • 7. hat’s in it for me? •  Who are our best customers? •  Where can we find more of our best customers? •  How can we more effectively reach customers for our products and services? •  Where should we best expand our market area? •  What characteristics are common in our top customers? •  How can we tailor our message to each segment of our customers? •  How can we better allocate our sales resources? •  What segments of the market need our services most?
  • 8. Applying Segmentation Tools to Discover Market Potential & Build Relationships •  Four industries using four different segmentation tools. •  Tools / applications ranked by segmentation complexity: regression, CHAID, cluster, penetration. •  All tools are valid. Identification of appropriate tool is dependent upon desired results, available resource, and sophistication of users.
  • 9. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Commercial Oil Card •  Oil card positioned for mid-to-large size fleets. •  Multiple channels of distribution: sales force, wholesalers, retail POP take one apps. •  Challenge #1– identify prospects likely to have large fleets that travel longer distances and consume higher volumes of petroleum products. •  Challenge #2 – pre-approve or prequalify prospect on credit basis for card issuance.
  • 10. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Commercial Oil Card •  Combined customer transactions with external firmagraphics in regression model •  Regression segmentation tool to predict consumption and pass risk hurdle •  Reduced credit rejection rate by 60% and increased top line revenue by 35% •  Major beneficiary of improved relationships were internal sales channels
  • 11. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Health Care Insurer •  Regional heath care insurance organization using direct response to create inbound inquiries for small employer group market. •  Prospects selection based upon size, SIC, number of employees and geography. Quarterly mailings to all qualifiers. •  Issue: Are all prospects equally valid?
  • 12. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Health Care Insurer •  Marketer’s dilemma: applying limited budget to get the best results. •  Marketer’s objective: increase the number of inquiries into the call center. •  Solution: CHAID analysis of customer set to identify characteristics of prospects most likely to respond to solicitations. •  CHAID allowed marketer to change mix of prospects: more mailings to organizations most likely to respond, fewer to less likely responders.
  • 13. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Uniform Rental •  Uniform supply organization supporting prospecting efforts of multiple business units and branch offices •  Telemarketing used to survey and prequalify prospects for local sales offices •  SIC/size selects used for several years to pull best prospects •  Challenge #1: prospect pool diminishing due to over-selection •  Challenge #2: have current business practices for prospect selection left good prospects on the table?
  • 14. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Uniform Rental •  Customer file matched to reference universe file •  Simple penetration reports generated to look at penetration with existing sic/size select criteria as well as identify opportunities to expand selection based upon management intuition and knowledge •  Identified new segments for selection and kept the pipeline full
  • 15. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Office Products & Equipment •  National provider of supplies and equipment to retailers and wholesalers •  Provides marketing support to channels to sell to end- users •  Challenge #1: All businesses consume products. Who buys more and why? •  Challenge #2: Retailers and wholesalers own the client relationship. How does the provider help identify salient consumption characteristics of end-users when they don’t have the direct relationship?
  • 16. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Office Products & Equipment •  Solution analyzed ship-to information: host organization often ships products directly to the retailer/ wholesaler customer to expedite delivery. •  Ruf business cluster segmentation tool used to identify characteristics of the ship to locations and segment on basis of size and penetration •  Rank ordering showed 5:1 lift top quintile vs. bottom quintile •  New program has prospects selected among records in top quintile
  • 17. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Office Products & Equipment •  Business Clusters: a combination of has US business demographic and econometric information •  Business Clusters create flexible and immediately actionable segmentation for virtually any measurable objective •  Mid-range modeling solution provides faster and more economical segmentation than custom solutions
  • 18. Case Study: Office Products & Equipment Mission for Business Cluster Product •  Create a general business segmentation tool for the national business “universe” •  Provide a highly flexible segmentation solution ▫  Handle multiple objectives with a common tool •  Incorporate “deeper” data than typical business demographics •  Generate cluster profile models rapidly and economically •  Provide additional input data for custom modeling using other statistical tools
  • 19. Data Used in Formation of Business Clusters •  Business demographics ▫  SIC ▫  annual sales ▫  employee size ▫  location type ▫  years in business ▫  business type ▫  etc. •  Econo-metric Footprint variables
  • 20. Econo-metric Footprints •  Proprietary variables developed by DMS’s partner Ruf Strategic Solutions. •  Businesses are affected by surrounding areas •  Built using economic data from: ▫  US Dept. of Commerce   Bureau of Economic Analysis   Bureau of the Census ▫  Consumer data •  Provide unique advantage to business segmentation techniques
  • 21. Econo-metric Footprints Office Office Supplies Supplies Place - Montgomery SURFACE Place - Manhattan # Employees - 23 RELATIONSHIPS # Employees - 23 SIC - 5943 SIC - 5943 R v n e - 5 ml ee us i Revenues - 5 mil High Growth HIDDEN Flat Growth Labor Shortage RELATIONSHIPS Labor Oversupply Moderate Crime Low Crime Impacted by Textiles Impacted by Finance Low Tech High Tech Older Consumers Younger Consumers Etc. . . . Etc. . . .
  • 22. BUSINESS CLUSTER PENETRATION BAR CHART – Office Products Client
  • 23. Top Performing Business Clusters Office Products Client Rank Cluster % of Customers % of Businesses Index 1 7018 0.82 0.11 724.38 2 7029 0.81 0.12 656.17 3 7028 2.28 0.37 622.65 4 7034 1.50 0.26 582.95
  • 24. Key 2 Digit SIC codes by market penetration Office Products Client Rank SIC Code Description % of Customers % of Businesses Index 1 36 Electronic Equipment and 0.94 0.21 438.98 Components 2 38 Instruments and Related Products 0.53 0.13 417.87 3 26 Paper and Allied Products 0.37 0.10 370.81 4 30 Rubber and Miscellaneous Plastics 0.58 0.16 362.13 Products
  • 25. Industry – Office Products Client
  • 26. Employee Size – Office Products Client
  • 27. Years on File – Office Products Client
  • 28. Census Division – Office Products Client
  • 29. Applying Segmentation Tools to Discover Market Potential & Build Relationships Implementation •  We’ve analyzed the customers. We see the top prospects are in the top quintile. •  We communicate this to the distribution channel with the appropriate collateral that explains how we can identify better candidates •  We provide the distribution channel a means of ordering these “better” prospects to create relationships using different communications •  We follow up as best we can to determine if these new prospects are converting at a higher rate
  • 30. Start with the end in mind! •  Understanding the marketing objective drives all decisions ▫  What behavior do we want to optimize? ▫  What input data will be needed? ▫  How will the results be implemented? ▫  How will we be able to measure success? •  Conceptualize how successful segmentation will impact your ROI •  Competitive Advantage