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  • 06/22/09 In which it is IMPERATIVE to let go of the orthodoxy of traditional segmentation and start looking at the people we service as “people” rather than numbers on a chart. Because traditional segmentation doesn’t really tell us a lot about the PEOPLE behind the numbers Take the case of Elsa, Same segment, yet is she the same consumer ?
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  • 06/22/09 Every business has three key objectives for its customers: to get some (as many as possible!), to keep them (for as long as possible), and to grow them (as much as possible). Let’s examine a simplified model, focussing on the ‘keeping’ part (in line with the theme of this conference). For each of three value segments, a business has a ‘portfolio’ of objectives that include all three: acquisition, retention and growth. They are not , however, present in equal measures! (see font sizes used). For the high-value segment, for example, retention is a top priority (lose a few customers here and you lose significant revenue). This justifies corresponding investment in achieving loyalty: from the choice of communication channels (live reps, even face-to-face meetings), through appropriate service levels (the higher – the more costly), to the rewards for loyalty. The medium-value segment has retention as a second priority (in this example – your segment objectives maybe different). This company will spend more on acquisition, yet sufficient resources will be allocated to protect outflow of revenue through churn. Service levels will still be excellent (just not exceptional), and the mix of communication channels may include less of the most interactive (and expensive) ones like face-to-face and outbound reps. The low-value segment has a top priority to stop losing money form the least profitable customers: not by deliberately losing them, though. Migrating them to a higher segment by encouraging usage is a high priority. Needless to say, retention (especially of loss-causing customers) is a low priority. There may be little or no dedicated spend towards this end. A basic service level still doesn’t mean bad service, but self-service is encouraged as cost-effective. Exclusion fro direct marketing of the least profitable customers saves a lot of costs and helps a break-even or small profit there. What if this approach leads to lower satisfaction and (God forbid!) defection by some of these customers? This should be a planned probability, and if it does happen, the effect may not necessarily be negative (it will be negative in the higher segments). Anecdote (real-life example from a client): Call centre receives inbound call from a customer tagged as the lowest value segment. He wants a handset upgrade, but is uncomfortable with the bundles on offer. ‘Can I have that colour model with the pictures, but still pay my old tariff?’, he asks. No, he can’t – is the answer, as his minimal tariff is only offered with economy handsets. After several minutes of polite explanation by the agent, the customer persists. The agent has a time limit and is getting frustrated with the situation; he says: ‘What you are asking is impossible – at least I cannot help you; but I will give you a number to call where they may help you’ – and he gives the customer the sales number of a competitor. Moral1: Sometimes we don’t necessarily have to be afraid to lose a customer. Moral2: This can only happen with an empowered employee (in this case he was not, and risked punishment). It will never happen with an outsourced offshore call centre ;o)
  • 06/22/09 More valuable customers at the top of the pyramid deserve more personalised (and more expensive) service; going down the value scale, cost-effective channels become more appropriate; lowest value customers only get mass media communication and self-service
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  • Dmcdeckgrowth

    1. 1. Xxxxxxxxx Customer Segment Strategies
    2. 2. xxxxx AGENDA <ul><ul><li>Fundamentals and Benefits of Differentiation </li></ul></ul><ul><ul><li>Value Segmentation Principles and Techniques </li></ul></ul><ul><ul><li>Behaviour Segmentation Methods </li></ul></ul><ul><ul><li>Strategic, Macro- and Micro-segmentation </li></ul></ul><ul><ul><li>Differentiated Customer Planning and Resource Optimisation </li></ul></ul>
    3. 3. Xxxxxxxx WHY FOCUS ON CUSTOMERS? THE 3D VIEW - THREE DIMENSIONS OF COMPETITIVENESS All three are important, but you can only excel in one - and should choose your focus: Competitive edge based on cost (and price competition) is not sustainable in the long term. Product leadership is short-lived, too. Technology moves fast and even products that are not overtaken are easily replicated. Customer centricity is about long-term relationships, therefore provides sustainable advantages. It also results in added competitiveness in the other two dimensions Operational Efficiency Customer Intimacy Product Excellence
    4. 4. xxxx AGENDA <ul><ul><li>Fundamentals and Benefits of Differentiation </li></ul></ul><ul><ul><li>Value Segmentation Principles and Techniques </li></ul></ul><ul><ul><li>Behaviour Segmentation Methods </li></ul></ul><ul><ul><li>Strategic, Macro- and Micro-segmentation </li></ul></ul><ul><ul><li>Differentiated Customer Planning and Resource Optimisation </li></ul></ul>
    5. 5. xxxxWHERE TO START Number of Customers Customer Value Highest Value Customers CRM Mass Marketing Picket Fence
    6. 6. Customer value segments Service costs Strategic value (potential share of customer) Xxxxxxxxxxxxxxxx DIFFERENT CUSTOMERS BY VALUE Actual value Most Valuable Customers: Retain Most Growable Customers: Grow Marginal customers: Business as usual? ‘ Below Zero’ Customers: Dismiss, or?
    7. 7. <ul><li>From revenue to profitability </li></ul><ul><ul><li>Pure spend-based models: straightforward and easy </li></ul></ul><ul><ul><li>Introducing cost elements: allocation methods </li></ul></ul><ul><ul><li>Detailed individual customer costing </li></ul></ul><ul><li>From past to future value </li></ul><ul><ul><li>Historic value: recent history </li></ul></ul><ul><ul><li>Historic value: total cumulative history (‘lifetime’) </li></ul></ul><ul><ul><li>Future (potential)value: different predictive methods </li></ul></ul><ul><ul><li>Net present value (NPV): discounted future value </li></ul></ul><ul><li>Lifetime Value (LTV) or CLV (customer lifetime value) </li></ul><ul><li>“ The net present value of all future profit streams from an individual customer’s relationship with the company” </li></ul>Xxxxxxxxxxx CALCULATING CUSTOMER VALUE
    8. 8. <ul><li>Predictive techniques </li></ul><ul><ul><li>Regressions (linear, multiple, logistic) </li></ul></ul><ul><ul><li>Trees (classification, decision) </li></ul></ul><ul><ul><li>Advanced techniques (neural networks, genetic algorithms) </li></ul></ul><ul><li>Definitions of ‘lifetime’ </li></ul><ul><ul><li>Strictly referring to a future period </li></ul></ul><ul><ul><li>Need for consistent predictability and actionable/manageable </li></ul></ul><ul><ul><li>Techniques to calculate LOS (length of service); survival analysis (LIFEREG, PHREG procedures in SAS) </li></ul></ul><ul><li>Alternative models and techniques </li></ul><ul><ul><li>the RFM (recency, frequency, monetary value) model as a segmentation tool </li></ul></ul><ul><ul><li>Rapid identification techniques (‘golden questions’) </li></ul></ul>Xxxxxxxxxxx CALCULATING CUSTOMER VALUE
    9. 9. <ul><ul><ul><li>“ Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them.” </li></ul></ul></ul><ul><ul><ul><li>“ Adam Smith” </li></ul></ul></ul>WHY Behaviours?
    10. 10. Xxxxxxxx AGENDA <ul><ul><li>Fundamentals and Benefits of Differentiation </li></ul></ul><ul><ul><li>Value Segmentation Principles and Techniques </li></ul></ul><ul><ul><li>Behaviour Segmentation Methods </li></ul></ul><ul><ul><li>Strategic, Macro- and Micro-segmentation </li></ul></ul><ul><ul><li>Differentiated Customer Planning and Resource Optimisation </li></ul></ul>
    11. 11. TRADITIONAL SEGMENTATION ASSUMES EVERYONE “FEELS THE SAME” Elsa (Female/urban/mid-income/25-30 years old) 25 29
    12. 12. <ul><li>Fundamentals: </li></ul><ul><ul><li>Any business only exists if it has customers. </li></ul></ul><ul><ul><li>Customers have specific behaviours that have to be satisfied. </li></ul></ul><ul><ul><li>A business only exists to satisfy specific behaviours . </li></ul></ul><ul><li>The Link to Value: </li></ul><ul><ul><li>In satisfying needs a business provides value . </li></ul></ul><ul><ul><li>Products and services represent value to the one with behaviours (the Customer). </li></ul></ul><ul><ul><ul><li>(see Added Value concepts in economic theory, supply/demand concepts etc.). </li></ul></ul></ul><ul><ul><li>In the process of satisfying behaviour value ‘changes hands’. </li></ul></ul><ul><ul><ul><li>(see Value Migration concept in strategy models and theories). </li></ul></ul></ul>Xxxxxxxxx WHY behaviours?
    13. 13. Xxxxxxx Customer Profiles ( Who they are?) Sets of (static) attributes reasonable assumptions, e.g. “families with babies require nappies”, “teenagers require bright-coloured mobile phones” or “companies with vehicle fleets require motor insurance”… xxxxxxxCustomer Behaviour ( What they do?) Based on assumptions like are more likely to choose” or “once a gambler, always a gambler”. Xxxxx THE WORLD OF PROXIES
    14. 14. <ul><ul><li>Demographic profiles: Grouping people byxxxxxxxxxx gender, age, marital status, education, occupation etc. </li></ul></ul><ul><ul><li>Geo-demographic: Adding the spatial dimension in one or more ways: absolute relative to population concentrations (urban, suburban, rural) or based on xxxxxxxxx economic regions. </li></ul></ul><ul><ul><li>Psycho-demographic: Introducing attitudinal and emotional affiliations – often hard to distinguish from pure demographics (e.g. education, occupation) or from behaviour types (see below). </li></ul></ul><ul><ul><li>In B2B environments the equivalents are vertical sectors and sub-sectors, company size (employees and core business metrics, e.g. turnover), location(s), target market(s) etc. </li></ul></ul>Xxxxxxxxx WHO THEY ARE
    15. 15. <ul><ul><li>Transaction (purchasing) behaviour: Frequent shoppers/ flyers, bulk buyers, occasional shoppers, declining custom etc. </li></ul></ul><ul><ul><li>Motivation-based behaviour: Impulse buyers, early adopters, bargain hunters, status seekers. </li></ul></ul><ul><ul><li>Lifestyles: Often mixed with demographics, indicate needs through preferences xxxxxxxx manifested in everyday behaviour (a number of popular templates and commercial databases of pre-scored population). </li></ul></ul><ul><ul><li>B2B: Order consolidators, end-of-quarter (end-of-year) buyers etc. </li></ul></ul>Xxxxxxx WHAT DO THEY DO Slide 10
    16. 16. Customers have individual (and group) preferences often exhibited in behaviour patterns, xxxxxxxxxxsometimes declared in dialogue with the company, but sometimes also withheld and/or unknown. Product or service xxxxx preferences are directly linked to needs. The chance that those are true behaviours is somewhat higher, although product preferences may often reflect perceived needs. Attribute preferences xxxxxx also manifest needs , however those are secondary, ‘satellite’ needs accompanying the core need in a dynamic ‘bundle’. The likelihood here is greater that they are perceived needs, particularly in the less tangible areas of taste, fashion, peer influence etc. For practical xxxxxxx purposes of needs modelling and needs group management, explicit and implicit preferences can be considered a proxy for needs. Xxxxxxxxxxxxx HOW ABOUT PREFERENCES? Slide 12
    17. 17. <ul><ul><li>Give me … xxxxx(speed, safety, confidence, a positive experience, success-personal or corporate). </li></ul></ul><ul><ul><li>Help me to … (get to a destination, connect to a person/organisation, enhance my life). </li></ul></ul><ul><ul><li>Save me … (time, money, hassle, risks or hazards, negative experiences). </li></ul></ul>Xxxxxxxxxxxxxxxx THE 3 QUESTIONS TEST Slide 11
    18. 18. Xxxxxxxxxxxxx AGENDA <ul><ul><li>Fundamentals and Benefits of Differentiation </li></ul></ul><ul><ul><li>Value Segmentation Principles and Techniques </li></ul></ul><ul><ul><li>Behavioural Segmentation Methods </li></ul></ul><ul><ul><li>Strategic, Macro- and Micro-segmentation </li></ul></ul><ul><ul><li>Differentiated Customer Planning and Resource Optimisation </li></ul></ul>
    19. 19. It's easy to understand the survival of popular traditional techniques such as syndicated market research, simplistic quantitative surveys, and focus groups, [yet] conventional research methods often gather incomplete information. McKinsey Quarterly, November 2006 PSYCHOLOGY – ANTROPOLOGY – NEUROLOGY – SIMULATIONS - … TRADITIONAL RESEARCH OFTEN MISSES THE POINT
    20. 20. Xxxxxx ALL KINDS OF SEGMENTATION <ul><ul><li>Macro-segmentation : typically a market segmentation view </li></ul></ul><ul><ul><li>Strategic segmentation: customer segmentation for long-term differentiation </li></ul></ul><ul><ul><li>Micro-segmentation: a tactical, action-oriented tool for immediate targeting </li></ul></ul><ul><ul><li>Used in defining market proposition/s, brand values, and in targeting mass marketing activities. E.g. ‘Youth’, ‘Pre-paid’ or ‘Rural’ segments </li></ul></ul><ul><ul><li>Used in strategic planning, resource allocation, Marketing/Sales/Service optimisation. </li></ul></ul><ul><ul><li>E.g. ‘High Value’, ‘Growable’ or ‘BZ’ customers, ‘Technos’, ‘Savers’ or ‘Status-symbol’ segments </li></ul></ul><ul><ul><li>Used in day-to-day direct campaigns (cross- and up-sell), targeted churn prevention, acquisitions. E.g. ‘Seasonal roamers’, ‘Bargain hunters during competitor’s campaigns’, ‘Location patrons’ </li></ul></ul>
    21. 21. Xxxxxxxxxxxxxx AGENDA <ul><ul><li>Fundamentals and Benefits of Differentiation </li></ul></ul><ul><ul><li>Value Segmentation Principles and Techniques </li></ul></ul><ul><ul><li>Behaviour Segmentation Methods </li></ul></ul><ul><ul><li>Strategic, Macro- and Micro-segmentation </li></ul></ul><ul><ul><li>Differentiated Customer Planning and Resource Optimisation </li></ul></ul>
    22. 22. <ul><li>Business goals: </li></ul><ul><ul><li>Get customers </li></ul></ul><ul><ul><li>Keep customers </li></ul></ul><ul><ul><li>Grow customers </li></ul></ul>Xxxxxxxxxx Overall objectives translate to different priorities in each segment. Xxxxxxxxxx SEGMENT MANAGEMENT Slide 5 Segment 1 Segment 2 Segment 3 Acquisition Retention Development Acquisition Retention Development Acquisition Retention Development
    23. 23. Allocating communication channels according to the value of segments Xxxxxxxxxxxxxxxx RESOURCE OPTIMIZATION Slide 3 Source: Peppers & Rogers Group Most valuable customers Most growable customers Marginal Unprofitable KEEP GROW share of customer Maximize profit, minimize cost Divest Media E-channels Direct mail Telemarketer In-person service reps Dedicated service reps Customer value
    24. 24. Xxxxxxxxxxxxxxxx THE ‘HOW TO’ OF PRACTICAL STRATEGIC SEGMENTATION N1 N2 N3 N4 V1 V2 V3 V4 V5 <ul><li>Evolving segmentation: </li></ul><ul><li>- From historic to xxx predictive value and from revenue to profit-based individual customer value </li></ul><ul><li>Starting simple could mean few, expenditure-based value segments. Introducing any known costs leads to a better, profitability -oriented differentiation. Using non-linear predictive models allows managing future, lifetime value . </li></ul><ul><li>From broad, xxxxxx proxy-based behaviour segments to precise, true need clusters </li></ul><ul><li>Early needs-driven segmentation xxxxxxschemes often start from a market (macro) segmentation, using proxies like basic demographics or transaction behaviours. As companies learn to interpret the true needs behind such proxies, more complex needs clustering replaces the macro segments and allows linking individual needs to value growth , retention and targeted, profile-based acquisition. </li></ul>
    25. 25. <ul><li>Customer Plan (operational efficiency through customer intimacy) </li></ul><ul><ul><li>Developing differentiated treatments for each intersection of a needs xxxxxx cluster with a value segment (customer community with a unique combination of value and needs) </li></ul></ul><ul><ul><ul><li>differentiated marketing and sales </li></ul></ul></ul><ul><ul><ul><li>differentiated service levels and approaches </li></ul></ul></ul><ul><ul><ul><li>differentiated communications: message and channel </li></ul></ul></ul><ul><ul><ul><li>all above differentiated consistently across touchpoints </li></ul></ul></ul><ul><ul><ul><li>embedding in the company’s goal-setting, planning and resource allocation </li></ul></ul></ul><ul><li>Product development (product excellence through customer intimacy) </li></ul><ul><ul><li>Re-defining the mission (and often the primary industry sector) of a company as ‘the business of satisfying customer needs’) </li></ul></ul><ul><ul><li>Intimate xxxxxxx needs understanding at the core of new product development and existing product improvement </li></ul></ul><ul><ul><li>Managing product capabilities around needs (and value) </li></ul></ul>‘ xxxxxxx SO WHAT?’ (ACTING UPON THE KNOWLEDGE)
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