Fundamentals and advanced concepts in customer segmentation. CLV (customer lifetime value) and specific implications in Telecoms. Approaches in operational deployment of customer segmentation.
2. IIR – Customer Segmentation and Intelligence
1. Segmentation Fundamentals
- Types and Purposes of Segmentation
2. The Value Chain
- Why value? What value?
3. Understanding Costs
- Directly attributable costs and allocating
aggregate costs
4. More Dimensions
- Loyalty, Social weight
5. Customers Adding More Value
- Feedback value, Engagement
6. The Big „So What?‟ Question
- Applying insight for business performance
4. IIR – Customer Segmentation and Intelligence
By Objective and Purpose
Strategic: broad segments for long-term orientation and goal-setting
Operational: stable customer groups for consistent decisioning
Tactical: dynamic segments for ad-hoc actions
By Addressable Entity
Market segments: large anonymous groups of customer and non-
customers, statistically studied and extrapolated from smaller,
representative groups
Customer segments: contain uniquely identified individuals, with
explicit attributes for each person
By Level of Granularity and Dynamics
Macro-segmentation: high-level customer segments similar to market
segments, used predominantly for long-term strategy
Micro-segmentation: highly granular customer segments for tactical
purposes
Operational customer segmentation: (sometimes referred as „base‟ or
„core‟) In the middle with overlaps (can also be used for strategy or
tactics)
5. IIR – Customer Segmentation and Intelligence
Our Business and Our Customers
They have needs and are therefore critically important
We have capabilities and satisfy their needs creating value
They reward us (pay for the product /service provided
The Investors and Our Business
We didn‟t always have the capabilities to satisfy needs
They invested to create those capabilities
We return to them the value received from customers (ROI)
Other Stakeholder Entities
Suppliers provide essential stuff so we can address customer needs
Employees contribute their time and talent
Partners take our product to market, acting as a channel
Community (society) is an environment in which we operate - extracting
and delivering value in interactions
6. IIR – Customer Segmentation and Intelligence
Prepaid subscribers: Identical Value
Both top up always for € 5.-
Both fully consume this credit in
6-8 weeks
Each has a monthly ARPU of € 3.-
0987654321 0123456789
7. IIR – Customer Segmentation and Intelligence
Identical Value
Both top up always for € 5.-
Both fully consume this credit in
6-8 weeks
Each has a monthly ARPU of € 3.-
But:
Names are different
Gender is different
0987654321
Adam Smith
0123456789
Eve Smith
8. IIR – Customer Segmentation and Intelligence
Identical Value
Both top up always for € 5.-
Both fully consume this credit in
6-8 weeks
Each has a monthly ARPU of € 3.-
But:
Names are different
Gender is different
And:
Usage is different (!)
0987654321
Adam Smith
0123456789
Eve Smith
90 SMS x € 0.05
25 SMS x € 0.00
5 mins x € 0.10
(3 calls, 1 to Eve)
Free Internet add-on
50 mins x € 0.10
(12 calls, 4 to Adam)
Internet not activated
9. IIR – Customer Segmentation and Intelligence
Identical Value
Both top up always for € 5.-
Both fully consume this credit in
6-8 weeks
Each has a monthly ARPU of € 3.-
But:
Names are different
Gender is different
And:
Usage is different
More different behaviours -
0987654321
Adam Smith
0123456789
Eve Smith
90 SMS x € 0.05
25 SMS x € 0.00
5 mins x € 0.10
(3 calls, 1 to Eve)
Free Internet add-on
Tops up online, ATMs
Never calls CC
In MBM program
50 mins x € 0.10
(12 calls, 4 to Adam)
Internet not activated
Tops up in shops
Calls CC often (free)
Not in MBM program
10. IIR – Customer Segmentation and Intelligence
Identical Value
Both top up always for € 5.-
Both fully consume this credit in
6-8 weeks
Each has a monthly ARPU of € 3.-
But:
Names are different
Gender is different
And:
Usage is different
More different behaviours, and
Age is different
Customer Value is different!
Different costs (!)
Different social contribution
Different growth potential
Therefore – different lifetime value
Adam Smith Eve Smith
90 SMS x € 0.05
25 SMS x € 0.00
5 mins x € 0.10
(3 calls, 1 to Eve)
Free Internet add-on
Tops up online, ATMs
Never calls CC
In MBM program
Age: 19
50 mins x € 0.10
(12 calls, 4 to Adam)
Internet not activated
Tops up in shops
Calls CC often (free)
Not in MBM program
Age: 72
11. IIR – Customer Segmentation and Intelligence
From revenue to profitability
Pure spend-based models: straightforward and easy
Introducing cost elements: allocation methods
Detailed individual customer costing
From past to future value
Historic value: recent history
Historic value: total cumulative history („lifetime‟)
Future (potential)value: different predictive methods
Net present value (NPV): discounted future value
Lifetime Value (LTV) or CLV (customer lifetime value)
“The net present value of all future profit streams from an individual
customer’s relationship with the company”
12. IIR – Customer Segmentation and Intelligence
Predictive techniques
Regressions (linear, multiple, logistic)
Classification trees (regression, CART, CHAID)
Advanced techniques (neural networks, genetic algorithms)
Definitions of „lifetime‟
Strictly referring to a future period
Need for consistent predictability and actionable/manageable
Techniques to calculate LOS (length of service); survival analysis
(LIFEREG, PHREG procedures in SAS)
Alternative models and techniques
the RFM (recency, frequency, monetary value) model as a
segmentation tool
Rapid identification techniques („golden questions‟)
13. IIR – Customer Segmentation and Intelligence
Customer loyalty
Clear business case of loyal customers being more profitable
The importance of a good definition of Loyalty
Measuring Loyalty (NPS, Loyalty Index), scoring and segmenting
Social weight
Implicit social value (size of network, intensity of activities)
Explicit social value (evidence of referrals or advocacy)
Community participation and role(s)
Direct customer contribution to the business
Feedback value (Do you love your complaining customers?)
Co-creation participation (new products, content)
Engagement in functional roles (customer care, decision making)
14. IIR – Customer Segmentation and Intelligence
On what principles?
Equal % of customers in each segment
or..?
Pareto principle: equal % of total value
Adjusted Pareto: business case (value
portions of comparable magnitude, viable
segment sizes)
How many value segments?
When just a “20:80” is good?
Sufficiently different to merit a different
approach
Manageable - by proportionately allocated
resources
Issues of migration
When to upgrade (or downgrade) a
customer?
Choosing a „buffer‟ period
Where to place new customers?