Customer Segmentation Masterclass - IIR 2010

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Fundamentals and advanced concepts in customer segmentation. CLV (customer lifetime value) and specific implications in Telecoms. Approaches in operational deployment of customer segmentation.

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Customer Segmentation Masterclass - IIR 2010

  1. 1. Vladimir Dimitroff London Oct-2010 IIR – Customer Segmentation and Intelligence
  2. 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
  3. 3. IIR – Customer Segmentation and Intelligence Granularity Level and Dynamics Addressable Entity Objective Level (Purpose) Strategic Segmentation Tactical Segmentation Operational Segmentation Market Segmentation Customer Segmentation Macro- Segmentation Core / base Segmentation Micro- Segmentation
  4. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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?
  15. 15. IIR – Customer Segmentation and Intelligence
  16. 16. IIR – Customer Segmentation and Intelligence CUSTOMER-FACING FUNCTIONS • Marketing • Sales • Customer Care OBJECTIVE-DRIVEN ACTIVITIES • Acquisition • Retention • Value Development TIME: Phased Maturity Evolution Differentiated approaches in:
  17. 17. IIR – Customer Segmentation and Intelligence MARKETING • Proposition • Messages • Channels / media • Targeting PHASING • Immediate steps: simple differentiation, focus on high value • Medium-term: optimal / viable differentiation, expanding portfolios • Long-term direction: granular differentiation, P&L management SALES • Channels • Sales force • Process • Merchandising CUSTOMER CARE • Service levels • Processes • Frontline staff • Touchpoints Differentiated approaches in:
  18. 18. IIR – Customer Segmentation and Intelligence PHASING • Immediate steps: simple differentiation, focus on high value • Medium-term: optimal / viable differentiation, expanding portfolios • Long-term direction: granular differentiation, P&L management ACQUISITION • Setting strategic priorities • Mapping and developing propositions • Targeted promotions • Segment-aware sales RETENTION • Prioritization of efforts and resources • Segment-relevant incentives • Balanced OEN toolkit • Lifecycle management VALUE DEVELOPMENT • Needs-aware cross-sell • Managed internal migration • Social group accounting • Share of customer Differentiated approaches in:
  19. 19. IIR – Customer Segmentation and Intelligence THANK YOU! vdimitroff@prism.ch +44-7947-034 944

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