1 Segmentation: Building personal relationships with your customers
Are you tapping into the full potential of your business relationship with your customers? Do you want to have happy and loyal customers? Offer them a tailor-made product exactly when they need it!
When purchasing plane tickets over the phone, my operator asks if I want to book the usual flight to Paris, whether it will be first class like the last time and if I'm having the vegetarian menu again. Payment is not a problem. On board I am served The International New York Times and after take-off gently sparkling water.
Does this sound like a scene from the future or do you encounter this approach regularly? If yes, consider yourself lucky that you use services from companies which successfully integrate segmentation throughout their organizations and know your value.
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What is segmentation?
Great companies have long known that their customers are not the same and that certain clients are notably different. For this reason, segmentation is a growing phenomenon. If a company segments, tries a differentiated approach to the customer, it means that it creates groups – segments with similar customers who are the same age, behave similarly and use the same products. Conversely, outside segments are different. Segments allow us to create special services and products tailored to specific segments which may be less interesting for other groups.
Creating a segment
The first step to a successful segmentation is to consider how many segments will be created. You must then decide how many segments your organization can use and how many segments your employees can manage. The number depends on your company's portfolio of products and services and its needs. When creating segments, less is sometimes more. Other times, however, it may take dozens.
The second step is the early and accurate identification of groups or segments of customers, in which we include customers with the most similar needs. Segments and proposed groups are created via rule-based expert systems or data mining models which take into account client data.
Last, but not least, is the classification of each client into specific segment. Classification is not definitive as clients „grow“ and move into different segments, such as low-income university students some of whom will become high-income managers with greater needs. For this reason, updating the classification of clients into individual segments regularly and frequently keeps all information valid and real.
An example of one of the simplest types of client segmentation is when airlines create segments for families, students and businesspeople. Each segment buys flights in different ways and for different purposes, at different times, but how they react to special offers and how sensitive they are to price indicate that different communication channels are preferred.
Creating segments is not a special division of CRM. A key step in successful segmenting is to properly integrate it into the functioning of the company, whether it be in marketing, sales, customer service, human resources, finance and the like. The challenge, therefore, is how to segment access to the customer in order to integrate the whole organization. It is essential to apply segmentation principles throughout the organization to ensure that every employee knows the individual segments, knows what they mean, how a typical customer fits a segment and how the segment is accessed.
We should note that access strategies for the segments change over time and we must not forget that the segmentation of the customer portfolio is not a one-off! Segmentation must evolve as the organization evolves with its range of services adapting to consumer behavior when there are significant shifts in market trends. Consequently, you have to choose whether segments correspond exactly to the current situation or whether they are sufficient to adopt for several years.
Individual segment strategies should be the responsibility of the segment owner. All employees should have access to the information about client’s current segment.
What can we use when segments are created and segmentation has been appropriately integrated into business processes? As mentioned earlier: The individual approach to each group so the current and potential value of each segment can be determined.
Individual segments can offer a variety of products and ways to communicate within them. We can dictate which approach to use for each segment, what to say and how to communicate. Segments differ in sensitivity to the special offers, such as discounts (50% on all flights), bonuses for purchasing other products (buy two tickets, get the third for free) for example.
Campaigns targeting specific segments can be established.
Similarly, individual segments react differently to various communication channels, therefore, it is wise to select and mix messages via different communication channels for each separate segment. It pays to consider the effectiveness of addressing a particular type of channel (direct mail, SMS, phone menus, e-mail) with respect to the expected response and the costs associated for each segment.
Evaluating and subsequent improvements
The final touch when completing the process of segmentation is to set up and monitor segmentation properly. You must continuously monitor how customers move across segments, the frequency of change within segments and the response rates of individual segments. To see if there are any significant changes to the product, or, changes in the qualities and characteristics that divided people into different segments. Analyzing early segmentation performance leads to a faster, and improved, response.
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