Getting Back to (Segmentation) Basics

Customer Engagement
Customer Experience
You've heard it a thousand times, but I'll say it again anyway: Customers today expect you to know who they are (i.e. understand their specific needs) and treat them accordingly (e.g. communicate with relevance).

You've heard it a thousand times, but I'll say it again anyway: Customers today expect you to know who they are (i.e. understand their specific needs) and treat them accordingly (e.g. communicate with relevance).

During a session at the Gartner CRM Summit UK, Furkan Ocal, a manager with Peppers & Rogers Group, reminded attendees about some of the important basics of gaining that customer knowledge. He offered four fundamental steps for customer segmentation that can help business leaders to better understand and communicate with their customers: identify, differentiate, interact, customize (IDIC). These principles may not be new, but they're effectiveness have stood the test of time.Step 1: Identify
This may sound obvious, but in today's economy we must remember that as tempting as it may be to sell to anyone who wants to buy, not everyone or every business is the right customer. Some are best served by the competition...

So what makes a consumer or business right as a customer of your company? How do you define that customer, and has that changed or is it evolving? Once you identify the best customer for your business you can start to dig for deeper insights.

Step 2: Differentiate
According to Ocal, the most popular approach to differentiating customers is demographics, followed by needs, value, and behavior. Nearly three quarters of marketers use multidimensional segmentation, he said. Not surprisingly, Ocal recommended using a mix of value, needs, and behavior to best segment customers.

Ocal cited value as the most important of the three. The challenge is to select the most appropriate value metric or set of metric for your business goals. Those value dimensions include actual value, future value, profitability, potential value, indirect value, social network value, and value trends (i.e. predicted value for a future period).

Customer-needs segmentation, he said, "should comprise all needs of the customer the company serves today or can potentially serve in the future." One way to determine customer needs, Ocal said, is to survey customers. Once marketers define the needs categories, they should conduct a factor analysis to determine most prominent needs. Based on this insight, they can then develop needs segments. Using look-a-like modeling, marketers can extrapolate those needs to rest of the customer population.

The third leg of Ocal's recommended multidimensional segmentation stool is behavior. He suggested tracking behavior across channels for a holist view of customer activity. "Developing behavior segmentation that is integrated across service lines will yield a complete picture of customer behavior and provide richer insights," he said.

The opportunity with multidimensional segmentation is its mix of art and science. It's how the three dimensions come together that allow for the creativity that can make an organization's segmentation strategy both unique and impactful.

Step 3: Interact
Every customer interaction is an opportunity to learn more about your customers, Ocal said. However, most companies only collect the customer information needed for operations. Ocal suggested collecting the least amount of information that will provide the most insight. He recommended using golden questions when surveying customers. For example, one large pet supply chain asked customers, "What did you buy your pet for a holiday gift?" The customers who were in the top tier of gift giving became the target list of potential high-value customers.

Customer interaction is integral to what Peppers & Rogers Group calls the learning relationship: a company gains insight about its customers and then uses that information to offer highly relevant products, services, communication, and service that its competitors simply can't, because they don't have that customer information.

Step 4: Customize
When it comes to customization, there are several questions to ask: what to customize, how to do it, who does it? The answers lie in what will impact the customer experience in ways that will drive loyalty and sales. Companies can customize services levels, loyalty program benefits, sales resource allocations, collections actions, data quality improvement, and more. Ocal cited Turkcell's high-value customer program, First Class, as an example. When customers enrolled in First Class calls for service, they are connected directly to a dedicated agent (no IVR), who owns resolution of their issue. Additionally, Turkcell will provide those customers with loaner phones, if necessary, and will even bring the phone to the customer's location.

How is segmentation delivering a more relevant experience for your customers?