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Want to understand
what differentiates one group of customers from another?
Or responders from
non-responders?
Or buyers of product
'Y' from buyers of product 'X'?
Or active customers from those likely to lapse (churn)
...
The
answer can be found by profiling, segmenting and scoring your customers
and prospects
What are popular statistics measures?
Click here
What is segmentation?
People
or organisations with one or more characteristics that cause
them to demand similar product and/or services - based on
the qualities of those products such as price or function, can
be grouped into what is termed a segment. A true market
segment is distinct from other segments (different segments
have different needs), is homogeneous within the segment
(exhibits common needs), responds similarly to a market
stimulus, and can be reached by a market intervention. The
term is also used when consumers with identical product
and/or service needs are divided up into groups so they can
be charged different amounts.
 People
in a given segment are supposed to be similar in terms of
criteria by which they are segmented, and different from
other segments in terms of these criteria. These can broadly
be viewed as 'positive' and 'negative' applications of the
same idea, splitting up the market into smaller groups.
Segmentation is a form of
critical evaluation rather than a prescribed process or
system, and hence no two markets are defined and segmented
in the same way. However there are a number of foundation
criteria that assist segmentation:
-
Is the segment viable and
can you make a profit from it?
-
Is the segment accessible?
-
How easy is it to get into
the segment?
-
Is the segment measurable?
-
Is realistic data
obtainable to consider its potential?
The are many ways that a
segment can be considered, and some of the basics include:
-
by geography - such as
where in the world was the product or service bought.
-
by psychographics - such
as lifestyle or beliefs.
-
by socio-cultural factors
- such as class.
-
by demography - such as
age, sex..., and for business, size, turnover, industry
type..., and so on.
A company should evaluate each
segment based upon potential business success. Opportunities
will depend upon factors such as the potential growth of
the segment, the state of competition within the
segment, how much profit the segment will deliver, how large
the segment is, and how the segment fits with the current
direction of the company and its vision.
Customer profiling
Profiling (and segmentation)
are needed to
target marketing campaigns, evaluate market potential, develop appropriately balanced
sales and franchise territory areas, identify where to
locate new outlets, identify hot spots to target sales
effort, and to help you tailor your communications in terms
of improved relevancy to increase sales.
Profiling your customers in
essence refers to identifying the characteristics that
differentiate your customers from people who are unlikely to
ever buy your product or have need of your service. It goes
deeper though to differentiate your best and most loyal
customers – those that buy more frequently, place higher
value orders and are open to other offers – from the
rest. Not all customers are ideal - some will purchase
infrequently, won't spend a great deal of money or will have
little loyalty, yet will take a lot of your selling time.
One approach to profiling
is to first segment - or group - customers by their value to
the business, then append external profile data – census,
lifestyle, market data or business/consumer geo-demographics
– to enrich segmentation and customer understanding.
To do this we first
statistically analyse customer trading data to determine how
much people spend, how often they buy, what they buy, where
they live, their life stage, what attracted them to your
company, etc., then compute a score to identify the ‘best’
type of customer.
Using the Postcode
(or ZIP code), we add external ‘profile’ data which allows
us to accurately describe what your best customers look
like.
Then, using geographic analysis techniques, we can
position your existing customers on a map - classifying by
value - and develop what is termed a ‘heat map’ to identify
where geographically to find more of the same.
So, what does this
information now allow you to do?
For starters, if you are
planning a product launch, moving into franchising or thinking of expanding into a new
geographic area, by applying some mathematics and a
‘weighting’ to take account of known competition and the
brand life stage, you can estimate what a specific
geographic area may deliver in terms of sales potential.
Add to this your knowledge of the effort needed to sell
your product or service and a realistic estimate of how many
prospects (or customers) a sales team could cope with, and
this information can be used as the basis to compute a set
of ‘right-sized’ sales or franchise territories, balanced by
opportunity and drive time.
 Territories
created in this way will deliver economic benefits, prevent
territory owners/sales teams being located too close to one
another or located in unsuitable areas, and ensure each has
sufficient territory to generate a revenue stream without
undue competition. If you operate a location based business
model, then choosing the right site to open your outlet has
as much to do with the demographic profile of your
customers as it does the physical location of the outlet.
With accurate customer
profiles and people or businesses grouped by segment, the right analytical resource, tools and data -
including competitor locations, traffic patterns, parking,
high target market density - you will be able to determine
how many outlets or branches you can open in an existing
market, where you should expand your network, which outlets
should be closed or consolidated.
You will also be able to
select the outlet, branch or other business locations that
are profitable and contribute strongly to your overall
network. Perhaps most importantly, customer profiles enable you to target the
right people using the right media and channel to get across
your marketing and sales messages.
What is scoring?
For those of you new to the concept
of using scores for database segmentation, profiling and to
then select individuals for targeting, the following example
should help.
Most people have at some time applied for an insurance policy
or credit of some kind - a loan, mortgage, finance for a new
car, etc. - and during the application process have been asked
questions such as age, length of residency, how many credit
cards, health history, etc.
For each of the answers given, data will have been entered into
a computer program that assigns a number (or score) to each
piece of information. This is usually termed a score card. The
way the numbers are then added together will depend on the formulae
used, but will greatly influence the decision to give you what
you are requesting.
The important thing to remember is that whilst each separate
piece of information may in its own right not be seen as important
and might otherwise be ignored, only when these items are combined
does the resulting information and its score become significant
and predictive.
A predictive model would usually
be created by a statistician and used to compare the characteristics
(or profile) of individuals who are known to represent, for
example, a good vs. bad risk. This produces a formulae and computes
a value (or score) for each individual. Depending on how high
or low the final score is, the lender or insurer can determine
the most appropriate offer for that individual and be fairly
confident in the degree of risk.
The picture to the right shows an example of how important various
pieces of information are in predicting who might respond to
a specific type of mailing or email campaign.
Direct marketing - using scores to target prospects
In direct marketing, to find the
most likely responders for your offer could well involve making
hundreds of separate or combined counts and selections, and
then only using only the information you believe is important
- i.e. maybe missing key predictors!
However, by using a scoring process,
the selection task can be greatly simplified. Each individual
can be allocated a single score based on their propensity to
take the kind of action you desire.
There will never be a single model or formulae that meets all
your targeting or profiling needs however.
A
separate model and scoring formulae may need to be created to
optimise the targeting and response to each different offer
you make, or to achieve the results you desire. And remember,
customer needs' change over time as do the activities of your
competitors. What works well today may not work so well in the
future, so the art is to continually test, learn and refine
to get the most from your marketing spend!
Profiling - using tools such as FastStats to simplify the
process
 Profiling
in market targeting is used to compare the distribution of a
group of individuals - based on their purchasing, behaviour,
etc., characteristics -
relative to
other individuals on your
customer or
prospect
database.
Once a profile has been created, a marketer
can then build predictive models
based on the results of that profile.
Predictive
models are used to score and segment your marketing database
to, for example, find prospects that ‘look like’ your existing
high value customers. This process helps you test and purchase
only the most responsive lists.
The model reports
to the right illustrate potential gains, revenues and profits
and has been created using
FastStats.
Applications
Typical applications for scoring
and profiling
include:
Selection
of look-alike prospects (i.e. prospects who match the profile
of selected customers)
Using scoring to grade
and select the best prospects from third party lists. See
also profiling with
TRAC geo-demographic data
Using scoring
to grade prospects to prioritise contact strategies by mail,
e-mail, telemarketing or face to face
Using different
analysis selections, base marketing priorities on: financial
risk or likelihood to churn (lapse or defect), respond,
purchase, upgrade, etc.
Profiling responders against the base of all those marketed
to in a test campaign, and score prospects in order to prioritise
who to select for the roll-out campaign
Developing sales and franchise territories, and
identifying where best to position outlets
The
Statistics
When it comes to profiling and segmentation, many of the
ways this information is described in the first instance is
in statistical terms, and later these are translated in a
more human speak. To provide guidance as to some of
the more popular statistics, and what each means,
definitions are as follows:
Data set - A data set (or dataset) is a
collection of data, usually presented in a table format.
Each column represents a particular variable (field). Each
row corresponds to a given piece of information - a number,
piece of text, etc.
Mean - this is the average,
or central tendency of a data set and is a measure of the
"middle" value of the data set.
All you have to do is add up
(sum) all the values in a set of data and
then divide that
sum by the number of values in the dataset. Mean
Mode -
This is the value in a set that occurs the most often.
Mode
Range - The range is the spread of numbers
in a data set, the minimum to the maximum.
Range
Median - This
is the number that is in the middle of a range.
Median
Outliers - Extreme values that will skew
the analysis
More information about
descriptive statistics on Wikipedia
here
How Tech4T can
help you
Developing
models, profiles and scores typically requires extensive analytical
or consultancy projects, but Tech4T have the technology and
skills to greatly simplify the task.
One of the
age old problems of customer analysis, segmentation and predictive
(or response) modeling is being able to apply the results
back to your marketing database to improve targeting and hence
grow customer value. Another challenge is to make sure that
all
relevant information is used in the analysis process - even
where data is scattered across different systems and locations.
Fortunately
we have an ideal solution.
We can merge and consolidate your data which can be supplied
to us in almost any format, undertake the customer value,
market potential, segmentation and profiling analysis, present
the results, and importantly append the outcome to your database
as a set of 'easy to use' indicators which can then be used
to make targeting selections. We can also provide an on-line
'Targeting
Workbench' where you can conduct your own analysis
and then turn the results into new strategic and tactical direct
mail and e-mail campaigns.
Targeting Workbench
Step-by-Step Analysis Guide
Analysis Services
Geographic Mapping
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