Posted by: zyxo | August 5, 2011

The 2.5 ways to segment your customer base

Terabytes have been filled with books and articles about segmentation.  And we should by now expect that the most basic knowledge about it is, well … known.
Forget it !
First : what is this most basic knowledge that each and every marketeer should know?

 “What can you do with it” ?
Or, stated otherwise : how should you use it ?

Is the answer obvious ? Not at all !

Take for example the SAS white paper “A Marketer’s Guide to Analytics“.  You could reasonably expect SAS, as a major vendor of analytics software and consultancy, to know how to use segmentation.

Well, I seriously have my doubts.
They discribe as “the first two enablers of the analytical framework” :
1) analytically driven, granular segmentation: enables you to identify how different customer segments are most likely to respond to specific campaigns or marketing actions.
2) predictive modeling: enables you to identify the specific target population likely to respond positively to a specific campaign or other marketing activity.
I get an odd feeling when I read these two “different” descriptions.  Whether I can identify how different customer segments will respond to my campaign or identify the target population that will respond in a particular way (“respond positively”) does not seem very different to me.  In both cases you want to predict the behaviour of each customer or customer group in response to you campaign.
So let us forget about software or algorithms.  Let’s think marketing.

1.  First, you want to sell your product or service.

This means you have to find out who is likely to buy it.  You call for help any tool or algorithm that can use the data in your customer base: logistic or linear regression,  neural networks, support vector machines, genetic algorithms, bayes learners, decision trees, and all sorts of segmentations.  Use whatever you like, know, have, and delivers satisfactory results.

OK, let’s say you have done this and you know who to target, you have your customer group or best segment or whatever.  Perhaps you have a lift chart or the like so you know what you can expect from your campaign. (in my earlier post “datamining for marketing campaigns: interpretation of lift” your find a lot more about this topic)

2. Second, you have, one way or another, to speak to those people.

And if there is one important issue about communication it’s that you have to send the right message to the right person.
OK, you want to sell them all your world-changing superb product.  But I’m not talking about the what, but about the how !  I’m not talking about the content of the message box you will send, but about the wrapping paper, the flavour of your message.  Will you use the same words, the same communication channel, the same colours for young women, for old men, for internet savvy whizzkids, for grandma’s who never touched a computer ?

Did you notice ?  I gave some examples of customer SEGMENTS.  So that’s your second assignment : find the segments who match your communication alternatives.
A simple, but not easy, way to do this is to think, brainstorm, use your imagination and common sense, and use what you know about the people you identified in step one : look who’s in the selection, what is their age distribution, etc …
Now you have your second segmentation.

Lastly I owe you another half segmentation: In case you are not satisfied with your “communication segmentation”, you can always test it first:  Use your various communication alternatives randomly to part of the people of your selected target group.  Evaluate the results, and calculate which communication flavour your should use with which customer.  For this calculation you can use whatever you  like, know, have, and delivers satisfactory results.  Then use the findings to optimise subsequent campaigns.
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