Chapter 8: Marketing to Customer Segments


Overview

To develop a relationship program, you still have to put individuals into groups, and develop products and strategies that will keep them loyal. That, in my opinion, is where companies have the most difficulty. Even when you say to them, “I can help you to identify your key customer segments.” They respond, “Well, great. But tell me, what to do with them once they are identified. How do I manage each segment?” Marketers are not yet sophisticated enough to know what to do with the information.

—Stephen Shaw, Canadian Direct Marketing News

Since one-to-one marketing is seldom possible, most successful direct marketers aim their marketing efforts at segments. A segment is a group of customers or prospects that you have identified for marketing purposes. In your mind, you think, “What are these people like? What would appeal to them and get them to buy? How can we track their response to our promotions?” Then you set about getting the information that you need in order to define the segment and design marketing programs just for it.

Creating marketing segments is an art, not a science. Expert marketers spend a lot of time dreaming up segments and consulting their database to see if these segments really exist. Then they spend time coming up with marketing programs and testing them on the segments. To determine whether they are successful, they always carve out control groups, members of the segment who do not receive the promotions that are sent to all the other members of the segment. Then they measure their success by comparing the purchases made by the members of the segment to whom the promotion was sent against the purchases made by the control group. To determine the return on investment, they have to take the incremental revenue gained from the segment to which the promotion was sent and subtract it from it the cost of the promotion and the rewards given to the members of that segment. Many times the return on investment is negative. In this chapter, we will begin with the process of creating a segment: coming up with the idea and finding the data to measure whether the segment is performing as you intend. Then we will look at some case studies involving marketing to segments. So, let’s begin with getting data about segment members.

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Segment Marketing versus One-to-One Marketing

The idea in one-to-one marketing is to store in a data warehouse enough information about each customer to enable you to develop an individual marketing program designed just for that customer. True one-to-one marketing is real time: If a customer buys something this morning, your communications to that customer this afternoon will reflect that fact, along with everything the customer has purchased since the beginning of the relationship with you, plus what you know about the customer’s demographics. You don’t have five marketing programs; you have 2 million marketing programs for your 2 million customers. It is a very nice idea. So why isn’t everyone doing it? Because, in most cases, the lift in sales that you get from one-to-one marketing does not pay for the cost of the warehouse and the communications. There are very, very few situations in which real one-to-one marketing is economically profitable.

Segment marketing, on the other hand, is relatively easy to achieve. You still need a database of customers that includes their demographics, preferences, and transactions. Your next step, however, is to divide customers into segments on the basis of profitability: Best Customers, New Customers, Lapsed Customers, and Occasional Customers. You develop a marketing program for each segment. The actual communication with each customer can be personalized using the data on that customer that you have in your database, but the segment determines the overall approach. The cost of segment marketing is a fraction of the cost of one-to-one marketing.

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The Customer Loyalty Solution. What Works (and What Doesn't in Customer Loyalty Programs)
The Customer Loyalty Solution : What Works (and What Doesnt) in Customer Loyalty Programs
ISBN: 0071363661
EAN: 2147483647
Year: 2002
Pages: 226

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