Customer Segmentation: Turning Data into Knowledge—and Sales
Sales and marketing professionals share a key goal: to minimize the number of people they must contact to create a sale. Many of them have the raw material for doing this in their systems today—but don’t know how to use it. (No customer segmentation)
This was the case for an association that holds sporting events in Chicago. For years it had been collecting information on those who purchased tickets or merchandise. But no one had a good understanding of why some people bought and others didn’t—and how to incent them to buy more or more often. That meant it was wasting advertising and marketing dollars.
So they turned to Massa & Company.
Challenge: Creating Actionable Customer Segments
Bonnie Massa evaluated five years of transactions. She created sements for seven types of customers. There was “Bernie Best,” who shopped during four of the last five years, spent in the top 20-40%, was age 59, had annual household income of $100,000-124,000, and lived in Western Springs/Chicago/La Grange. Another example was “Nolan Newcomer,” who was a first-time shopper, spent in the bottom 20-60%, was age 46, had annual household income of $125,000-149,000, and lived in Chicago/Naperville/Palatine
“Now we understood the different segments of customers,” Massa explains. “This meant we could develop clear strategies to encourage current customers to spend more, and identify—and reach out to—potential customers that fit the segments of our best buyers.”
Solutions: Turning Information into Strategy
For example, Bernie Best needed no financial incentive to return. The right offer for him would be soft benefits, such as an opportunity to buy prime seats in advance, which cost little. Nolan Newcomer, on the other hand, could be enticed to return a second time with monetary discounts or incentives. In addition, customer segments such as “Eddie Uncertain” and “Larry Lapsed” could be contacted to determine what would motivate them. Now the sponsor could test different daily or weekly offers to these groups and identify what was most attractive to them.
The organization also had ways to attract new shoppers. Direct mailings could be targeted to men in specific zip codes. Demographic information could be used to refine mailing list purchases. And any “free lists” on the association’s website could request demographic information from those signing up—improving the quality of data collected on potential customers.
Results: Improving Sales and Marketing ROI
“Database marketing and market segmentation go hand-in-hand,” says Massa. “The first allows companies to gather information on their customers, leads and prospects and put it into one searchable database. The second provides a clearer picture of who these people are and what they buy. This means organizations can improve the return on their marketing investment (ROMI) by no longer wasting time and money sending the wrong offers to existing customer segments, or reaching out to those who won’t be interested.”