Customer Segmentation

Customer Segmentation

Strategy development based on customer lifetime value. Customer segmentation is the process of dividing customers into groups based on common characteristics so companies can market to each group effectively and appropriately. In business-to-business marketing, a company might segment customers according to a wide range of factors, including: Industry.

NTRODUCTION

Business analytics, big data, and data science, are very hot topics today, and for good reasons. Companies are sitting on a treasure trove of data, but usually lack the skills and people to analyse and exploit the data efficiently. Those companies who develop the skills, and hire the right people to analyse and exploit the data,will have a clear competitive advantage. It’s especially true in one demand,marketing. About 90% of the data collected by companies today are related to customer actions in marketing activities. Which, what pages customers visit, what products they buy, in what quantities, and at what price, which banners customers see or which emails they open, and how effective these actions have been to influence their behavior.

The domain of marketing analyticsis absolutely huge, and may cover fancy topics, such as, text mining, social network analysis, sentiment analysis, real time bidding, online campaign optimisation, and so on. But at the heart of marketing, lie few basic questions, that often remain unanswered.

  • One, who are my customers?
  • Two, which customer should I target, and spend most of my marketing budget on?
  • And three,what’s the future value of my customers?

The core parts of customer relationship management (CRM) activities are understanding customers’ profitability and retain profitable customers. So one can concentrate on those who will be worth the most to the company in the future. That’s exactly what this article will cover. Segmentation is all about understanding your customers whereas customer lifetime value (CLV) is about anticipating their future value.

STATISTICAL SEGMENTATION

To illustrate how you build a segmentation lets take a very simple graphical example. Let’s assume that you have only ten customers in your database and that these ten customers are only described by two factors, or what we call segmentation variables. Graphically these ten customers can be represented on a two-dimensional map, where the first horizontal axis represents the frequency of purchase, with the most frequent shoppers being on the right. And the second vertical axis represents the average purchase amount, with those customers who spend the most on each trip appearing at the top of the chart.

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