CCG - Customer Segmentation

Excerpted from
StrateScapes – Volume 1, Number 9

Customer Segmentation:
Finding the Right Tool for the Job

“Our customer is female, age 20 to 40, married with two kids and makes $25,000 to $60,000 a year,” said one marketing vice president of a major retailer when asked to describe his customer base. Unfortunately, many marketing managers from a wide range of industries leave “understanding” their customers at that and proceed to target marketing efforts to this homogeneous profile.

This flawed approach offers too broad a picture of who your customers really are. A customer base comprises many individuals. To build a relationship with anyone (your customers, your spouse, a friend), you need to understand who they are as individuals and communicate with them accordingly. This task may sound daunting, but many customer segmentation tools exist that can make it manageable.

Birds of a Feather
Many service companies collect names, addresses and demographic information from the U.S. population. An analysis of this database creates segments or clusters of people similar to one another and distinct from other segments. The database is then run against yours to find matches. Those customer records that match are appended with a segment code to provide a host of information about your customers and the types of customer segments contained within your database. The type of information varies, but can include: age, household income, home-ownership status, marital status, number of children, type of car owned, and occupation and lifestyle interests, such as hiking, golfing and gardening.

Define, Refine and Conquer
Customer segmentation takes two basic approaches that vary based on which information was used to create the master database. Geodemographic segmentation tools like PRIZM, Claritas or Microvision have been around for years and follow the notion that “birds of a feather flock together.” In other words, the master databases for these systems rely on the premise that everyone in a ZIP code or census tract shares the same demographic and lifestyle characteristics. You need think only of the many types of people who live in your own neighborhood to realize the drawback of these systems. For example, not all senior citizens live in the same geographic areas or act or react the same. Some are home-oriented while others travel the world, and those behaviors differ from household to household. In order to create relationships with each of those groups, you must understand the unique differences among them.

The other customer segmentation approach builds the master database using household information gathered from the consumers themselves, so there is no inference that people in the same geographic area have the same number and ages of children, for example. This system allows the greatest precision in understanding who your customers are and how to communicate with the individual customer segments within your database.

Get Personal
Currently, Cohorts^® is the only customer segmentation product available that uses self-reported household data. Cohorts identifies 27 naturally occurring clusters of consumers and, interestingly, has titled each cluster with the uncommon name (common being “John,” “Jane,” etc.) that appeared most often within each cluster (for example, “Lillian,” “Alec & Elyse,” “Stuart” and “Elwood & Willimae”).

The following chart depicts how the two basic approaches to customer segmentation work.

	Household Level	Geodemography
	Cohorts.	PRIZM, Microvision, Claritas and others.
The Basic Units	The household.	The neighborhood as defined by either the U.S. Census or the U.S. Postal Service.
The Basic Data	Self-reported demographic and lifestyle data.	Aggregated census data.
The Process	Assign each household one of 27 Cohorts designations based on self-reported data from the household.	Assign each geographic area a designation (for example, Blue Blood Estates) and then give every household in that geographic area the same designation.
The Precision	Your message will reach the right household.	Your message will reach the right geographic area.

Delivering the Right Message to the Right Customer
Following are examples written for specific segments using the Cohorts segmentation system. Notice the impact these messages have compared with advertising geared to the masses.

Advertiser: Cosmetics Chain
Target Markets:

RaeAnne, described as childless female office workers who are concerned about their appearance, enjoy music, pets and handicrafts, and add intrigue to their domestic lives with the prospect of winning a big sweepstakes.

Lillian, described as older women approaching or enjoying retirement who travel, have upscale interests and investments and still find time for their grandchildren.

Copy for RaeAnne:
From Maybelline to Clairol to Jergens, our beauty outlets satisfy your every need from head to toe. And, you’ll enjoy the savings, with prices 10 – 20% below department store prices. Come in today and join our free beauty club and start collecting points to win valuable prizes!

Copy for Lillian:
From Estée Lauder to Biolage to Illusions, our bath and beauty boutiques cater to your every whim — whether it be for holiday gift-giving or a little self-indulgence. As a member of our pampered purchaser program, you’ll accumulate points toward special premiums selected with you in mind. Stop in and browse with us today.

Advertiser: Internet Service Provider
Target Markets:

Danny & Vickie, described as teen-dominated families whose interests include cameras, computers and video games.

Chance & Tasha, described as young, married techies whose lifestyles include high-tech playthings and high fashion.

Copy for Danny & Vickie:
Whether you’re working at home or searching for new hiking trails in unfamiliar territory, the Internet offers access to the world — all from the comfort of your own home. Our Internet services provide unlimited access to e-mail and browser features that rival the best, with a price to meet your family budget. For more information, call NETPLANNER at 1-800-222-2222.

Copy for Chance & Tasha:
When you can’t be f2f, jack in to trade messages with your favorite handle or surf for cool stuff. Our net services let you replace snail mail and POTS and will leave you LOL. TMOT :-). For FAQ, contact NETPLANNER@NPL.com.

The copy in both examples uses the vernacular pertinent to each group. The point is to send the right message to the right consumer group at the right time! Ultimately, by applying the proper customer segmentation tool to your marketing database, you’ll be able to create relevance for your customers, which will enhance your relationships with them. Such relationship marketing is not only a great opportunity, but also, as sophisticated marketers, it should be your number-one priority.

STRATESCAPES and STRATESCAPES SUPPLEMENTS are published by Customer Communications Group, Inc., a full-service agency specializing in relationship marketing and customer communications. Our comprehensive, turnkey services include data analysis, customer segmentation, strategic consulting, account management, creative execution, print production and multimedia solutions.