CCG - Customer Segmentation

excerpted from
StrateScapes – Volume 1, Number 3

Customer Segmentation:
Finding the Right Tool for the Job
Evaluating performance is crucial to maintaining an effective relationship marketing program. By following the seven steps of measurement outlined below, you can gather the information you need to make your loyalty program work.

1. Establish a baseline.

Before launching your program, conduct a survey to determine existing opinions and behaviors; conduct follow-up surveys annually to measure changes.

2. Determine measurement criteria.

Set quantitative objectives, such as increasing best customer spending by $150 per year, adding one year to best customers' relationships with you or improving return on investment by 5 percent. Set qualitative goals as well, such as improving customer opinions of your organization.

3. Encourage customer feedback.

Solicit comments and satisfaction levels through toll-free hotlines, focus groups, surveys or BRCs in communications. This will provide valuable information for refining your program.

4. Use control groups.

Select a random sample of customers who qualify for your loyalty program but who haven’t been asked to join. Their behavior will act as a benchmark against which you can compare program-member actions, allowing you to determine program impact. Add new control groups annually, but retain existing groups so you can evaluate long-term effects.

5. Measure past performance.

For each program member, track behavior during the 12 months before the program’s launch. Then compare it to behavior immediately following the launch. Look at such statistics as monthly expenditures and average monthly purchases per year.

6. Measure retention.

Each year compare the percentage of program members who remain best customers to the percentage of control group customers who remain qualified for program membership. This will help you determine if your relationship marketing program is influencing customer retention.

7. Gather data for lifetime value.

How much is a customer worth over the course of her relationship with your company? How much is it worth spending to retain her? By estimating the length of customers’ relationships with you and calculating customer profitability over that term, you can answer these questions. Group customers by type for these evaluations; knowing that one customer group is more valuable than others will help you focus your marketing efforts most appropriately.

Measuring the effectiveness of a relationship marketing program is a work in progress. As long as you have the program, you must continue to regularly evaluate it and modify it to meet the changing needs of your best customers. In the long run, your investment will be rewarded.

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.