How to segment customer database for better targeted marketing How to make sense of the customer data you already have.

1. CUSTOMER BEHAVIOURAL
SEGMENTATION
USING SALES DATA YOU ALREADY HAVE

2. WHY DO IT?
• Historical behaviour has been proven to be the best
predictor of future behaviour
• We can see how important different segments are
for our business
• Instead of indiscriminate, one-size-fits all marketing
we can tailor it to groups with specific and known
preferences, expressed by their past behaviour
withIQ.biz

3. BEHAVIOURS WE CAN SEGMENT ON
Theoretically, we can segment on any transaction
data – but is this necessary or even usable? To get a
clear picture, we should look at the customer base:
• By frequency and monetary value – once-off
buyers, casual buyers, regular customers, high-value
customers
• By recency – new, current, “at risk” and lost
customers, based on average days between sales
• By products – specific products vs single category vs
multiple category buyers
withIQ.biz

4. EXAMPLE OF SEGMENTATION
ComputerBooks.com – fictitious company selling books for IT professionals
Here we defined 5 classes:
• A-C: repeat customers with A being most frequent as specified
by criteria CavDays<=150
• D – once off customers
• R – recent once-off customers, they might still return for more
withIQ.biz

5. COMPARING THESE SEGMENTS
• Although group „A‟ is the least numerous, its input into overall
revenue is greater than the largest group - „D‟
• This is because both Average Sale Amount and #Sales/Customer
increase from „D‟ to „A‟, causing Average Customer Value to rise
dramatically
withIQ.biz

6. SEGMENT PROFITABILITY
The spend of once-off customers is about $80. Amazon.com statistics:
gross-profit margin 24%, net profit 2.7% (Forbes, tinyurl.com/74pfbwo)
At these margins gross profit for customer „D‟ is $19.2, net profit is $2.16
Conclusion: these customers have marginal profitability at best, we
need to convert them to become repeat customers!
withIQ.biz

7. MARKETING BY SEGMENT
Having classified customers into types from „A‟ to „R‟, we can
target our marketing better:
• For type „R‟ (recent customers) – we want them to become
regular customers
• For type „D‟ (other once-off customers) – we want them to
make second purchase, but we don‟t want to spend too much
on them; neither can we contact them too often
• Type „A‟ – our most connected, most switched on customers retain them, make them special offers, ask them for referrals etc
withIQ.biz

8. TARGETING BY SEGMENT
Use behavioural segmentation by itself or in conjunction with other
parameters. Here we are selecting customers of types A and B who
made at least 4 purchases and spent $500 or more in 2011 and
bought book “Access 2003 for Starters”.
withIQ.biz

9. CORRELATION TO DEMOGRAPHIC
We should correlate behaviour to demographic and geography to find
any anomalies and problem areas. Here we can see a larger-thanaverage proportion of Queensland customers in type „D‟ (once-off
customers).
This points to a conversion problem, perhaps due to negative first
purchase experience.
withIQ.biz

10. PRODUCT PREFERENCES
Note type „A‟ customers have somewhat different product
preference to the overall customer base:
They buy less books about low-end and free database
technologies (Access and MySQL) and more about paid,
commercial technologies (Oracle and SQL Server)
withIQ.biz

11. PRODUCT PREFERENCE
The difference is even more pronounced if we categorize books
into price ranges – „A‟ customers buy more expensive books!
withIQ.biz

12. ACTIONS TO TAKE AWAY
• Problems with customer retention in Queensland –
seems we cannot get them to come back – survey
or follow up each new purchase
• Highest-value customers are interested in
“commercial” technologies – promote the books
about those technologies to this group
• Higher-value customers buy more often, buy bigger
“baskets” – need to start tracking customer sources
to find more of them
• Lower value customers (type „D‟)
withIQ.biz

13. ANALYSE YOUR OWN DATA
• CRM or shopping cart extract
• Need sales history and customer details, linked by
customer id
• Don‟t need customer name, address and other
personal info
• Visit www.withIQ.biz and contact us
withIQ.biz

14. THANK YOU
And happy segmentation!
withIQ.biz