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How to Apply a Business
Segmentation Product to Build
Relationships and Discover Market
Potential
Market Segmentation
•  A Market Segment is a subgroup of
   organizations that have one or more
   characteristics in common that cause them to
   have similar product or service needs.

•  Market Segmentation is the process of
   dividing the market into meaningful, relatively
   similar and identifiable segments and groups.
What Does Segmentation Do?



%




             Decile
What issues are indicators of a need for
segmentation services?
•  Rapid customer base churn
•  Product/services sold across a wide spectrum of
   consumers or industries
•  Multiple channels of distribution (field/telephone sales,
   brokers, et. al.)
•  Low market penetration
•  Unclear understanding of what constitutes the “best”
   customer set
•  Low response rates on solicitation
•  Low approval/acceptance rates
Some Tools for Segmentation
 •  Regression
 •  CHAID
 •  Basic Demographic Profiling
 •  RFM Analysis
 •  Proprietary Cluster Systems
Which is the “Best” Solution?
•  Each method has pros and cons
•  Any segmentation problem has a marketing
   decision or implementation objective
•  Apply the method that will meet the marketing
   requirements
 ▫  Evaluate customers, prospects, or both?
 ▫  Require continuous scores or are segment-defined
    scores acceptable?
 ▫  Time and cost constraints?
hat’s in it for me?

        •  Who are our best customers?
        •  Where can we find more of our best customers?
        •  How can we more effectively reach customers for
           our products and services?
        •  Where should we best expand our market area?
        •  What characteristics are common in our top
           customers?
        •  How can we tailor our message to each segment of
           our customers?
        •  How can we better allocate our sales resources?
        •  What segments of the market need our services
           most?
Applying Segmentation Tools to Discover
 Market Potential & Build Relationships


•  Four industries using four different segmentation tools.

•  Tools / applications ranked by segmentation complexity:
   regression, CHAID, cluster, penetration.

•  All tools are valid. Identification of appropriate tool is
   dependent upon desired results, available resource, and
   sophistication of users.
Applying Segmentation Tools
 to Discover Market Potential & Build Relationships

 Case Study: Commercial Oil Card



•  Oil card positioned for mid-to-large size fleets.

•  Multiple channels of distribution: sales force,
   wholesalers, retail POP take one apps.

•  Challenge #1– identify prospects likely to have large
   fleets that travel longer distances and consume higher
   volumes of petroleum products.

•  Challenge #2 – pre-approve or prequalify prospect on
   credit basis for card issuance.
Applying Segmentation Tools
to Discover Market Potential & Build Relationships

Case Study: Commercial Oil Card

 •  Combined customer transactions with external
    firmagraphics in regression model

 •  Regression segmentation tool to predict consumption
    and pass risk hurdle

 •  Reduced credit rejection rate by 60% and increased
    top line revenue by 35%

 •  Major beneficiary of improved relationships were
    internal sales channels
Applying Segmentation Tools
to Discover Market Potential & Build Relationships

Case Study: Health Care Insurer

•  Regional heath care insurance organization using
   direct response to create inbound inquiries for small
   employer group market.

•  Prospects selection based upon size, SIC, number of
   employees and geography. Quarterly mailings to all
   qualifiers.

•  Issue: Are all prospects equally valid?
Applying Segmentation Tools
to Discover Market Potential & Build Relationships

 Case Study: Health Care Insurer
•  Marketer’s dilemma: applying limited budget to get the
   best results.

•  Marketer’s objective: increase the number of inquiries
   into the call center.

•  Solution: CHAID analysis of customer set to identify
   characteristics of prospects most likely to respond to
   solicitations.

•  CHAID allowed marketer to change mix of prospects:
   more mailings to organizations most likely to respond,
   fewer to less likely responders.
Applying Segmentation Tools
to Discover Market Potential & Build Relationships

Case Study: Uniform Rental

 •  Uniform supply organization supporting prospecting efforts of
    multiple business units and branch offices

 •  Telemarketing used to survey and prequalify prospects for local
    sales offices

 •  SIC/size selects used for several years to pull best prospects

 •  Challenge #1: prospect pool diminishing due to over-selection

 •  Challenge #2: have current business practices for prospect
    selection left good prospects on the table?
Applying Segmentation Tools
to Discover Market Potential & Build Relationships

Case Study: Uniform Rental
    •  Customer file matched to reference universe file

    •  Simple penetration reports generated to look at
       penetration with existing sic/size select criteria as
       well as identify opportunities to expand selection
       based upon management intuition and knowledge

    •  Identified new segments for selection and kept the
       pipeline full
Applying Segmentation Tools
to Discover Market Potential & Build Relationships

Case Study: Office Products & Equipment

•  National provider of supplies and equipment to retailers
   and wholesalers
•  Provides marketing support to channels to sell to end-
   users
•  Challenge #1: All businesses consume products. Who
   buys more and why?
•  Challenge #2: Retailers and wholesalers own the client
   relationship. How does the provider help identify salient
   consumption characteristics of end-users when they
   don’t have the direct relationship?
Applying Segmentation Tools
to Discover Market Potential & Build Relationships

Case Study: Office Products & Equipment

•  Solution analyzed ship-to information: host
   organization often ships products directly to the retailer/
   wholesaler customer to expedite delivery.
•  Ruf business cluster segmentation tool used to identify
   characteristics of the ship to locations and segment on
   basis of size and penetration
•  Rank ordering showed 5:1 lift top quintile vs. bottom
   quintile
•  New program has prospects selected among records in
   top quintile
Applying Segmentation Tools
to Discover Market Potential & Build Relationships


Case Study: Office Products & Equipment
    •  Business Clusters: a combination of has US business
       demographic and econometric information
    •  Business Clusters create flexible and immediately
       actionable segmentation for virtually any measurable
       objective
    •  Mid-range modeling solution provides faster and
       more economical segmentation than custom
       solutions
Case Study: Office Products & Equipment

Mission for Business Cluster Product
•  Create a general business segmentation tool for the
   national business “universe”
•  Provide a highly flexible segmentation solution
  ▫  Handle multiple objectives with a common tool
•  Incorporate “deeper” data than typical business
   demographics
•  Generate cluster profile models rapidly and economically
•  Provide additional input data for custom modeling using
   other statistical tools
Data Used in Formation of Business
Clusters
•  Business demographics
 ▫  SIC
 ▫  annual sales
 ▫  employee size
 ▫  location type
 ▫  years in business
 ▫  business type
 ▫  etc.
•  Econo-metric Footprint variables
Econo-metric Footprints
•  Proprietary variables developed by DMS’s partner Ruf
   Strategic Solutions.
•  Businesses are affected by surrounding areas
•  Built using economic data from:
  ▫  US Dept. of Commerce
      Bureau of Economic Analysis
      Bureau of the Census
  ▫  Consumer data
•  Provide unique advantage to business segmentation
   techniques
Econo-metric Footprints
              Office                         Office Supplies
             Supplies



   Place - Montgomery  
      SURFACE
           Place - Manhattan 
     # Employees - 23
      RELATIONSHIPS
       # Employees - 23
         SIC - 5943
                                 SIC - 5943
   R v n e - 5 ml
    ee us       i       
                        Revenues - 5 mil

    High Growth
               HIDDEN 
          Flat Growth
    Labor Shortage
         RELATIONSHIPS
       Labor Oversupply
    Moderate Crime
                              Low Crime
    Impacted by Textiles
                        Impacted by Finance
    Low Tech
                                    High Tech
    Older Consumers
                             Younger Consumers
    Etc. . . .
                                  Etc. . . .
BUSINESS CLUSTER PENETRATION BAR CHART –
Office Products Client
Top Performing Business Clusters
Office Products Client



 Rank   Cluster   % of Customers   % of Businesses   Index

  1      7018          0.82             0.11         724.38

  2      7029          0.81             0.12         656.17

  3      7028          2.28             0.37         622.65

  4      7034          1.50             0.26         582.95
Business Segmentation
Key 2 Digit SIC codes by market penetration
Office Products Client
 Rank   SIC Code              Description              % of Customers   % of Businesses   Index

  1       36       Electronic Equipment and                 0.94             0.21         438.98
                   Components
  2       38       Instruments and Related Products         0.53             0.13         417.87

  3       26       Paper and Allied Products                0.37             0.10         370.81

  4       30       Rubber and Miscellaneous Plastics        0.58             0.16         362.13
                   Products
Industry – Office Products Client
Employee Size – Office Products Client
Years on File – Office Products Client
Census Division – Office Products Client
Applying Segmentation Tools
 to Discover Market Potential & Build Relationships

Implementation
 •  We’ve analyzed the customers. We see the top prospects
    are in the top quintile.
 •  We communicate this to the distribution channel with
    the appropriate collateral that explains how we can
    identify better candidates
 •  We provide the distribution channel a means of ordering
    these “better” prospects to create relationships using
    different communications
 •  We follow up as best we can to determine if these new
    prospects are converting at a higher rate
Start with the end in mind!
•  Understanding the marketing objective drives all
   decisions
 ▫  What behavior do we want to optimize?
 ▫  What input data will be needed?
 ▫  How will the results be implemented?
 ▫  How will we be able to measure success?
•  Conceptualize how successful segmentation will
   impact your ROI
•  Competitive Advantage

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Business Segmentation

  • 1. How to Apply a Business Segmentation Product to Build Relationships and Discover Market Potential
  • 2. Market Segmentation •  A Market Segment is a subgroup of organizations that have one or more characteristics in common that cause them to have similar product or service needs. •  Market Segmentation is the process of dividing the market into meaningful, relatively similar and identifiable segments and groups.
  • 3. What Does Segmentation Do? % Decile
  • 4. What issues are indicators of a need for segmentation services? •  Rapid customer base churn •  Product/services sold across a wide spectrum of consumers or industries •  Multiple channels of distribution (field/telephone sales, brokers, et. al.) •  Low market penetration •  Unclear understanding of what constitutes the “best” customer set •  Low response rates on solicitation •  Low approval/acceptance rates
  • 5. Some Tools for Segmentation •  Regression •  CHAID •  Basic Demographic Profiling •  RFM Analysis •  Proprietary Cluster Systems
  • 6. Which is the “Best” Solution? •  Each method has pros and cons •  Any segmentation problem has a marketing decision or implementation objective •  Apply the method that will meet the marketing requirements ▫  Evaluate customers, prospects, or both? ▫  Require continuous scores or are segment-defined scores acceptable? ▫  Time and cost constraints?
  • 7. hat’s in it for me? •  Who are our best customers? •  Where can we find more of our best customers? •  How can we more effectively reach customers for our products and services? •  Where should we best expand our market area? •  What characteristics are common in our top customers? •  How can we tailor our message to each segment of our customers? •  How can we better allocate our sales resources? •  What segments of the market need our services most?
  • 8. Applying Segmentation Tools to Discover Market Potential & Build Relationships •  Four industries using four different segmentation tools. •  Tools / applications ranked by segmentation complexity: regression, CHAID, cluster, penetration. •  All tools are valid. Identification of appropriate tool is dependent upon desired results, available resource, and sophistication of users.
  • 9. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Commercial Oil Card •  Oil card positioned for mid-to-large size fleets. •  Multiple channels of distribution: sales force, wholesalers, retail POP take one apps. •  Challenge #1– identify prospects likely to have large fleets that travel longer distances and consume higher volumes of petroleum products. •  Challenge #2 – pre-approve or prequalify prospect on credit basis for card issuance.
  • 10. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Commercial Oil Card •  Combined customer transactions with external firmagraphics in regression model •  Regression segmentation tool to predict consumption and pass risk hurdle •  Reduced credit rejection rate by 60% and increased top line revenue by 35% •  Major beneficiary of improved relationships were internal sales channels
  • 11. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Health Care Insurer •  Regional heath care insurance organization using direct response to create inbound inquiries for small employer group market. •  Prospects selection based upon size, SIC, number of employees and geography. Quarterly mailings to all qualifiers. •  Issue: Are all prospects equally valid?
  • 12. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Health Care Insurer •  Marketer’s dilemma: applying limited budget to get the best results. •  Marketer’s objective: increase the number of inquiries into the call center. •  Solution: CHAID analysis of customer set to identify characteristics of prospects most likely to respond to solicitations. •  CHAID allowed marketer to change mix of prospects: more mailings to organizations most likely to respond, fewer to less likely responders.
  • 13. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Uniform Rental •  Uniform supply organization supporting prospecting efforts of multiple business units and branch offices •  Telemarketing used to survey and prequalify prospects for local sales offices •  SIC/size selects used for several years to pull best prospects •  Challenge #1: prospect pool diminishing due to over-selection •  Challenge #2: have current business practices for prospect selection left good prospects on the table?
  • 14. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Uniform Rental •  Customer file matched to reference universe file •  Simple penetration reports generated to look at penetration with existing sic/size select criteria as well as identify opportunities to expand selection based upon management intuition and knowledge •  Identified new segments for selection and kept the pipeline full
  • 15. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Office Products & Equipment •  National provider of supplies and equipment to retailers and wholesalers •  Provides marketing support to channels to sell to end- users •  Challenge #1: All businesses consume products. Who buys more and why? •  Challenge #2: Retailers and wholesalers own the client relationship. How does the provider help identify salient consumption characteristics of end-users when they don’t have the direct relationship?
  • 16. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Office Products & Equipment •  Solution analyzed ship-to information: host organization often ships products directly to the retailer/ wholesaler customer to expedite delivery. •  Ruf business cluster segmentation tool used to identify characteristics of the ship to locations and segment on basis of size and penetration •  Rank ordering showed 5:1 lift top quintile vs. bottom quintile •  New program has prospects selected among records in top quintile
  • 17. Applying Segmentation Tools to Discover Market Potential & Build Relationships Case Study: Office Products & Equipment •  Business Clusters: a combination of has US business demographic and econometric information •  Business Clusters create flexible and immediately actionable segmentation for virtually any measurable objective •  Mid-range modeling solution provides faster and more economical segmentation than custom solutions
  • 18. Case Study: Office Products & Equipment Mission for Business Cluster Product •  Create a general business segmentation tool for the national business “universe” •  Provide a highly flexible segmentation solution ▫  Handle multiple objectives with a common tool •  Incorporate “deeper” data than typical business demographics •  Generate cluster profile models rapidly and economically •  Provide additional input data for custom modeling using other statistical tools
  • 19. Data Used in Formation of Business Clusters •  Business demographics ▫  SIC ▫  annual sales ▫  employee size ▫  location type ▫  years in business ▫  business type ▫  etc. •  Econo-metric Footprint variables
  • 20. Econo-metric Footprints •  Proprietary variables developed by DMS’s partner Ruf Strategic Solutions. •  Businesses are affected by surrounding areas •  Built using economic data from: ▫  US Dept. of Commerce   Bureau of Economic Analysis   Bureau of the Census ▫  Consumer data •  Provide unique advantage to business segmentation techniques
  • 21. Econo-metric Footprints Office Office Supplies Supplies Place - Montgomery SURFACE Place - Manhattan # Employees - 23 RELATIONSHIPS # Employees - 23 SIC - 5943 SIC - 5943 R v n e - 5 ml ee us i Revenues - 5 mil High Growth HIDDEN Flat Growth Labor Shortage RELATIONSHIPS Labor Oversupply Moderate Crime Low Crime Impacted by Textiles Impacted by Finance Low Tech High Tech Older Consumers Younger Consumers Etc. . . . Etc. . . .
  • 22. BUSINESS CLUSTER PENETRATION BAR CHART – Office Products Client
  • 23. Top Performing Business Clusters Office Products Client Rank Cluster % of Customers % of Businesses Index 1 7018 0.82 0.11 724.38 2 7029 0.81 0.12 656.17 3 7028 2.28 0.37 622.65 4 7034 1.50 0.26 582.95
  • 25. Key 2 Digit SIC codes by market penetration Office Products Client Rank SIC Code Description % of Customers % of Businesses Index 1 36 Electronic Equipment and 0.94 0.21 438.98 Components 2 38 Instruments and Related Products 0.53 0.13 417.87 3 26 Paper and Allied Products 0.37 0.10 370.81 4 30 Rubber and Miscellaneous Plastics 0.58 0.16 362.13 Products
  • 26. Industry – Office Products Client
  • 27. Employee Size – Office Products Client
  • 28. Years on File – Office Products Client
  • 29. Census Division – Office Products Client
  • 30. Applying Segmentation Tools to Discover Market Potential & Build Relationships Implementation •  We’ve analyzed the customers. We see the top prospects are in the top quintile. •  We communicate this to the distribution channel with the appropriate collateral that explains how we can identify better candidates •  We provide the distribution channel a means of ordering these “better” prospects to create relationships using different communications •  We follow up as best we can to determine if these new prospects are converting at a higher rate
  • 31. Start with the end in mind! •  Understanding the marketing objective drives all decisions ▫  What behavior do we want to optimize? ▫  What input data will be needed? ▫  How will the results be implemented? ▫  How will we be able to measure success? •  Conceptualize how successful segmentation will impact your ROI •  Competitive Advantage