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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.
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. . . .
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
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