Customer Segmentation and Customer Migration

Posted on August 19, 2009 by Mark Klein

There were a lot of “I told you so’s” going around our offices last week.

One of our customers has really been leveraging their segmentations, with different messaging and different mail frequency to the various groups in their customer base. From this activity our customer generated some reports with concrete proof that their two middle tier segments, the Underperformers and the Faders, were the segments most susceptible to influence by their direct marketing campaigns. This result reinforced our hard-learned experience that these middle tier customers are the best candidates to move to higher ranking segments, and these mid-tier segments are the best places to find incremental revenue.

If you have been reading this blog, you know that a key step in data-driven marketing is to do a behavioral segmentation of your customers. The purpose of the segmentation is to facilitate appropriate messaging according to segment-characteristic behavior. That’s what our customer was doing, with great success. But all too many companies think segmentation is a ‘once and done’ activity, something you do perhaps once a year.

Most customers, however, are not stick-in-the-muds. Some are buying vigorously and are worthy of placement into a higher ranking segment. Others are doing nothing, and their ranking should be degrading over time. What is the best way to account for these changing behaviors in order to market more effectively?

Segmentation and migration

Segmentation is but one side of a two faced coin. The flip side is customer migration, which needs to be analyzed as thoroughly as customer segmentation. Part of the problem is keeping your segmentation current which (shameless plug to follow) is easy if you use Longbow.

But the migration issue is more than maintaining an up-to-date segmentation. For customers who migrate from or into a given segment, you want to know where they came from or where they went. You first need to understand the patterns of customer movement, and then you can begin to dig into the reasons for that movement. Those migration patterns showed our customer that applying the marketing funds to middle tier segments yielded the highest ROI. We couldn’t be happier.

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