Know Your Customer!

By Mary Ann Kleinfelter

Analytics that turn database insight into profit ... starting with a look at how trending your housefile can help you forecast the future.

Segmentation is a valuable tool you can use to analyze and trend your customer database. With segmentation, you can create groups within your housefile based on past performance, like characteristics, predicted performance or any of a host of methods. The most effective segmentation starts with a plan. The plan should be customer focused and employ those attributes most critical to your business.

Identify Meaningful Segments

A good place to start is with recency, frequency and monetary value (RFM). How you use these variables can significantly impact your outcome. For example, compare a customer who bought once in the last 30 days and spent $100 to a customer who bought five times in the same period and who spent a total of $100.

Obviously, RFM variables are most powerful when used in combination. Are your one-time buyers so recent they still are trying you out, or has so much time passed since their purchase that you may never hear from them again? When you segment buyers who bought in the last 30 days, make sure you know which are new buyers and which are repeat buyers.

Segmentation by product, or product categories, is essential for marketers selling multiple products. Product categories can be created by separating your merchandise into groups with similar characteristics, such as degree of consumption.

Segmentation by product category enables you to optimize the behavior that the nature of the product inspires. For example, you may find you retain widget buyers better; therefore, you increase your promotions to widget buyers. Conversely, you may want to decrease your promotions to some less valuable product buyers.

Channel is another key segmentation variable. It is reasonable to expect buyers who purchase on the Internet to give you their e-mail addresses and be more amenable to e-mail promotions. You also can purchase overlay data to append to your database and create segments based on demographic or firmographic commonalities.