Segmentation - Capitalize on the Differences (1,345 words)
by Mary Ann Kleinfelter
Different people behave differently. Business people are no exception. By recognizing differences in your database, you can group customers with like characteristics and capitalize on these attributes in your promotions.
What Is Segmentation & Why Do It?
Segmentation is used to create groups within your customer and prospect databases based on past performance, like characteristics, predicted performance or any of a host of methods. For example, if you are selling software, it may be critical to segment users of IBM PCs from those who use Macintosh computers..
The immediate result of your segmentation efforts will be a snapshot or profile of how your customers and prospects look and behave. Use this profile to increase sales and profits by promoting unique segments differently. Over time, you can see trends in the performance and size of these segments that will provide insight into your business and help anticipate future needs. For example, you may find that a large group of buyers has not bought in 11 months, and that retention drops significantly among buyers when they don't buy at least once per year. Either offer this segment a special retention effort, or plan to replace them and their sales and profits.
The most effective segmentation starts with those attributes most critical to your business. Since many b-to-b marketers are not sure of those attributes, a good place to start is with RFM—Recency (how recently a customer bought), Frequency (how frequently a customer bought) and Monetary Value (how much a customer spent). 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. These individuals may have widely different levels of purchasing authority.