Nov
16
2012

Segmentation – is value the missing piece?

2012 is now well underway, and many businesses are now getting to the sharp end of some serious planning ready for the new financial year to come. One fundamental change I saw in client activity during 2011 stood out in particular and thoughts turned to how this could translate into the year ahead for many others.

So what was this change? In effect it was helping shift a client’s activity from pure segment marketing to segment value marketing or, put another way, the progression from simply acquiring customers to acquiring those who will add most value over the life time of the relationship. That simple word of ‘value’ is often missing from most marketing activities. All too often marketers are asked to acquire a set number of customers, or indeed retain a set percentage and most are pretty good at using segmentation to get there.

However, it is extremely rare to find a business that is acquiring or retaining customers based on their long term value. Why? Well, sometimes it is just too hard to figure out, or it’s just not in the target job description.

To explain why this simple value piece is so important, here are two examples of several changes to client activity in 2011. Firstly, an insurance company that spent its waking hours trying to attract new customers that were both a safe risk and financially well off. Experian’s analytical team conducted extensive work on developing life time value metrics for all customers, showing that in fact the segment they were ignoring the most was indeed the most valuable.

A similar story was found within a Financial Services company seeking out the cream of the crop for investment services. Again, Experian analysis showed those slightly down the wealth order to be better long term value clients, owing to much greater future retention.

In both cases these businesses were already marketing to segments, but by simply adding the missing value dimension they have now radically changed their target marketing. At a time when budgets were decreasing they knew that it was critical to spend every pound in the most value creating way. As such, they now have a clear vision as to who to acquire, exactly what profit to expect from that acquisition and, of course, retention activities prioritised to maximising value, not just keeping customers on file.

So if you’ve not considered a New Year’s business resolution for 2012, it isn’t too late. Why not spend some time getting to fully understand each segment’s life time value, or let Experian help? Not only do I wager that activity will change, but also the value you bring to your business.

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