customer segmentation

Voice of the Customer – Customer Segmentation

When it comes to predicting customer behavior, historical sales data may contain critical clues. Who are repeat customers for a product or service? Have all segments of the target customers been identified? Segmentation is used to divide customers into groups based on their demographics, attitudes, or buying behaviors and target the specific groups with a message that will best resonate with them. The more you know about a customer, the easier it is to predict their behavior.

During this season of prediction making, you may want to consider playing the popular German game of Bleigießen “lead pouring,” in which your future is foretold through lead shapes. A spoon with a small amount of lead is held over a flame until the lead melts. The melted lead is then quickly poured into a bowl of water. Upon contact with water, the lead solidifies and forms a unique shape. The shape of the cooled lead is then compared to a list of meanings.

You might not have any control over shape formation (i.e. fish “Fisch” = luck “Glück” vs. cross “Kreuz” = death “Tod”), or what personal changes will manifest in 2015, but one area in which you may have some control is in increasing your company’s profitability. By implementing Customer Segmentation, a Voice of the Customer tool within Six Sigma methodology, you’re able to zero in on target customers who create the highest value and ultimately increase your profitability and bottom line.

What Does it Do?

Customer Segmentation identifies and focuses on subgroups of customers who create the highest value and prioritizes efforts to allocate appropriate marketing resources. Companies oftentimes neglect or miss opportunities because they treat all customers as bringing equal value or fail to understand the economic, descriptive, and attitudinal criteria of their core business.

Segmentation criteria can include:

  • Economic (revenue, frequency of purchase, loyalty, company size, etc.)
  • Descriptive (geographic location, demographics, industry)
  • Attitudinal (price, service, value)

The following Bleigießen examples exhibit segmentation criteria:

Customer segmentationShape 1. Ring “Ringe” = Marriage “Hochzeit”

Customers can be segmented demographically by marriage status (single, married, divorced). Married couples often have distinctly different purchasing behaviors compared to single consumers. This can relate to purchases such as cars, financial products, or holiday entertainment. For example, travel agencies would not offer similar holiday packages for bachelors and married couples.

customer segmentationShape 2. Mouse “Maus” = to be thrifty / economical “sparsam sein”

Customers can be segmented by purchasing power or behavior. These customers could be segmented demographically through social class (lower, middle, upper). Social class is a term linked to education, tradition, income (low, medium, high) and parenting. Alternatively, customers could be segmented attitudinally through values or lifestyle (conservative, economical, trendy). If your target customer is upper class, marketing via coupons will be a waste of time for a group indifferent to saving a few dollars.

customer segmentationShape 3. Bell “Glocke” / Egg “Ei” = Birth announcement “Ankündigung einer Geburt”

Customers can be segmented demographically through family size (couple only, small family, large family) and family lifecycle (young married no kids, married young kids). Customers can also be segmented attitudinally through needs or motivations (convenience, value, safety). If you’re considering entering new markets/regions and your target customers are children, you may want to avoid certain European countries, such as Spain, where there are 1.4 children per female.

How to Do It:

  • Identify the product or service being analyzed
  • Brainstorm to identify customers
  • Identify segmentation characteristics
  • Develop profiles of the segments
  • When gathering information, include members from each segment
  • Document results
Product/Services (Output) Customers Potential Segments
BleigließenGame  US Customers West Coast
East Coast
European Customers Western Europe
Eastern Europe

 Benefits of Tool:

  • Understanding customer segments and segment behavior can help tailor marketing and sales strategies
  • Reach profitability goals by demoting customers who don’t generate value
  • Formalizing segment profiles provides a common language

For related blogs that cover additional VOC tools:

Edgewater Consulting blog

Voice of the Customer – Kano Analysis

As a Consultant, I’ve acquired specific preferences when traveling, and learned to adapt behaviors that make these experiences as stress free as possible. For example, at airport security, I try to avoid standing in line behind anyone who is dressed too “casually” or has sun screen as one of the items in their plastic bag. Chances are that they will take twice as long going through security, thus delaying my time to reach my gate/flight. When selecting a hotel, I look for one with a good in-house dining menu. The benefit of coming back to the hotel and enjoying a good meal without having to leave my room is priceless. Also, let’s be honest, it all comes down to points.

The casual traveler might see little value in earning points or priority boarding; however, the business traveler sees great value in these service items.  Not all consumers value the same services and products on the market in the same way and many companies are keen to analyze these trends. To aid in analyzing customer needs, and provide insight into services or products of little importance or that miss Critical to Quality (CTQ) features, companies may want to perform a Six Sigma process based on the Voice of Customer (VOC), called Kano Analysis.

What Does It Do?

Kano Analysis identifies and prioritizes customer needs or requirements by classifying them under key categories, including: basic services a customer expects, services that a customer desires, and services that delight a customer. Below is a summary of categories and definitions (terminology may vary slightly).

Requirement/Need Definition
  • “Must Be”
  • Basic Requirements
  • Dissatisfiers
  • (Expected Quality)
  • Expected features – cannot increase satisfaction
  • Taken for granted, rarely voiced
  • If not fulfilled, customer is extremely dissatisfied
  • “More is Better”
  • Performance Requirements
  • Satisifers
  • (One Dimensional Desired Quality)
  • Linear effect – the more needs are met, the more satisfied
  • Customer is aware that feature is important to them
  • Remain in the market
  • “Delighter”
  • Excitement Requirements
  • Satisifers
  • (Excited Quality)
  • Unexpected feature – impresses customers
  • Delights when present – does not cause dissatisfaction when not present – rarely voiced
  • Leading edge in the marketplace

How To Do It?

Gather as much VOC information as possible (via interviews, focus groups, surveys, etc.) from your customers regarding service or product offerings. Have them classify the requirements / needs under the three categories. Eliminate any requirements that aren’t relevant. The example below shows classifications pertaining to hotel services.

Requirement/Need Definition
  • “Must Be”
  • Basic Requirements
  • Dissatisfiers
  • (Expected Quality)
  • Clean hotel room
  • Reinforced lock
  • Toiletries
  • Towels
  • “More is Better”
  • Performance Requirements
  • Satisifers
  • (One Dimensional Desired Quality)
  • Large work desk
  • Wi-Fi
  • Car service
  • Hair dryer
  • Bed-side outlet
  • On-Demand movies
  • “Delighter”
  • Excitement Requirements
  • Satisifers
  • (Excited Quality)
  • Dimmable lights
  • Heated floors
  • Bottle of wine on birthday
  • Cappuccino machine in room
  • Room access activated via smart phone

It’s important to point out that a customer’s needs / requirements change over time. What was once a “Delighter” could be a “Dissatisfier” nowadays. For example, receiving an invoice (slipped under the hotel room door) used to mean that it wasn’t necessary to wait in line to check out of the hotel. Nowadays, it’s just one more piece of paper to file. Many travelers prefer to automatically receive an electronic copy of the invoice.

From Web Analytics to Customer Intelligence

CIWe recently were invited to present internally at a prominent health care payer network about the rapidly changin role and importance of web analytics. Gone are the good old days when it was enough to just run a log analyzer or put a simple tag to collect all the information needed about the interactions a customer has with you. Analysis used to be limited in scope and focus on a handful of parameters that could be optimized, such as bounce rates and conversion rates, by tweaking the checkout flows and usability improvements.

Not that conversion rate optimization is less important today but as customer interactions focus less and less on just the company website, the new critical need is to try and get a coherent picture of general customer behavior across all touch points. Instead of trying to infer customer thoughts and concerns through their clickstreams, many are now openly expressing needs and problems through social media.

This goes beyond “cross channel marketing” into the new area Forrester and others are now calling Customer Intelligence (CI). Similar to the way business data evolved from simple reporting into Business Intelligence (BI), as customer data gets more complex and varied, putting everything together and drawing conclusions and trends from it will need to employ similar methods and tools.

This is primarily a mindset change from the somewhat passive “analytics” to the broader and much more active role of managing and providing customer intelligence.

The expectations from Web Analytics professionals and systems are changing as well from the cyclical analysis and response to the providing of on demand, immediate intelligence for both individual and aggregate customer needs and problems. In some companies this evolved into a real “command center” that has 24/7 monitoring and interaction tools to listen, interact and respond to customer needs.

There are a few challenges that mark this transition:

  • Quantity: The quantity of interaction points is exploding due to social media, online videos and mobile devices.
  • Traceability: It is very hard to identify users across various media. Mapping a web user to a Facebook account or twitter feed is not always possible.
  • Immediacy: There is an overwhelming need and expectation for immediate response.

Here is a conceptual diagram of this new reality illustrating all the new interaction points being consolidated into the central Customer Intelligence and the introduction of the analytical services that can be used to optimize the user experience.

These analytical services can work on both an individual and aggregate level:

  • Individual: If we can aggregate customer data and interactions from different channels, this will dramatically improve segmentation, insight for sales and customer service professionals interacting with the customer, and services that can target offers or content in real time based on user past interest and behavior.
  • Collective intelligence: By looking at customer activity across all channels we can:
    • Optimize targeting through the different channels and our investment in them
    • Improve recommendations
    • Identify trends
    • Identify problems / issues / sentiment changes and address them quickly.

To start implementing Customer Intelligence, the process is now becoming quite similar to implementing a BI solution

  • Expand use of social listening and data capturing tools and store their data
  • Adjust data models to accommodate multiple user identifiers, channels, devices etc.
  • Redefine KPI’s
  • Define and implement analytical services
  • Adjust reporting and analytics
    • Real time
    • Dashboard level

The Web Analytics vendors are starting to step up and offer tools and support for Customer Intelligence. In upcoming posts we’ll look into WebTrends, Omniture, Google and IBM to see how their offerings stack up and the type of solutions they support.

Customer Intelligence – Analyzing and Acting on the Data

bubble cloudsPart one of this topic addressed leveraging social media to improve customer satisfaction.  This is the initial step towards a broader goal to create a robust Customer Intelligence framework that allows P/C insurers to listen, connect, analyze, respond and market to customers in a much more proactive and targeted way.

Customer Intelligence is the process of collecting relevant and timely information about customers and prospects, consolidating the data from all the different sources into a cohesive structure, and providing the sales, service and marketing functions with tools that can leverage this intelligence.  The sources of this data not only include the obvious ones such as a carrier’s Customer Service Center, and Policy or Claims Admin system, but should also originate from the Agent, Marketing Surveys, Telematics, and Social Media, including Twitter and Facebook – all mashed up to produce a Balanced Scorecard and Predictive Analytics.

Most CRM systems need to be updated to include new columns in their user profile for data in addition to email and phone number such as Facebook name, Twitter Handle, etc. With the social listening and response management connected to your CRM, a social inquiry can be viewed in context and the activity recorded for future interactions, available to Customer Service Reps or even Agency personnel. This level of social customer intelligence is going to differentiate companies that do it right, becoming a key element of a carrier’s business strategy.

A fully integrated Customer Intelligence platform provides benefits such as:

  • A single integrated interface to many social media outlets
  • The ability to manage multiple writing companies
  • Create and track cases, contacts, accounts, and leads from real-time conversations
  • Manage marketing campaigns and track social media marketing ROI
  • Cue CSR’s on upsell and cross sell opportunities

A carrier should determine the Key Performance Indicators (KPIs) that matter most to their business goals, then view the appropriate data in graphical dashboards to track effectiveness of their efforts.  It’s important to tie those KPIs to their influence on customer behaviors such as loyalty and increased sales.  But carriers must also be aware to not look at positive or negative changes in the wrong way and fully understand the reasons for success or failure.  Reacting to success by following up with more online advertising in certain media outlets, may not produce the desired results, when in fact the reason for an increase in sales is due to the upsell and cross sell efforts of CSRs.

Are eCommerce prices getting too dynamic?

This holiday season I was looking for a specific toy as a gift. I did a price comparison and found it had the lowest price at the Toys R’ Us site. When I went back to make the purchase just 2 hours later, the price has jumped up by 50%. Now I had to do my comparison all over again. That was frustrating to say the least.

This is the latest example of Dynamic Pricing. It’s been around for a while but mostly in scarcity driven industries like airlines and hospitality / entertainment. Here the rules of the game are clear, inventory is limited, it has an expiration date, securing a sale in advance has benefits and discounters can help you sell last minute excess inventory.

Now back to our dynamic pricing for $50 toys, other than a few highly desirable toys before Christmas, this is not a scarcity market. Special sale, timed sales, loyalty coupons and all these dynamic promotions are confusing enough but serve a purpose. Not being able to do a simple price comparison and place an order is annoying and will impact the buying decision. If there is always the possibility of a lower price just around the corner, then let’s wait.

Target had recently announced that it will begin price matching for all products, even against amazon but details on implementation are a bit fuzzy.

As dynamic pricing gets more widely used and noticed by consumers, how will they react?

Here are a few suggestions for retailers considering or implementing dynamic pricing strategies:

  • If the products you sell are of a limited quantity, knowing how many are there (at this price) is very helpful. What Orbitz does for example (only 3 tickets left at this price!) gives the consumer valuable information and an incentive to act fast.
  • If a price is reduced for a period of time, let the consumer know for how long it will stay at this price. Again, enables decision making.
  • Shop with confidence. While guarantees against future discounts are problematic, consider offering this to members of your loyalty club. The same way a great sales associate will tell you a sale is starting next week and he will hold the items for you so you can pick them up at the lower price, rewarding the best customers with price assurance and advance knowledge of sales will go a long way.
  • If you are putting an item below the competition, make it known. Consumers may doubt it but if they check and found it is true it will build trust.
  • Try not to put items that are dynamically priced into an email. Since you have no control over when the consumer will read the email, they may be viewing pricing that are no longer correct.
  • Feed the aggregators and comparison sites as soon as changes are made.

The key theme here is that dynamic pricing can be great if the buyers are given enough confidence and information to make decisions. Otherwise it may just make the the consumer even more hesitant to click the “Buy” button.

Customer Intelligence – Leveraging Social Media to Improve Customer Satisfaction

LoyaltyCustomer satisfaction for Property and Casualty (P/C) insurers has been on the slide over the past few years for many reasons, but most notably due to increased premiums driven by natural catastrophes.  Carriers can work to offset these premium increases by improving upon the intangible values policyholders receive, such as customer satisfaction.  Improving customer satisfaction can be supported by improving upon Customer Intelligence.  Customer Intelligence is the process of collecting relevant and timely information about customers and prospects, consolidating the data from all the different sources into a cohesive structure and providing the sales, service and marketing with tools that can leverage this intelligence.

Insurers must begin to look at ways to respond to customer needs outside the old fashioned methods of phone and email, and embrace the social media outlets.  Most carriers look at social media as a marketing tool but used well, it is much more of a relationship, loyalty and service tool.  Many carriers already have a Facebook page and Twitter account to disseminate information and respond to complaints posted directly to them, but the most damaging words are those posted where the carrier does not respond because they do not even know they exist.  Integrating with social monitoring tools can help carriers avoid these situations, creating a competitive advantage.

Carriers need to be able to serve their customers in the channels they wish to be served in, and helping customer service representatives to address issues early, before they become a costly live call or a crisis, can decrease CSR expenses.

The first step to monitoring social media is actively listening, using tools that provide real time alerts on relevant mentions, questions and discussion topics that should be responded to, then route them to the appropriate responder.

Imagine how impressed a customer will be, when they are contacted in response to a tweet that was posted after a bad claims experience.  Carriers can capitalize on opportunities to turn negative feedback into positive, if they take advantage of the chance to make things right with the customer.

In addition to providing this service level response involving their own interests, carriers can extend this service to assist their top tier agencies as well, and educate them on the proper way to interact online.  While policyholders may jump carriers, they are generally loyal to their agency, and if carriers can help protect their agencies, they may find more, and better, risks on their books from those agencies. Conversely, it can also provide an opportunity for carriers to rethink some of the agencies they work with, if they consistently find negative feedback about them related to their support of their policyholders.

With carriers and agents working together, marketing executives can provide management with overall reports on social media sentiment, issues and the activity metrics for agents and their customer service organization.

This is the initial step of a broader goal to create a robust Customer Intelligence framework that allows P/C insurers to listen, connect, analyze, respond and market to customers in a much more proactive and targeted way, leveraging the new communication channels Social Media provides.

The next step becomes tracking this information within the carrier’s CRM and linking with customers’ Twitter names or Facebook accounts, to help CSR agents get a complete picture of the customer.  CRM projects are expected to be near the top of the list for many carriers in 2013 that look to get out ahead on this front and gain a better of understanding of their current customers, and the customers they are going after.

The new Arms Race: Social Customer Care

cusotmer careHow quickly should your company respond to a question or a comment in social media? Unfortunately, many companies I know will respond “Never!”. It is a sentiment we hear a lot that most of the online complaints are from a handful of trouble makers and response will only make it worse.

Well, sorry guys but customers now expect quick and effective response to social media and companies that are not gearing up to meet these expectations will be left far behind.

A recent survey done by Social Habit found that 32% expect a response in less than 30 minutes, and a total of 42% expect a response within the hour. 24/7. How are major brands doing in their social response times? Social Media Influence has a great infographic that shows some brands social activity and response times. Wal-Mart responds in an hour and a half but to only 7% on inquiries while Target responds in 2:48 hours to 85%.

It seems like this is a new arms race and everyone expects these response times to go down and/or requests addressed to go up. Like all social media activity, the consumers and big brands lead the way but once the expectation is there, smaller brands and B2B companies will  be expected to meet these new standards or risk a customer satisfaction issue.

This is especially important for companies that see Service as their competitive advantage, like agent based insurance companies, services companies and luxury brands.

A few guidelines for effective social customer care:

  • Listen! Effective listening and feeding of social inquiries to the customer care team is a must. Even if you choose not to respond, knowing what is said in a timely manner is critical
  • Connect the social listening and response management to your CRM. A large portion of complaints is related to recent purchases or an attempt to contact customer care in other ways that did not get results. CRM systems need to include a place for other identifiers for customer in addition to email and phone number. Facebook name, Twitter Handle etc. need to be part of the user profile. A social inquiry needs to be seen in context and the activity recorded for future interactions. This level of social customer intelligence is going to differentiate companies that do it right.
  • Direct service activities to a separate channel. To avoid cluttering the main FB and Twitter feeds with customer issues, create a special account for it and clearly set expectations as to when it is active. A great example is what the Microsoft XBOX team did on http://twitter.com/xboxsupport

  • Set internal standards for response times and integrate these metrics into the overall customer care KPI’s.

For other examples of brands doing it right see this great post. HBR also has an interesting, more structural post on the topic.