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					WORKSHOP AGENDA




           Fundamentals and Benefits of Differentiation


           Value Segmentation Principles and Techniques


           Needs Segmentation Methods


           Strategic, Macro- and Micro-segmentation


           Differentiated Customer Planning and Resource Optimisation
WORKSHOP AGENDA




           Fundamentals and Benefits of Differentiation


           Value Segmentation Principles and Techniques


           Needs Segmentation Methods


           Strategic, Macro- and Micro-segmentation


           Differentiated Customer Planning and Resource Optimisation
Slide 1




   WHY FOCUS ON CUSTOMERS?
   THE 3D VIEW - THREE DIMENSIONS OF COMPETITIVENESS


     All three are important, but you can only excel                             Product Excellence
     in one - and should choose your focus:

          Competitive edge based on cost (and price
          competition) is not sustainable in the long term.
          Product leadership is short-lived, too.

          Technology moves fast and even products that
          are not overtaken are easily replicated.

          Customer centricity is about long-term
          relationships, therefore provides sustainable
          advantages.
                                                              Operational Efficiency                Customer Intimacy
          It also results in added competitiveness in the
          other two dimensions

                                                                see Treacy & Wiersema: ‘The Discipline of Market Leaders’
WORKSHOP AGENDA




           Fundamentals and Benefits of Differentiation


           Value Segmentation Principles and Techniques


           Needs Segmentation Methods


           Strategic, Macro- and Micro-segmentation


           Differentiated Customer Planning and Resource Optimisation
Slide 4




   WHERE TO START




                                                           Picket Fence



                    Number of Customers   Mass Marketing             CRM




                                                                           Highest Value
                                                                            Customers




                                             Customer Value




                                                                           Source: Peppers & Rogers Group
Slide 2




   DIFFERENT CUSTOMERS BY VALUE


                 Most Valuable Customers: Retain


                                      Most Growable Customers: Grow




                                                   Marginal customers: Business as
                                                   usual?


                                                                         ‘Below Zero’ Customers:
                                                                          Dismiss, or?

                                                                                        Service costs

                                                                           Source: Peppers & Rogers Group
                                  Customer value segments


                   Actual value        Strategic value (potential share of customer)
CALCULATING CUSTOMER VALUE

     •      From revenue to profitability
              –   Pure spend-based models: straightforward and easy
              –   Introducing cost elements: allocation methods
              –   Detailed individual customer costing

     •      From past to future value
              –   Historic value: recent history
              –   Historic value: total cumulative history (‘lifetime’)
              –   Future (potential)value: different predictive methods
              –   Net present value (NPV): discounted future value

     •      Lifetime Value (LTV) or CLV (customer lifetime value)


         “The net present value of all future profit streams from an individual customer’s
            relationship with the company”
CALCULATING CUSTOMER VALUE


     •   Predictive techniques
          –    Regressions (linear, multiple, logistic)
          –    Trees (classification, decision)
          –    Advanced techniques (neural networks, genetic algorithms)

     •   Definitions of ‘lifetime’
          –    Strictly referring to a future period
          –    Need for consistent predictability and actionable/manageable
          –    Techniques to calculate LOS (length of service); survival analysis
               (LIFEREG, PHREG procedures in SAS)

     •   Alternative models and techniques
          –    the RFM (recency, frequency, monetary value) model as a
               segmentation tool
          –    Rapid identification techniques (‘golden questions’)
Slide 6




   WHY NEEDS?




                “Man has almost constant occasion for the help of
                his brethren, and it is in vain for him to expect it from
                their benevolence only. He will be more likely to
                prevail if he can interest their self-love in his favour,
                and show them that it is for their own advantage to
                do for him what he requires of them.”



                          Adam Smith, The Wealth of Nations, 1776.
WORKSHOP AGENDA




           Fundamentals and Benefits of Differentiation


           Value Segmentation Principles and Techniques


           Needs Segmentation Methods


           Strategic, Macro- and Micro-segmentation


           Differentiated Customer Planning and Resource Optimisation
Slide 7




   WHY NEEDS?




    Fundamentals:             The Link to Value:


          Any business             In satisfying needs a business provides value.
          only exists if it
          has customers.


                                   Products and services represent value to the one
          Customers
                                   with needs (the Customer).
          have specific
          needs that                     (see Added Value concepts in economic theory,
          have to be                     supply/demand concepts etc.).
          satisfied.
                                   In the process of satisfying needs value ‘changes
                                   hands’.
          A business only
          exists to satisfy              (see Value Migration concept in strategy models and
                                         theories).
          specific needs.
Slide 8




   THE WORLD OF PROXIES




                          Customer Profiles (Who they are?)

                          Sets of (static) attributes allowing reasonable assumptions, e.g.
                          “families with babies need nappies”, “teenagers need bright-
                          coloured mobile phones” or “companies with vehicle fleets
                          need motor insurance”…



                          Customer Behaviour (What they do?)

                          Based on assumptions like “beer drinkers are more likely to
                          choose beer over wine” or “once a gambler, always a
                          gambler”.
Slide 9




   WHO THEY ARE


                  Demographic profiles: Grouping people by gender, age, marital
                  status, education, occupation etc.



                  Geo-demographic: Adding the spatial dimension in one or more
                  ways: absolute (North, South, Wales, Leeds), relative to population
                  concentrations (urban, suburban, rural) or based on economic
                  regions (Thames Valley).



                  Psycho-demographic: Introducing attitudinal and emotional
                  affiliations (nerds, lads, anoraks) – often hard to distinguish from
                  pure demographics (e.g. education, occupation) or from
                  behaviour types (see below).



                  In B2B environments the equivalents are vertical sectors and sub-
                  sectors, company size (employees and core business metrics, e.g.
                  turnover), location(s), target market(s) etc.
Slide 10




   WHAT DO THEY DO



                     Transaction (purchasing) behaviour: Frequent shoppers/ flyers,
                     bulk buyers, occasional shoppers, declining custom etc.



                     Motivation-based behaviour: Impulse buyers, early adopters,
                     bargain hunters, status seekers.



                     Lifestyles: Often mixed with demographics, indicate needs
                     through preferences manifested in everyday behaviour (a
                     number of popular templates and commercial databases of
                     pre-scored population).



                     B2B: Order consolidators, end-of-quarter (end-of-year) buyers
                     etc.
Slide 12




   HOW ABOUT PREFERENCES?



    Customers have          Product or service preferences are directly linked to needs. The
    individual (and         chance that those are true needs is somewhat higher, although
    group) preferences      product preferences may often reflect perceived needs.
    often exhibited in
    behaviour patterns,
                            Attribute preferences also manifest needs, however those are
    sometimes               secondary, ‘satellite’ needs accompanying the core need in a
    declared in             dynamic ‘bundle’. The likelihood here is greater that they are
    dialogue with the       perceived needs, particularly in the less tangible areas of taste,
    company, but            fashion, peer influence etc.
    sometimes also
    withheld and/or
                            For practical purposes of needs modelling and needs group
    unknown.
                            management, explicit and implicit preferences can be considered
                            a proxy for needs.
Slide 11




   THE 3 QUESTIONS TEST



                          Give me … (speed, safety, confidence, a positive
                          experience, success-personal or corporate).



                          Help me to … (get to a destination, connect to a
                          person/organisation, enhance my life).



                          Save me … (time, money, hassle, risks or hazards, negative
                          experiences).
WORKSHOP AGENDA




           Fundamentals and Benefits of Differentiation


           Value Segmentation Principles and Techniques


           Needs Segmentation Methods


           Strategic, Macro- and Micro-segmentation


           Differentiated Customer Planning and Resource Optimisation
ALL KINDS OF SEGMENTATION




    Macro-segmentation:            Used in defining market proposition/s, brand
    typically a market             values, and in targeting mass marketing activities.
    segmentation view              E.g. ‘Youth’, ‘Pre-paid’ or ‘Rural’ segments


    Strategic segmentation:        Used in strategic planning, resource allocation,
    customer segmentation for      Marketing/Sales/Service optimisation.
    long-term differentiation
                                   E.g. ‘High Value’, ‘Growable’ or ‘BZ’ customers,
                                   ‘Technos’, ‘Savers’ or ‘Status-symbol’ segments
    Micro-segmentation: a          Used in day-to-day direct campaigns (cross- and
    tactical, action-oriented      up-sell), targeted churn prevention, acquisitions.
    tool for immediate targeting   E.g. ‘Seasonal roamers’, ‘Bargain hunters during
                                   competitor’s campaigns’, ‘Location patrons’
WORKSHOP AGENDA




           Fundamentals and Benefits of Differentiation


           Value Segmentation Principles and Techniques


           Needs Segmentation Methods


           Strategic, Macro- and Micro-segmentation


           Differentiated Customer Planning and Resource Optimisation
Slide 5




   SEGMENT MANAGEMENT

                                           Acquisition

     Business goals:
                               Segment 1   Retention
                                           Development
          Get customers

          Keep customers

          Grow customers                   Acquisition
                               Segment 2
                                           Retention
                                           Development



      Overall objectives                   Acquisition
      translate to different
                               Segment 3   Retention
      priorities in each
      segment.                             Development
Slide 3




   RESOURCE OPTIMIZATION




          Allocating                                    Most valuable customers
          communication
          channels according to
          the value of segments
                                                                    Most growable customers




                                                                              Marginal



                                                                                      Unprofitable
                              Media
                             E-channels
                                  Direct mail
                                  Telemarketer
                           In-person service reps

                                    Dedicated service
                                                 reps
                                                                                  Source: Peppers & Rogers Group
THE ‘HOW TO’ OF PRACTICAL STRATEGIC SEGMENTATION

                                         Evolving segmentation:

                                    V1    - From historic to predictive value and from
                                         revenue to profit-based individual customer value
                                    V2
                                         Starting simple could mean few, expenditure-based value
                                         segments. Introducing any known costs leads to a better,
                                    V3   profitability-oriented differentiation. Using non-linear
                                         predictive models allows managing future, lifetime value.

                                         -From broad, proxy-based needs segments to
                                    V4   precise, true need clusters
                                         -Early needs-driven segmentation schemes often start
                                         from a market (macro) segmentation, using proxies like
                                         basic demographics or transaction behaviours. As
                                    V5   companies learn to interpret the true needs behind such
                                         proxies, more complex needs clustering replaces the
    N1       N2      N3       N4         macro segments and allows linking individual needs to
                                         value growth, retention and targeted, profile-based
                                         acquisition.
‘SO WHAT?’ (ACTING UPON THE KNOWLEDGE)

     •   Customer Plan (operational efficiency through customer intimacy)
          –    Developing differentiated treatments for each intersection of a needs cluster
               with a value segment (customer community with a unique combination of
               value and needs)
                  •   differentiated marketing and sales
                  •   differentiated service levels and approaches
                  •   differentiated communications: message and channel
                  •   all above differentiated consistently across touchpoints
                  •   embedding in the company’s goal-setting, planning and resource
                      allocation

     •   Product development (product excellence through customer intimacy)
          –    Re-defining the mission (and often the primary industry sector) of a company
               as ‘the business of satisfying customer needs’)
          –    Intimate needs understanding at the core of new product development and
               existing product improvement
          –    Managing product capabilities around needs (and value)

				
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posted:2/15/2013
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