Customer Segmentation

Customer Segmentation
- Approach & Application

4
Competitors
•Customer Segmentation
•Purchase Criteria Rating
(Importance Analysis)
•Company Positioning
(Effectiveness Analysis)
•Attractiveness Analysis
•Value Proposition
Development
•Customer Retention and
Loyalty
•Customer Acquisition
Customers
•To identify cost
reduction
opportunities
Customer segmentation is an important tool for customer analysis.
Cost Capabilities
Strategic
Purpose:
Tools:
•To identify
revenue and
profit maximizing
strategies
•To achieve
differentiation
and to preempt
competitors’
moves
•To determine the
strategies that fit
best with a
company’s core
competencies
Context
This document is a partial preview. Full document download can be found on Flevy:
http://flevy.com/browse/document/customer-segmentation-700

7
•The customer segmentation concept
•Applications
•Customer segmentation steps
– segment customers
– choose target segments
– create value propositions for target segments
– determine profit potential of serving target
segments with value propositions
•Examples
– needs-based
– behavioral
•Key takeaways
Agenda

10
•A large European beer manufacturer was faced with increasing
competition and low market growth. Bain used segmentation to
identify product portfolio gaps and determine optimal positioning
for new and existing brands. This resulted in an 8% market
share increase.
•An international cosmetics company wanted to identify
opportunities in the high growth skin care market. A Bain team
identified unmet consumer needs for anti-aging creams and
proposed an optimal strategy for targeting the appropriate
customers. This resulted in approximately $145MM in value
creation.
Bain’s customer segmentation work has brought
significant results for many clients. Examples of Bain’s
work include:
Applications (2 of 2)

13
•Applications
•Examples
– needs-based
– behavioral
•Key takeaways
Agenda

16
•Make a complete list
of potential customer
and non-customer
needs
– focus groups or a
small number of
unprompted
customer
interviews
– brainstorming
– previous client work
or Bain research
Create a needs list Collect data
Conduct Factor/
Cluster analysis to
determine statistical
segments
Steps: •Ask a representative
sample of customers
and non-customers
a battery of
questions designed
to gauge their needs
concerning a
product/service
•Customers and
non-customers are
placed into
segments based
on their responses
to the key variables
that drive purchase
behavior
Defining customer groups in a needs-based segmentation begins
with identifying the likely customer and non-customer needs.
Needs-Based Segmentation

19
•CHAID analysis determines and ranks all of the statistically significant
drivers of a chosen dependent variable (e.g., profit, retention, productivity)
•Specifically, it groups independent variables into subgroups
– independent variables are categorized according to their statistical
significance (e.g., store location, age)
– CHAID identifies interactions/effects between variables
– CHAID yields subgroups which are statistically significant and MECE
CHAID is a statistically robust method used to segment a
demographic or behavioral database.
CHAID

22Note: In some cases, there will be only one target segment
The target segments should be chosen based on their attractiveness to a given
company and that company’s ability to serve the target segments in a
differentiated way.
Attractiveness
(profit potential)
Ability to serve in a
differentiated way
Revenue potential Cost to serve
Client’s core
capabilities vs.
competitors’
External factors
•Size
•Growth potential
•Buyer power
•Product
requirements
•Price sensitivity
•Advertising
requirements
•Channel preference
•Service
requirements
•Strategic objectives
•Ability to leverage:
– technology
– costs
– skills
– existing resources
•Existing market
perceptions
•Existing base in
segment
•Legal restrictions
•Regulatory
requirements
Target Segment Selection

25
•Features
•Price
•Quality
•Brand
•Positioning
•Promotion/
advertising
Product Service Distribution
•Before sale
•During sale
•After sale
•Delivery channels
•Speed
After customers have been segmented and the most attractive segments
have been chosen, a customized value proposition should be created for
each target segment by trading off among the following elements:
Actions should leverage strengths and optimize resources with
the goal of increasing market share of the target segments
Value Proposition Development

28
•Applications
•Examples
– needs-based
– behavioral
•Key takeaways
Agenda

31
Rich but unfashionable
Unfashionable Bargain Lover
Fashion on a Shoestring
Fashion Value
Fashion Forward
Shopping Lover
Percent of current customers Percent of current customer spending*
0%
20%
40%
60%
80%
100%
PercentofTotal
Smith determined that its target segments were “Fashion Value” and
“Fashion on a Shoestring”.
*In this case, spending was a good proxy for profit
differentiated way
Smith's Fashion Center - Current Customers

34
•Applications
•Examples
– needs-based
– behavioral
•Key takeaways
Agenda

37
Low profit
Medium profit
High profit
Customers Profit
0%
20%
40%
60%
80%
100%
PercentofTotal
One third of Highland’s customers account for
more than 60% of its total profits.
Highland Hotels - Customer Profitability

40
Low profit
Medium profit
High profit
One-timers
Hello again
Honeymooners
Hotel-aholics
Customers High profit customers High profit customers'
profitability
0%
20%
40%
60%
80%
100%
PercentofTotal
Highland decided to target “hotel-aholics” because they were
the most attractive segment and a good fit with the company’s
capabilities.
differentiated way
Highland Hotels - Target Segment

43
•There are three main types of customer segmentation: needs-based, behavioral and
demographic. Needs-based segmentation is the most difficult to execute, but the most
valuable. Most of Bain’s work involves needs-based segmentation
– needs-based segmentation involves creating a list of needs, collecting data, and conducting
Factor/Cluster analysis to identify segments
– there are two methodologies for segmenting a database of behavioral or demographic
information
8the 80/20 method involves dividing customers according to their profitability,
hypothesizing as to the variables that drive profitability, and combining variables to create
segments
8the CHAID method involves choosing a dependent variable, hypothesizing as to the
segmentation variables, collecting data, running the CHAID, reality checking the results,
and creating segments
•Regardless of the type of segmentation used, the resulting segments must be meaningful,
MECE, measurable, substantial, and actionable
Customer Segmentation Steps
Types of Segmentation
•Customer segmentation involves separating customers (existing and potential) into
homogeneous groups, choosing target segments (or one target segments), creating value
propositions for each target segment, and determining the profit potential of serving the target
segments with the proposed value propositions
Key Takeaways (1 of 2)

46
Segmentation Requirements Target Segment Selection Matrix
Value Proposition Development Profit Potential Quantification
• Meaningful - there should be enough differentiation among
segments such that each segments seems unique
• MECE - each customer should belong to one, and only one,
segment
• Measurable - clearly defined with a market share that can be
quantified
• Substantial - there should be enough volume in a segment to
merit analysis
• Actionable - we should be able to design a value proposition
for each segment
Develop
Capabilities
to Serve this
Segment
Target
this
segment
Avoid this
segment
Adjust Value
Proposition to
Improve
Attractiveness of
this Segment
Low
Low
High
High
Ability to Serve Segment in a
Differentiated Way
(Lever = Capabilities)
SegmentAttractiveness
(Lever=ValueProposition)
• Features
• Price
• Quality
• Brand
• Positioning
• Promotion/
advertising
Product Service Distribution
• Before sale
• During sale
• After sale
• Delivery
channels
• Speed
Actions should leverage strengths and optimize
resources with the goal of increasing market share of
the target segments
Determine profit
potential
Calculate revenue
increase
Calculate cost to serve
Current
customers
New
customers
Current
customers
New
customers
Takeaway Slides (2 of 3)

1
Flevy (www.flevy.com) is the marketplace
for premium documents. These
documents can range from Business
Frameworks to Financial Models to
PowerPoint Templates.
Flevy was founded under the principle that
companies waste a lot of time and money
recreating the same foundational business
documents. Our vision is for Flevy to
become a comprehensive knowledge base
of business documents. All organizations,
from startups to large enterprises, can use
Flevy— whether it's to jumpstart projects, to
find reference or comparison materials, or
just to learn.
Contact Us
Please contact us with any questions you may have
about our company.
• General Inquiries
support@flevy.com
• Media/PR
press@flevy.com
• Billing
billing@flevy.com

Customer Segmentation

Recomendados

Recomendados

Más contenido relacionado

Más de Flevy.com Best Practices

Más de Flevy.com Best Practices (20)

Último

Último (20)

Customer Segmentation