Blog Home | Previous Post | Next Post

Behavioral Segmentation Leverages More of What You Know About Your Customers

Posted on 06/09/2008 by Don Ryan

Pavlov proved that you could condition animals to act a certain way, preferably a way you wanted them to, through behavioral re-enforcement. And ever since, marketers have been trying to copy the trick. That’s because, while opinions and attitudes matter, behavior matters more. Sure you want your customers and potential customers to think well of your brand and have positive intentions, but in the end you want them to actually do something that generates revenue for your business.

Maybe this is why the emerging field of behavioral economics has garnered so much attention in recent years, and particularly since Daniel Kahneman and Amos Tversky (posthumously) were awarded the Nobel Prize in Economics. Since then, books like Freakonomics and Predictably Irrational, written by other authors interested in personal behavior and decision making, have shot up the best seller lists and become interesting topics of conversation (at least in certain circles).

This trend in empirical research, which has revealed peculiarities in people’s decision making process, has also found a friendly companion in behavioral segmentation, the analytic approach to segmentation that is driven by the cold, hard facts of consumer actions. To see why behavioral segmentation is an important tool for marketers consider this. For many years, marketers have segmented their customer files by examining demographic and psychographic characteristics or, on occasion, survey-derived attitudinal data. And, of course, simple behavioral approaches using purchase recency, frequency, and monetary value have also been used extensively. But, ultimately, these techniques fail to reveal sufficiently what kind of a relationship the customer has with the brand, whether he has a high level of engagement with the brand, whether the brand ranks high in his hierarchy of choices, and thus fall short of understanding the customer’s true potential with the brand.

What has made behavioral segmentation so appealing and useful now is that there has been an explosion in the data that is available to assess these important measures. First of all, more sales transaction data is now captured than ever before because customers are buying in more channels (and particularly on the web) that have the ability to record those transactions. And although store sales are still tops, businesses are doing a better job capturing those elusive cash sales by arming customers with loyalty and discount cards that, when swiped, record the customer’s every purchase. (At CVS/pharmacy stores, the register attendant never fails to ask me for my ExtraCare card even when I’m just buying a $2 item.)

The web has also generated vast amounts of customer interaction data that enable marketers to expand their view of how engaged each customer is with the brand. This may not be true for all industry types, but it certainly is in financial services, automotive, retail, travel, entertainment, and other big categories. If you are a marketer, these data can tell a lot about a customer. Is he a regular visitor to the web site? How often does he browse my products? Does he respond to online surveys and other engagement devices? How willing is he to share information? Does he get involved in online chats? All of these actions are additional important indicators of customer potential and loyalty. The behavioral economists may show that customers don’t always act rationally, but, as has been said, actions (however irrational) speak louder than words.

Over the last four or five years, we’ve seen how bringing transaction and interaction data together in a behavioral segmentation scheme can pay big dividends for marketers. The benefits have ranged from more sales per customer to higher retention to greater profitability. Marketers have also seen more return per dollar spent, which has helped keep the finance department smiling too. Behavioral segmentation may not be the solution for every case, but when it fits the task we think the results can be pretty powerful.

To know if behavioral segmentation is right for you, ask yourself if you are leveraging all of your customer information assets as effectively as you can. Do you have good historical data for two or more years on customer purchases? Do you have at least one year of interaction data that can be linked to individual customers? Do you have a way to assess the value of your customers? Do you know which behaviors you would like individual customers to change to make them more profitable? Do you have a process or are you willing to institute a process that will produce customer-specific development plans? Are you willing to differentiate your marketing efforts, including differentiating your product and service offerings, to address customer-specific goals?

In other posts, we’ve talked about the vital role of segmentation and provided guidelines to help marketers implement a segmentation scheme successfully. But just as fervently we want to emphasize that, regardless of how you segment your customers now, you should look seriously at behavioral segmentation as a way to drive greater value from your customers and secure better long term profits. We are happy to discuss this topic with you if you’d like to learn more and I encourage you to return to our website periodically for updates on the use of behavioral segmentation.



Posted by on 06/09/2008 2:41 PM

Comments (0)

Post a Comment

Comments are moderated and may be edited or removed at the discretion of the folks at iKnowtion.

Name:

Email Address:

URL (optional):

Remember personal info?

Comments: (You may use HTML tags for style)






		Behavioral Segmentation Leverages More of What You Know About Your Customers

		Virtual Reality

		Consumer Engagement as Leading Indicator

		MAX08 - Big Success!

		Q&A with Dr. Thomas H. Davenport

		Who’s Driving the Bus? - Response to a reader’s question

		Are You Just Adding Hay To The Haystack?

		The Analysts Are Coming! The Analysts Are Coming!

		What’s Your Win-Rate?

		Everyone Likes Validation … of their Marketing Models!






		November 2008
		October 2008
		September 2008
		August 2008
		July 2008
		June 2008
		May 2008
		April 2008
		March 2008
		February 2008
		January 2008
		2007





	iKnowtion is a marketing and analytic consultancy that helps Fortune 1000 companies optimize the impact of marketing expenditures from demand spending to customer focused initiatives. iKnowtion's industry knowledge and expertise, combined with a comprehensive and proven analytic approach provides Global leaders in automotive, financial services, retail and consumer goods businesses with the marketing insights and analytical engines required to dramatically improve business results. Founded in 1999, the company is headquartered in Burlington, Massachusetts. To learn more about us, please visit www.iknowtion.com.






	With so much change going on in the field of marketing, we felt that it was high time we try to stimulate a dialog that focuses on the significant transition taking place within the marketing sciences area of many companies. Most experienced marketers agree that new tools and approaches are needed to help allocate and measure marketing resources more effectively. If you're trying to tackle these kinds of issues in your company, join us at Wise Guys - we'd like to hear from you.





	Rafael Bradley

	Bill Duffy

	Ken Howes

	Mike McGuirk

	Marcy Riordan

	Don Ryan

	Sreekanth Sampathkumaran

iKnowtion, 35 Corporate Drive, Suite 100, Burlington, MA 01803 Tel 781-494-9989 Fax 781-494-9766 E-mail inquiry@iknowtion.com