More than anything else, marketers need to understand people.
To segment your customer base for your own benefit and the customer’s benefit and to produce relevant approaches to each segment, requires you to understand:
- The value of all customers to the enterprise over the long term, and
- The needs your customers want the enterprise to satisfy.
It’s easy to segment customers. Haphazardly. It is more challenging to create segments that take into account the twin issues of value to the enterprise and value to the customer.
Providing value to the enterprise
For value to the enterprise, you must think in terms of the overall financial contributions of customers. Professional direct marketers always think in terms of net present value of a customer's expected stream of future contribution. This is the closest you can come to quantifying the customer's lifetime value (LTV).
To focus the mind, you can ask the question: what would be the real economic cost to the company if a customer were to leave today?
Of course, the aim of segmentation is to produce some relevant program or promotion to affect a customer’s future behaviour in such a way that she buys more or costs the company less to service.
Changing behaviour
At this point, if you can discover the customer's potential value, the firm can more effectively allocate resources, optimise marketing spend and prioritise effort.
To win-over any of a customer's future potential value, requires tactics that change behaviour such as getting the customer to stay with you longer or buy more products from you or use a less costly channel.
And none of this can be done without a deep understanding of your customers.
Understanding customers
Which brings us back to my very first statement. Marketers have to understand people. The customer is in control and will do his or her own thing. It is up to marketers to be so persuasive and creative that the customer is attracted to our offers.
And that will only happen if we connect with them. But don’t let any one suggest that truly ‘connecting’ with customers is easy.
Understanding your customers is complex and it is not a matter of collecting data. So what, if you know the income and age of everyone on your database? Where does this information lead to? In itself it gives you no insights. In itself, data about your customers does not tell you what motivates them.
Knowing some of the outward characteristics of your customers does not mean you know how to increase their spend. It is the motivators of customer behaviour that are important. Understanding what motivates the different segments on your database is far more telling. And it’s more difficult to get a handle on.
This is where getting to understand the needs of customers is essential. Not the needs as you imagine them. The real needs.
Understanding and segmenting customers by their needs, demands perception, creativity, marketing judgement, experience and a good dollop of understanding of human nature. This is where it becomes obvious that a marketing person needs to be a people person.
Walking in the shoes of the customer
Ultimately, the marketer’s role is to be able to stand in the customer's position and see things from the customer’s perspective. To walk in his or her shoes. With detailed segmentation, there are many types of customers with different perspectives to understand.
Where a marketer acquires a deep understanding of customers, it is then feasible to identify different types of customers and to test different promotional and relationship-building approaches. It is also possible to construct offers that are relevant and timely for different segments.
It is only by pin pointing the different profitability levels and the different growth potential of various segments, that a marketer can manage a database effectively for the increasing value of the enterprise and the ongoing benefit of the customer.