My clients often know who their best customers are. Typically the best are the top 20% of customers that generate 80% of the profits. These are the customers you most want to retain. The question becomes who are the customers that you should try to migrate into your best customer segment? Figuring out who are the next best requires research into their behaviors, demographics or firmographics, and attitudes.
Segmentation is one way to separate your customer base into differentiated groups against which relevant marketing communicationsand strategies can be developed and executed. There are many different types of segmentation and techniques including cluster analysis, RFM and CHAID.
Regardless of what method you choose, bear in mind that a good segmentation scheme is often a result of art and science. Segments should make sense intuitively and, if they are data driven, should be sound statistically. In my next post I will describe clustering and how that is used for segmentation.