Many CRM efforts are less than optimal for two reasons. First, segmentation strategies focus purely on transaction behavior. Second, companies struggle with turning data into insight and action.
A new approach to segmentation is needed to provide powerful consumer insights and guide communication strategies. This approach extends beyond traditional segmentation methods to gain a better overall view of the consumer. The result is a more actionable customer segmentation that is easier to market to because you know not only what they buy, but what motivates them to buy.
Traditionally, customers are segmented by the types, value and frequency of products they buy. Transaction-based segmentations are useful in determining what products a consumer has an affinity for and what other products might interest them. For example, if data mining shows that more than 75 percent of customers that buy product A also buy product B, it is reasonable to use a cross-sell effort to promote product B to those customers only buying product A.
Additionally, companies create demographically based segmentation with data acquired through internal CRM systems or through data overlays from third-party sources. This is useful in customizing marketing messages and offers that best suit the demographic target of interest. However, demographic segmentation plans do not address motivation. Essentially, they assume that all consumers in a demographic segment have similar needs and attitudes.
To address motivation, a new scheme is needed: consumer-based attitudinal segmentation. Attitudinal data can be gleaned from qualitative research that will identify consumer attitudes and motivations. Consumers then are grouped into segments based on their attitudes, using factor and clustering algorithms. Using a combination of client data and external overlay data, algorithms are built to place every consumer on the client’s database into an attitudinal segment.
Once segments are defined, attitudinal information can be captured and tracked within a company’s CRM system moving forward. This type of segmentation lets marketers understand what motivates customers. Once needs and attitudes are understood, marketers can tailor communications and other activities to personalize the customer experience and drive loyalty.
CRM systems facilitate the capture and dissemination of customer data. However, data needs to be translated into insight and action. The first critical step is capturing the right data. Most companies have a wealth of transaction data.
Companies also should begin to capture qualitative data like customer preferences and feed that into the CRM system. For example, the Ritz Carlton hotel chain captures unique customer preferences in its database and can act when a reservation is made. If a customer prefers an extra feather pillow, one will be awaiting the visitor on subsequent visits, regardless of location.
Harrah’s casinos tailor customer rewards based on stated preference. While a complementary meal might spur a visit for one customer, free valet parking might drive behavior for another. Harrah’s can tailor rewards because preference data is captured in its CRM system.
Communications also should be personalized based on CRM data. Tailoring communications and offers based on past purchases and/or lifestage increases the effectiveness of the contact. A financial services company might target parents of young children with a communication about 529 college savings plans and young married couples with information about mortgage loans.
An even more targeted approach can be taken once attitudinal segments are defined. If a consumer perceives himself to be cutting-edge and techno-savvy, a PC offer might highlight expanded memory, modem speed and other innovative features. The same company might highlight superior customer support for a traditionalist who is intimidated by technology, using creative that is friendly, approachable and authentic. Understanding customer attitudes guides not only what to say to customers but how to say it.
CRM initiatives are not lacking technology or data. What is lacking is the ability to turn data into customer understanding – about their needs and motivations. Using data to gain genuine insights into customer preferences and attitudes can fulfill the promise of CRM. n