Thursday, October 16. 2008Grounds for Conversation: Achieving a Complete Customer View [episode #3]
Welcome to the third installment of our continuing video blog series Grounds for Conversation: Practical Insights for Customer-Focused Marketing.
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In the video we had a little fun with Tony discussing the "whale curve" profitability chart. But in all seriousness, the ability to understand customer profitability with an activity based costing (ABC) system is very valuable. I'd encourage everyone to have a look at the below article that discuss why ABC is important in managing customer profitability. And there is a great visual depicting the concept of the "whale curve" too.
http://www.bettermanagement.com/library/library.aspx?l=12936 Are any readers using an activity based costing system? Do you know which of your customers are profitable and which are unprofitable? How are YOU segmenting customers in your company?
...1st or 2nd generation? Here's the shift I see.... 1st generation segmentation was all about identifying ideal purchasers of individual product....basically, it was tactical segmentation to support “product-push” marketing models (it was all about smarter "target marketing" at a product level). 2nd gen segmentation is about determining which customers represent the best opportunities for long-term, profitable relationships...at the "enterprise level"...across products and over time. It involves scoring customers on their current and potential profitability...layering on other dimensions such as demographic, life-stage and attitudinal data.... and then placing customers into segments (or treatment tracks). The big difference... 1st generation is all about improving "transactional efficiency" while 2nd gen is all about long-term, profitable "customer relationships". What do you think? Jeff Gilleland Jeff,
Well, since you asked, I would argue that the 2 segmentation schemes cited aren't always mutually exclusive, and can in fact coexist. In many cases, it is clear that best practice retailers will use 2nd generation schemes as their foundation to efficiently stratify their customers, to ultimately craft segment-specific goals to retain and grow those customers. 1st segmentation schemes can then act as an overlay to those segments, to determine the optimal mix of product offers and channels in order to affect behavior. For example, a 2nd generation segmentation scheme may identify my household as middle of the pack in terms of profitability, but because my income and family size are both large, high potential. You might logically have a strategy to increase my profitability. To actually convert on that strategy, and engage me, is where the product push techniques that are the hallmarks of 1st generation segmentation schemes have a role. Since I am a large household, with an affinity for the meat department, targeted emails, direct mail or web content promoting a skirt steak meal solution could be a way to begin a dialog that is personal, and profitable. - John Bastone |
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