Customer segmentation is key to tracking growth

A number of customer-centric service providers are even assigning managers to their key customer segments and sharing profit and loss responsibilities with related product managers.

Understanding customer segments is the first step in winning profitable customers, growing those relationships and keeping them longer.

Customer segmentation solutions help financial service providers differentiate the value of their customers more accurately using data and business expertise.

With the evolution of information technology, analytic tools and solutions have emerged, that enable marketing researchers conduct complex analyses with ease, in order understanding the customer better.

The process of analysis in recent years has been subject to major changes and data mining is forcing its way into marketing activities.

This has made it possible to perform sophisticated statistical analysis on large amounts of data, revealing underlying relationships that ordinary methods might miss.

These span from demographic to transaction data.

The methodology used has changed, segmentation analysis, for example, can open doors to new insight that nobody could have foreseen or predicted.

For example, the analysis has shown that there are customers in the group of 40-50-year-olds with good educational backgrounds that share common traits with customers of age 20-30.

Previously, these two subgroups were assigned to two different clusters, but with statistical analysis, it has proven that it may belong to the same segment or cluster.

Another typical case is the prediction of promotion response.

Until recently, the prediction of the effectiveness and efficiency of promotional campaigns was difficult and left to the experience of those who organised and proposed the marketing offers.

It was attempted to predict the course of the promotions based on the observations made.

More or less sophisticated techniques were used to select the promotional activity as well as the target group.

With data mining, it is possible to establish a connection between past and future behaviour and thus predicting the customer response to promotional offers based on present behaviour.

Benefits associates with customer segmentation are: First, better understanding of customer behaviour.

Secondly, additional value resulting from a better understanding of the customer turning customer data into knowledge.

Third, A deeper exploration of specific customer segments.

Specific and profound analyses can be carried out to further describe typical characteristics exhibited by segments.

Fourth, updating customer communication.

It is counterproductive to use an undifferentiated approach to address the customer base.

Each segment calls for targeted marketing actions like retention campaigns for core customers and promotional campaigns to push customers to a higher value cluster.

Analysis of the customer insight type has proved to be more effective and profitable and has allowed a deeper and more precise understanding of the population, which in the recent past was outside the realm of possibility.

Kamuya is the operations manager, SPSS East Africa Ltd. Email: [email protected]