Summer Segmentation: It's Complicated

By now, you've read a full summer's worth of posts on Segmentation.

Oh, the memories!

On a one-by-one basis, you can segment customers on the basis of the attributes illustrated over the past three months. It's big time fun, and you'll make a bunch of bacon in the process.

But life is more complicated than that, isn't it?

What about the online customer who buys after receiving direct mail that drove the customer to Google to search for the item that the customer purchased, causing you to pay twice for the right to encourage this customer to order merchandise?

What about the online customer who buys from only one merchandise divisions, and the offline customer who buys from that merchandise division and three others? Is there a difference between the customers?

In the real world, there are dozens of dimensions of complexity, dimensions that make it really hard to use a traditional segmentation strategy to understand customer behavior.

This fall, we transition the discussion from Segmentation to Digital Profiles. Digital Profiles are my way of collapsing dozens or even hundreds of dimensions down to a manageable number of segments, segments that contain unique combinations of customer behavior that lead to actionable marketing strategies.

Join me this fall as we explore advanced segmentation strategies ... what I call Digital Profiles!

Summer Segmentation: New Technology

In your data warehouse, create segmentation variables for any customer using any form of new technology.

Then take an old-school campaign ... like a postcard mailing, and overlay those who, for instance, those who have used an iPad to access your website and buy merchandise. You are likely to see that those who use new technology are less responsive to old technology (like a postcard).

Just like that, you have a suppression variable for subsequent old-school campaigns!


By the way, folks, say you are, oh, I don't know, maybe Gap. And maybe you have some trendy new promotion where you give up all of your gross margin in a way that drives a ton of sales and greatly benefits some new business model that needs you to give up gross margin to benefit their business model.

If you were in that situation, wouldn't it make sense to code the customers that took advantage of the new technology in your database, and then follow them for three months or a year to see if they ever interact with your brand again in a full-price, profitable manner?

Summer Segmentation: E-Mail Response

If you want to have some fun, create two variables in your database.

1. Recency of click-through from an e-mail campaign.
2. Recency of purchase after clicking through an e-mail campaign.

You'll find that those on your e-mail list that don't record activity in either variable in the past twelve months have very little value ... to the e-mail channel.

You'll find that those on your e-mail list that do record activity in either variable in the past twelve months have a different future trajectory than do other customers.

Show of hands ... how many of you have either variable actively coded on your database?

Summer Segmentation: Employee Orders

If your database allows you to do this, I'm begging you to do this ... create a segmentation variable for employee orders.

Then, sum employee demand for the past twelve months. Compare that sum to the sum of employee demand from 13-24 months ago, 25-36 months ago, 37-48 months ago, etc.

Go to your human resources department, and ask how many employees you had during each time period. Then calculate demand per employee.

Trend demand per employee by year. What does the productivity of your employee base look like? Is it correlated with the number of twelve month buyers you have? If sales are in decline among your employee base and among your customer base, then ask your employees why they won't buy the merchandise??!!

I did this experiment once ... my marketing department was being pummeled by management for not "promoting the brand". So I summed employee demand among all employees Director and above, showed that demand was in decline, then asked this employee set in a meeting why they were choosing to not spend as much with our brand, after all, marketing should be irrelevant to them, they live and create the brand.

Yes, the room got really, really quiet.

Employee orders are the analyst/marketer's best friend. You can cut through a lot of garbage and get down to the core issues associated with merchandise productivity by demonstrating that the Leadership team is / is not buying the merchandise.

Summer Segmentation: Bribe Rate

The "bribe rate" is one of the most important metrics you can track.

The "bribe rate", of course, is the percentage of orders during any period of time that include a discount, a promotion, or at least one sale item. The bribe rate is often inversely correlated with brand loyalty.

If you think this metric needs to be on every single performance dashboard, you are right.

If you think this metric makes for a perfect segmentation variable, you are right!

Segment your customer base into high, average, and low bribe rates. It matters!

Summer Segmentation: New Items

One of the easiest segmentation strategies you can employ relates to new items.

See, it turns out that you have customers in your database that love buying new merchandise ... these customers hate boring companies, they crave something interesting and exciting.

Conversely, you have customers who love the same-old-same-old. When it comes to e-mail marketing, for instance, these customers want something they can trust. Why not serve them up what they want?

Segment your customer base by merchandise preference ... create a variable that divides customers into those who love new items, those who buy a mix of product, and those who buy tried-and-true favorites. Use the segmentation variable to serve up home pages and landing pages that are congruent with customer interests. Use the segmentation variable to deliver e-mail campaigns that have merchandise aligned with customer interests!

Summer Segmentation: Tender Type

You've probably already broached this subject, right? I mean, you've used your web analytics package to thoroughly analyze the future value of customers, right?

AMEX buyers are different than Visa buyers ... Visa buyers are different than Master Card buyers ... Master Card buyers are different than Discover Card buyers (pay attention to the Discover Card buyer), and Discover Card buyers are different than PayPal buyers.

And then, if you have proprietary credit, you've got a whole 'nother set of exciting challenges.

It turns out that the method you choose to pay for your merchandise plays a role in determining the future value of a customer. And this is such an easy thing to analyze, isn't it?

So just do it!

Summer Segmentation: Price Points

We like to analyze customers on the basis of new/existing behavior, or the channel that the customer prefers.

Often, an analysis by price point purchased is important.

I like to pull every single purchase transaction for the past twelve months, and then divide the items into five equal groups.

• Items of $0.01 to $4.99.
• Items of $5.00 to $12.99.
• Items of $13.00 to $19.99.
• Items of $20.00 to $39.99.
• Items costing $40.00 or more.

Next, pick the categorization out of the five listed above that the customer buys the most items from.

Finally, analyze conversion rates for customers by prior price preference. Or analyze the performance of various items on your website based on prior price preference. You're going to learn interesting facts about your customers!

Summer Segmentation: Three Months

If there is one segment of customers you want to track every single day, it is the first time buyer with a purchase recency of 0-3 months.

Why 0-3 months?

Almost all of my Multichannel Forensics projects indicate that this is the most important window in the development of a loyal customer.

• If the customer does not visit your website during this timeframe, you may be at risk for losing the customer.
• If the customer does visit your website on a periodic basis over this three month timeframe, then pay close attention to what the customer is doing ... is the customer visiting pages on the website that suggest the customer is moving closer to a loyal relationship?

Tailor your offline marketing activities to growing the customer relationship among this customer segment.

Closely analyze the online behavior of this customer segment, and benchmark the behavior against prior years, to see if habits and behavior are changing.

0-3 month first time buyers are a critically important customer segment to track.

Summer Segmentation: Seasonal Buyers

You probably already know this, but seasonal buyers are different than other buyers.

One easy way to understand this is to segment your customers by months since last purchase. Take all of your customers with at least one purchase as of May 1, and then measure repurchase activity during the month of May. Your table might look like this:


Recency = 1 Months, Repurchase Rate = 10.0%.
Recency = 2 Months, Repurchase Rate = 8.3%.
Recency = 3 Months, Repurchase Rate = 7.7%.
Recency = 4 Months, Repurchase Rate = 7.2%.
Recency = 5 Months, Repurchase Rate = 4.8%.
Recency = 6 Months, Repurchase Rate = 4.7%.
Recency = 7 Months, Repurchase Rate = 5.9%.
Recency = 8 Months, Repurchase Rate = 5.5%.
Recency = 9 Months, Repurchase Rate = 5.2%.
Recency = 10 Months, Repurchase Rate = 4.8%.
Recency = 11 Months, Repurchase Rate = 5.1%.
Recency = 12 Months, Repurchase Rate = 5.5%.
Recency = 13 Months, Repurchase Rate = 5.1%.
Recency = 14 Months, Repurchase Rate = 3.9%.
Recency = 15 Months, Repurchase Rate = 3.6%.
Recency = 16 Months, Repurchase Rate = 3.3%.


Look at the red rows, at months five and six. These are Holiday shoppers, and Holiday shoppers often do not repurchase at the same rates that do other customers. Here's a place to reduce marketing expense.

Look at the green rows, at months eleven through thirteen. These are Seasonal shoppers, they last purchased similar product about one year ago. These are customers that require increased marketing expense, because this is the time when you can "win back" the customer, as the vendor community likes to say. These customers are likely to buy comparable product one year later.

This is about as simple as segmentation gets, and yet, it's completely actionable and it makes intuitive sense.

So go use this tip to grow your business!

Summer Segmentation: Merchandise Divisions

Online marketers like to segment by first time visitors, prior visitors, prior buyers, that kind of thing.

Catalog marketers like to segment by recency / frequency / monetary values.

Give this one a try. Take all of your first time buyers who purchased two items. Split those customers into those who bought from just one merchandise division, and those who bought from multiple merchandise divisions. Then measure the long-term value of each segment of customers.

It turns out that, in most cases, customers buying a broad range of products are more valuable than customers who have a preference for just one merchandise division.

So give that a try ... and if you are a web analytics expert, take a look at conversion rates by this level of segmentation!