Winning The Lotto A fresh look at customer segmentation - Accenture Interactive - Point of View Series
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Accenture Interactive – Point of View Series Winning The Lotto A fresh look at customer segmentation
Winning The Lotto
A fresh look at customer segmentation
No one doubts the value of good In today’s increasingly fragmented
marketplace, being able to identify new
customer segmentation. The
market opportunities and capitalize on them,
insights it provides can identify through personalization and relevance—
market opportunities, improve both in terms of needs and timeliness—are
the targeting and relevancy of paramount. Customer segmentation is
communications, inform product recognized as an essential capability for
a business that wants to deliver tailored
and service development, and also offerings and communications that generate
guide overall investment strategies and meet consumer demand. Why then, are
across the customer portfolio. With so many companies struggling to achieve
digital technologies fueling big the value that segmentation promises?
Why are segmentation strategies rarely
data, and tech-savvy consumers
embraced enterprise-wide or able to drive
opting out of mass-marketing more impactful initiatives? And how can
campaigns, segmentation organizations gain deeper insights into the
strategies need to be more robust marketplace and customers to ensure that
their marketing initiatives will deliver the
and compelling than ever.
anticipated return on investment (ROI)?
The lotto effect
First, consider a complex “wrinkle” in customer
segmentation which often goes unnoticed.
Take a typical customer segmentation effort
today. A company wants to identify customer
Customer attributes from
segments with significant growth potential
for a particular product. It has captured 50
customer attributes such as age, gender,
to
location, account tenure and other customer
level information. From this relatively small
set of attributes, the company wants to
identify the “best” six attributes to base the
segmentation upon—a surprisingly complex
endeavor. Selecting the best six out of fifty is
akin to playing a lottery—50 numbers… pick
six… with more than 15 million ways to lose.
With the advent of big data creating many Find the ‘best’
more sources and attributes to consider, the
challenge only grows. For example, doubling
the size of that same dataset doesn’t just
double the possibilities; in fact, it causes the
possible options to grow from 15 million
to over a billion, a growth of over 6000
percent. Traditional analytic methods such as
clustering require the person developing the
segmentation, who is often a statistician, to
determine the best set of attributes facing
these odds. It’s no wonder that segmentation
based on traditional approaches often lose
From
their relevance within six months.
million
In addition, there is also the issue of what
does “best” mean? Paradoxically, the lotto to over billion
effect, while seeming like an added obstacle,
in fact provides the opportunity to search
for the optimal attributes based on business
objectives. Imagine a more advanced
possible options
approach to customer segmentation
development— one that handles infinite
numbers of attributes, and factors in the
business objectives at the start of a project
Up to
6000%
to ensure that the resulting solution is
aligned to those objectives. Leveraging
artificial intelligence technology, next
generation customer segmentation is
now a reality.
growth
A new way to play the game
Too often, segmentation efforts result Figure 1: Segmentation: Traditional versus Next Generation Approach
in a solution that is too focused on a single
dimension of customer information, such
as attitudes, value, or behaviors. Advanced Traditional Methods
M
segmentation, however, should have a AN
UA
balance across all the various customer L
M Outcome
dimensions, while also being actionable. AN
Segmentation UA One dimension
Most importantly, customer segmentation Analytics L
Attributes selected Segmentation Focus
Outcome
needs to reflect business goals (see Figure 1). Segmentation NS
by an analyst IO One dimension
Analytics U AT
One of the key values of leveraging artificial Attributes selected L Segmentation Focus
EV
A NS
by an analyst IO
intelligence technology for segmentation
U AT
development is the flexibility it provides. This AL
EV
is critical because the segmentation strategy
needs to address three fundamental issues VS
while simultaneously balancing customer
dimensions and business objectives. AL INTEL L IGEN CE OP
Next Generation IC I
TI M
IZ
TIF
1. W
ho to focus on? Approach INTEL L IGENCE OPT
AR
ER
IC IAL IM
The resulting segments must be highly IZ
TIF
differentiated across core value
AR
ER
dimensions such as revenue, cost, Outcome
profitability, tenure and other aspects Segmentation
Optimized Segmentation
Analytics
to guide investment strategies. Objectives selected with 360° View
Outcome
by the Business Segmentation
Optimized Segmentation
2. W
hat to offer and what to say? Analytics
Objectives selected with 360° View
Each segment needs a rich, unique, and by the Business
comprehensive profile to inform product,
offer and messaging strategies.
3. W
here to find them?
In order for the solution to be actionable,
the segmentation must be developed
so that it can be applied to a customer
database or target customers in a
mass-marketing campaign. Even with the best intentions, objectives To understand the full potential of artificial
often evolve as segmentations are developed, intelligence technologies, consider the
Artificial intelligence technologies can be for example, when additional clarity is gained following example using Accenture’s
adapted specifically to address these issues. during the review of a preliminary solution. proprietary solution, OptiCluster. Taking a
By using advanced data mining techniques Instead of manually “tweaking” the highly-rated previous customer
these technologies are able to find optimal segmentation strategy through traditional segmentation project carried out using
solutions based on business objectives, methods, artificial intelligence technologies traditional methods for a large North
insight quality, and actionability. This can be fine-tuned to ensure the resulting American retailer, OptiCluster was used to
provides a unique approach that bridges solution is optimal for the new set of determine how the results would differ. The
advanced analytics to business goals, while objectives. The end result is a solution that is solution was to provide customer insights
in turn enabling strategies that drive both driven by the business objectives and and guide merchandising strategies. In all,
significant market impact. empowered by analytics. there were 240 attributes, including
shopping behaviors, customer Figure 2: Impact of OptiCluster on Segmentation Results
demographics, and profitability metrics.
However, the goal was to find a measurably Original Results
better solution by simply using two types
of attributes: customer demographics
and shopping preferences. This avoided
any bias that profitability metrics can 120
impart on a solution. 110
As illustrated in Figure 2, OptiCluster helped 100
Average Cost
in understanding “who to focus on” by
90
differentiating segments across the value
dimensions of revenue and cost. In the 80
client’s original solution, only one fairly 70
small segment showed any significant
difference from the other segments. By 60
Segment Size
contrast, OptiCluster found a solution 50
with significant differentiation across the
125 150 175 200 225 250 275 300
segments, including much larger superior
and poor performing segments. As a result, Average Revenue
the client would be able to fine tune its
marketing and merchandising strategies
through better profiling, targeting, OptiCluster Results
messaging, and offerings development.
Equally important is the fact that the
identified individual customer segments 120
have rich holistic, yet unique profiles. 110
Gaining this level of insight into customer
segments is critical to developing offerings 100
Average Cost
and messaging strategies. In the optimal 90
solution from OptiCluster, every profile
dimension showed significant improvement 80
in clarity. In fact, when looking across all 70
profiling attributes, the indices from the
60
customer segmentation that OptiCluster Segment Size
found had increased by more than 80 50
percent. The more rigorous a segmentation 125 150 175 200 225 250 275 300
approach, the stronger the foundation is
for a more personalized brand experience,
Average Revenue
as it allows marketers to make their
offerings and messaging highly relevant
to the target audience.
Hitting the jackpot
While traditional analytic approaches
generally focus on the question of what
to offer and the key messages to use,
the limited dimensional segmentations of
demographics, attitudes, or behaviors, end
up sacrificing the question of who to focus
on. The absence of a value dimension such
as profitability, revenue, and Net Promoter
Score (NPS), makes it very difficult to
develop an investment strategy for each
customer segment. It also makes it nearly
impossible for marketing to win support
for the segmentation strategy across the
enterprise. While other business units
Case Study 1 Case Study 2
may find segment profiles of interest (for
instance, what are Gen Y’s attitudes One electronics retailer was able to In another case, the optimized
towards our brand?), this isn’t sufficient identity a half billion dollar loss it had segmentation for a financial service
to change behaviors. However, if the incurred in a single year from a segment provider revealed strategic information
business sees a substantial financial impact that was not identified using traditional about two key segments: while a unique
for addressing the needs of a customer segmentation methods. In the absence segment—only five percent—of its
segment, then the segmentation can of a value dimension within its previous customer base accounted for 50 percent
provide the necessary leverage to drive solution, the company had decided to of the company’s profits, another
alignment and mobilization to address their invest equally across the customer base. segment was eating into 10 percent of
needs (such as set up a web chat customer This significantly eroded its higher value company profits. With the additional
service capability). The results are customers. Once an advanced customer insights provided by a segmentation
potentially huge. segmentation analysis was completed, that balanced value, demographics,
the company was able to develop an preferences, and behaviors, the company
effective strategy to address the issue. was able to refine its marketing
As a result, the company was able to messages to the target audiences. In
not only take action to recover from the addition, the company was also able
loss, but also better manage customers to fine-tune its customer acquisition
going forward. By making necessary strategies to improve its longer term
operational changes to call center customer portfolio. The result? A massive
dashboards, interactive voice response 600 percent ROI by the second year.
services (IVR) and performance metrics, This approach to segmentation proved
the company provided personalized so useful that the company executives
services aligned to customer segments made it an integral part of their strategic
and their associated value. planning in subsequent years.Beating the odds Segmentation strategies will vary for each company depending on their brand, market, and priorities. By leveraging artificial intelligence technologies, analytics can now be aligned with unique business objectives to determine the optimal segmentation. Through the more precise narrowing of the “best” attributes, segment profiles will be both richer and more comprehensive. And marketing strategies based on next generation customer segmentation will be more effective in personalizing and targeting offerings and messaging to relevant customers. With the advent of big data and more advanced analytics, customer segmentation techniques based on traditional approaches will fast become obsolete in today’s multi- dimensional world. Not only do companies risk wasting their investment on the segmentation effort, but more importantly they risk being misled on where value exists in the market and among their customers. To learn more about next generation customer segmentation strategies, contact: Jeriad Zoghby jeriad.zoghby@accenture.com
About Accenture Interactive Accenture Interactive helps the world’s leading brands drive superior marketing performance across the full multichannel customer experience. Working with over 4,000 Accenture professionals dedicated to serving the marketing function, Accenture Interactive offers integrated, industrialized and industry-driven marketing solutions and services across consulting, technology and outsourcing powered by analytics. Follow @AccentureSocial or visit accenture.com/interactive. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 261,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com. Copyright © 2013 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademarks. Information regarding third-party products, services and organizations was obtained from publicly available sources, and Accenture cannot confirm the accuracy or reliability of such sources or information. Its inclusion does not imply an endorsement by or of any third party. The views and opinions in this article should not be viewed as professional advice with respect to your business.
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