Improving Intelligence Through Segmentation

Business intelligence reports are a core component of the strategy, planning, and evaluation of any organization. Customer segments present a powerful and intuitive addition to a comprehensive business intelligence solution. Incorporating segments into reports immediately maximizes and expands insights and learnings achievable through standard reports, and can ultimately spawn new ways to track and evaluate your business.

Upgrading Existing Reports

Well-designed customer segments can bring a customer focus to business performance measurement. The quickest way to achieve this is to adapt some of the reports that may already be in use.

Many companies measure the health of the customer portfolio by tracking the number of active customers on the database. A Customer Flow report is a report of changes in the size of a customer base (see example below). It identifies the number of new, lost, and re-activated customers in a period, and how those numbers have changed over time. It is very useful in determining the success (or lack of) in acquiring and maintaining customer relationships.

One drawback of this type of report is that it does not take into account how the quality of the customer base is changing, nor does it offer insight into the long-term ramifications such changes may foreshadow.

By layering segments into the Customer Flow report, a deeper evaluation of the health of the customer base can be observed. It is then possible to go beyond a simple measurement of the number of active customers, and quantify the type of customers you are acquiring and losing. This allows you to evaluate and refine your acquisition, retention, and reactivation efforts.

In addition to augmenting reports with new layers of information, utilize reports that exist for analysis of business divisions. For instance, you may currently track performance by geographic region. You may even use region as a category to evaluate your success at retaining customers. Since stakeholders may know this existing report, it can become a template for developing a customer segment view of the business.

Evaluating customer retention at this level is useful in identifying differences in the customer relationship across geography. However, it does not provide the information needed to understand the types of customers that are being retained.















By dissecting retention rates at the segment level, you can evaluate specific retention programs and measure your success at keeping high-value customers, regardless of where they live.









Segment Specific Reports

The development of customer segments also offers new opportunities to track and measure performance. There are several core reports that should be created following the completion of a segmentation project.

The customer distribution, share of revenue, and percentage of marketing budget should be tracked for each segment. This high-level report provides a quick assessment of the value and attention being paid each segment, and will help set and refine strategy.

In addition to tracking the size and value of each segment, it is important to understand how customers evolve their relationship and migrate through the segments. The segment transition report will allow you to distinguish between acceptable attrition (of dormant, low-value customers) and bad attrition (the loss of high-value customers). This report can also identify the trends that may indicate improvements (or challenges) in increasing the value of the customer base.

Once the segments are adopted, evaluation of marketing programs may evolve from tactical reports of ROI to more global reports that detail the effectiveness and profitability of differentiated contract streams to a particular segment. This allows for broader testing of marketing initiatives, and opens the door to optimizing the conversation you have with each customer. It is important to gauge the effectiveness of the entire conversation with customers (multiple mailings over time), since that is how a stream of contacts may have been designed.

The inclusion of customer segments into the business intelligence environment benefits the organization through improved measurement, insight, and strategy development. Additionally, it can provide visibility for the segmentation solution and help ingrain it into all aspects of the business. By immediately incorporating the segments into the business intelligence infrastructure an organization will:

• quickly establish a common language to refer to the different types of customers/relationships,
• identify the impact of merchandise and marketing strategies on retaining the most valued customer relationships,
• gain a better understanding of the segments by seeing behavioral differences in action, and
• force the organization to think about the different types of relationships and how to best manage those relationships.

The move towards becoming a more customer-centric organization is facilitated and re-enforced by the integration of customer segments into the reporting structure, enabling deeper insight, cultural awareness of the importance of customer segments, and the financial impact of business decisions on the strength of an organization's relationships with its customers.