Using customer segmentation analysis to predict customer behavior
2010-03-23
Effective marketing strategies not only take customer history into account, they anticipate how customers will behave in the future. Predicting the future is not always possible, but with customer segmentation analysis, anticipatory techniques can become part of a viable marketing strategy.

Peppers & Rogers Group resource 1to1 Media recently discussed the issue of using predictive analytics to determine the best approach to marketing. The article points out that blanket marketing campaigns are not only a potential waste of resources, they can backfire and cause customer attrition. Analysis-based strategies that carefully target different demographics can help make sure customers get the right message.

According to 1to1 Media, customer segmentation analysis can be used in a technique called "uplift modeling." Rather than evaluating customer behavior in a vacuum, the approach predicts the difference marketing choices will provoke in their respective responses. By comparing them to a control group, marketers can determine what the consequences of varying marketing strategies will be.

Uplift marketing tends to divide an audience into four segments, described by 1to10 Media as Sure Things, Lost Causes, Persuadables and Sleeping Dogs. Sure Things are those customers whose business can be expected without a large marketing investment, and may not need to be targeted. Lost Causes will most likely never seek an organization's business, and also do not need to be marketed toward too heavily. Persuadables, however, are the customers who form the main target of any strategy. They will respond to outreach efforts by initiating or renewing business relationships, but may not have done so without some marketing contact. Sleeping Dogs, on the other hand, will react negatively to marketing by cutting ties or taking their business elsewhere.

"The insights uplift modeling provides dramatically increase campaign profitability by allowing businesses to target fewer people and still produce a higher response rate," 1to1 attests. It helps marketers avoid offering invectives, special offers or other potentially costly initiatives to those customers who would have sought a firm's business anyway. The article offers the example of U.S. Bank, which was able to reduce its marketing costs by 40 percent simply by using customer segmentation analysis to target only Persuadable customers.

This and other analytics techniques are becoming increasingly widespread, due to their ability to maximize return on investment. The recent Email Marketing Industry Census by Econsultancy and Adestra found that most companies consider segmentation the single highest priority in marketing, with 80 percent of respondents currently using it in their strategies.

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