Learn From the Past

Order information-as well as promotion history and demographic data-can help marketers create segments and regulate customer contacts.

When using a customer’s order history as a criterion to segment a file, it is important to look at both the frequency and regularity of orders. While some customers don’t buy as frequently as others, they might buy in highly regular patterns, even if only during certain times of the year.

One cataloger found that by analyzing the ship-to addresses on its database it was able to identify a very valuable segment of customers who primarily bought twice a year-once in one location and once in another. Significantly, a review of these snowbirds (customers who were apparently migrating each year from the cold, dreary winters of the North to the warm climes of the South and Southwest) suggested they could be more profitable if they were contacted less, and contacted closer to the times when they had previously ordered, at the right seasonal address.

In addition to purchase history, promotion history can help develop meaningful, actionable contact strategy segments.

Many companies, for example, have rules requiring each customer to have a “rest” period of a certain number of days or months between any two promotions. In addition, companies have rules regulating how often within a particular time period the same product can be promoted. Consequently, by default, promotion history is often used to define who is eligible for an upcoming contact.

But experience suggests promotion history can also be very helpful in creating market segments. Some marketers have found that just tracking how many times a person has been promoted can lead to improved contact strategy development. Essentially, people who have been on the file a long time, have not bought, but have been contacted at an above average rate are likely to be sending an important message about their interest in remaining a customer.

One technique some marketers have developed for using promotion history data is to create a propensity indicator for each customer that calculates a person’s response over time.

Customer A, who has been promoted six times and bought twice during the last 12 months [2/6/12= .027], and Customer B, who has been promoted six times and bought twice during the last 18 months [2/6/18=.018], are different. And Customer C, who has been on the file six months, been promoted four times and bought twice is even better [2/4/6=.08].

The point is that even without using sophisticated modeling methods marketers can use simple calculations to help rank a customer’s propensity to respond, and in turn employ this information to create segments worthy of future contact.

In addition to behavioral data, marketers are using demographic and lifestyle data to identify various types of market segments that should be treated differently.

The goal here is to create relatively homogeneous segments based on a series of lifestyle and/or demographic characteristics, i.e., gender, marital status, age, income, home value, presence of children and educational level.

One simple classification scheme used by different industries is created using a 12-way combination of demographic and lifestyle attributes:

* Young moderate singles: Unmarried males and females between ages 21 and 29 who earn between $25,000 and $40,000 annually.

* Young affluent singles: Unmarried males and females between ages 21 and 29 who earn more than $40,000 annually.

* Young moderate marrieds: Couples between ages 21 and 29 who earn between $25,000 and $50,000 annually.

* Young affluent marrieds: Couples between ages 21 and 29 who earn more than $50,000 annually.

* Middle-age moderate families: Adults (with children) between ages 30 and 49 who earn between $25,000 and $50,000 annually.

* Middle-age affluent families: Adults (with children) between ages 30 and 49 who earn more than $50,000 annually.

* Older moderate singles: Unmarried males and females between ages 50 and 65 who are still working and earn between $25,000 and $40,000 annually.

* Older affluent singles: Unmarried males and females between ages 50 and 65 who are still working and earn more than $40,000 annually.

* Older moderate families: Families between ages 50 and 65 who still work and earn between $25,000 and $50,000 annually.

* Older affluent families: Families between ages 50 and 65 who still work and earn more than $50,000 annually.

* Retired singles: Unmarried males and females over age 65 who don’t work full time.

* Retired couples: Couples over 65 who don’t work full time.

Companies have found that by using age, marital status, income and presence of children they can create segments that are reasonably different from one another, and yet large enough to warrant targeting of special offers, customized pricing and positioning of products, and different creative thrusts.