Marketing Analytics: Meaning

and Characteristics
Marketing analytics is the practice of measuring, managing and analyzing marketing
performance to maximize its effectiveness and optimize return on investment (ROI).
Understanding marketing analytics allows marketers to be more efficient at their jobs and
minimize wasted web marketing dollars.

Marketing analytics involves the technologies and processes CMOs and marketers use to
evaluate the success and value of their efforts. As such, marketing analytics uses various
metrics to measure the performance of marketing initiatives. Effective marketing analytics
gathers data from all sources and channels and combines it into a single view. Teams then use
the analytics to determine how their marketing initiatives are performing and to identify
opportunities for improvement. It is difficult to determine the effectiveness and return on
investment (ROI) of your marketing campaigns without marketing analytics.

Beyond the obvious sales and lead generation applications, marketing analytics can offer
profound insights into customer preferences and trends. Despite these compelling benefits, a
majority of organizations fail to ever realize the promises of marketing analytics. According to
a survey of senior marketing executives published in the Harvard Business Review, “more than
80% of respondents were dissatisfied with their ability to measure marketing ROI.”

Characteristics of Marketing Analytics

1. Ensure high-quality data

Your analytics rest on your data. That means you need a tool that mines both structured and
unstructured customer data from all possible sources, including various interactions and touch
points.

2. Get real-time insights

Your marketing analytics solution also needs to deliver real-time insights to you. You can’t be
effective if your information is out-of-date; tracking the right metrics at the right time is key.

3. Perfect your dashboard

While it may be tempting to track as many metrics as possible, your analytics will not be as
useful if you do. Rather, define your goals and measure results for the use cases most important
to you.

4. Choose the right analytics visualization

Marketing teams and stakeholders must be able to make something of the data if you are to
gain meaningful insights from it. The key is to choose the most appropriate data visualizations
 so you can find patterns and interpret the data. Thus, you must choose a marketing analytics
solution that allows you to choose or customize your visualizations instead of using default
charts for displaying data.

5. Use a tool featuring machine learning and AI to predict and prescribe

Marketing must be real-time and predictive to be effective today. You must be able to make
accurate predictions, analyze the data, and make data-driven decisions to enhance each step of
the customer journey.

Advantages and Disadvantages of

Marketing Analytics
Advantages of Marketing Analytics

1. Granular Segmentation

Marketing departments depend on the right segmenting to deliver impactful messaging and
relevant communications to leads and customers. After all, one email that targets males aged
20–55 probably won’t incite as much engagement compared to a message targeting a smaller
age bracket, an audience with a shared interest or audience with similar spending activity.

But there’s a reason many marketing analytics teams don’t go as granular as they’d like in their
communications. It’s because they don’t have access to marketing analytics dashboards that
instantly group customers based on different metrics.

For example, a marketing assistant could search ThoughtSpot for customers that have
purchased six or more times this year in the Southwest region to gather contacts for an
upcoming joint promotion with a business chain in the area.

2. Tailored Messaging

Effective marketing has always been about persuasion. But instead of trying to persuade the
masses, marketing today is about delivering personalized messaging and offers to both
customers and potential customers alike.

Send something irrelevant to a lead and they’ll disregard the message and probably your
business along with it. Do the same thing to an active guest and they’ll think you’re not paying
close enough attention, damaging your rapport.

Marketing analytics tools can also play an integral role in the timing of communications and
the mode through which they’re sent. This gives businesses the best chance of reaching
customers in a good state of mind.
3. Multi-Channel Customer View

The more a marketing department interacts with leads and customers, the better understanding
they have of their audience base. This is especially helpful in our digital age because, just like
the preference of communication medium, consumers tend to spend time in different places.

Tracking customer behavior, including engagement and buying activity across channels, gives
marketing a comprehensive understanding of how to interact with a customer. This includes
what kinds of communications they respond best and worst toward, as well as strategies that
can increase their lifetime value.

4. Marketing Analytics with ThoughtSpot

Leveraging a marketing data analytics tool offers knowledge at scale for an entire marketing
department and beyond. Platforms like ThoughtSpot allow marketing teams to better segment
audiences, deliver tailored messaging and gain a complete view of customers across channels.

Disadvantages of Marketing Analytics

1. Misidentifying Market Needs

One of the elements of your marketing analysis is identifying the needs of each market segment.
It also identifies other businesses and products that are attempting to satisfy the needs of this
segment. The disadvantage of doing this is twofold. You may overestimate how well your
competition is meeting the customers’ needs and quit before you even try to market. You also
may misidentify the need that is being met. Don’t overlook the uniqueness of your own
offering. Just because competition wants the same customer you do, that doesn’t mean you are
satisfying the same need.

2. Evaluating Market Growth without Market Share

Your marketing analysis will include a look at how the overall market is growing, which can
give you some idea of your range of opportunities. If your analysis discourages you, however,
it can be a disadvantage. You can successfully compete in a limited market if you capture
market share. An analysis of the market size alone is not enough to indicate your opportunities.
Improved market share can compensate for a slow-growth market.

3. Market Segmentation Versus Target Markets

You must identify the segments of the market that have potential customers for your products
or services. This will help you understand the varied approaches you may need to take to reach
different types of customers. The downside is that you may spread yourself too thin. Few
businesses can afford to market to every single potential customer. Identify a target market that
you choose from among the available segments, and go after that target market in a focused
manner.

4. Improper Interpretation of Data

A marketing analysis is only as good as the analyzer. You can collect a lot of data in market
surveys, but interpreting that data correctly is vital. You will be at an extreme disadvantage if
you misinterpret facts and make decisions based on that misinterpretation. Run your analysis
past a trusted adviser or two. Make sure your analysis is not wishful thinking.

Market Data Sources (Primary

and Secondary)
Primary Market Research

Primary research is research that is conducted by you, or someone you pay to do original
research on your behalf. In the case of primary research, you are generating your own data
from scratch as opposed to finding other people’s data. You might choose to gather this data
by running a survey, interviewing people, observing behavior, or by using some other market
research method.

Secondary Market Research

Sometimes called “desk research” (because it can be done from behind a desk), this technique
involves research and analysis of existing research and data; hence the name, “secondary
research.” Conducting secondary research may not be so glamorous, but it often makes a lot
of sense of start here. Why? Well, for one thing, secondary research is often free. Second,
data is increasingly available thanks to the Internet; the US Census and the CDC (health data),
for example, are two great sources of data that has already been collected by someone
else. Your job as a secondary researcher is to seek out these sources, organize and apply the
data to your specific project, and then summarize/visualize it in a way that makes sense to you
and your audience. So, that’s what secondary market research is all about. The downside, of
course, is that you may not be able to find secondary market research information specific
enough (or recent enough) for your objectives. If that’s the case, you’ll need to conduct your
own primary research.
Sources of Secondary Data

Secondary data comes in all sorts of shapes and sizes. There are plenty of raw data sources
like the US Census, Data.gov, the stock market, and countless others. Internal company data
like customer details, sales figures, employee timecards, etc. can also be considered secondary
data. Published articles, including peer-reviewed journals, newspapers, magazines, and even
blog postings like this count as secondary data sources. Don’t forget legal documents like
patents and company annual filings. Social media data is a new source of secondary data. For
example, the New York Times collected Twitter traffic during the 2009 Super Bowl and
produced this stunning visualization of comments throughout the game. Secondary data is all
around us and is more accessible than even. It is increasingly possible to obtain behavioral
data from secondary sources, which can be more powerful and reliable than self-reported data
(via surveys and focus groups).

The New Realities of Marketing

Decision Making Market Sizing:
Data Sources
Every business has a market. From businesses like Amazon, whose audience could be anyone,
to niche businesses selling specialized, custom products, knowing your market is essential to
establishing a successful business. Many organizations believe their product is so novel or
useful that their market is everyone, but more often than not, the customer base will actually
exclude certain demographics. If your product is extremely expensive, that means the product
is probably only going to be bought by people in a certain income bracket. If your product can
only be used in certain areas (like boats as opposed to cars), you’ll likely only sell that product
 regionally. This is why it’s important to understand your target audience and estimate your
market size and type when setting up your business and marketing plans.

Market Size

Market size can be simply defined as “the number of people likely to buy a product or service.”
Many businesses have a rough idea of who their market is or how many individuals it might
involve, but it’s important to accurately estimate market size in order to plan for things like
budgets, sales goals, marketing efforts, and staffing. Knowing how large your market can be
directly proportional to your business efforts. Using smart market size estimation techniques is
an important planning step.

How to Evaluate Market Size?

There are several kinds of market sizing techniques that businesses should consider and use in
their market size analysis. The most important step, before considering anything that will help
you estimate your market, is having good data that accurately paints the picture of the
marketplace or industry. Having good data and research is necessary to understanding how to
estimate your market size. Before working with any market size estimation techniques, make
sure you have solid information to draw from and analyze. With good data, you can:

 Look at the competition: Are you the only provider of your business or service locally?
Regionally? Nationally? This will tell you a lot about the potential size of your market. If you
have a lot of competition, you know you are competing with other businesses for customers,
effectively reducing or limiting your potential market.
 Understand your product: Be realistic about things that will affect who will buy your
product. Things like cost, usefulness, reliability, or availability will influence how many people
are truly in your market.
 Understand your customer: Similar to understanding your product, you must know
something about your customer when doing market size calculation. Are your customers likely
to be male? That tells you something about your market. Are they likely to be college-educated?
Found in cities? Make a certain salary a year? Knowing your target customer always leads to
helping you estimate your market size.

Estimating your market size is an important step in establishing and growing your business,
including planning budgets, forecasting goals, and creating marketing plans. In addition to
being something businesses should do as they launch, it should also be reevaluated regularly
as your business gains customers and recognition. Customer market size is never a static thing
and can grow, change, and shrink based on anything from the economy to available technology,
so always be mindful of market size for your business.

Data Sources

Your selected approach will dictate the necessary sources to estimate market size. Secondary
research or desk research searches for existing data and is the most commonly used form of
research in this type of exercise because it is quicker to obtain and therefore usually more cost
effective. Through general web searching, a wealth of information can be found at little or no
cost. Subscription-based or syndicated research is a great place to start, but there are also free
sources that contain valuable information. Articles about companies or products in the target
market will often quote data from these sources. You might also check whitepapers and product
announcements for similar information. Publicly held companies are required to share
information in analyst and investor reports. Quarterly and annual reports are typically available
on these company websites as well as through the SEC filings. Also, trade associations will
often conduct market research and aggregate industry data.

Primary research, also called field research, is often used in addition to secondary research.
The primary research can take on many forms and can strengthen your understanding of the
market, allowing you to make better informed assumptions. The most versatile form of primary
research is in-depth telephone interviews that can be used to capture more sensitive
information. If possible, on-site visits can be used to confirm or contradict market sizing
estimations or determine key information on market trends, such as technology, market
performance, relative competitive position or other information dealing with understanding
scope and defining the target market.

Segmentation Concept, Basis

of Segmentation
Segmentation means to divide the marketplace into parts, or segments, which are definable,
accessible, actionable, and profitable and have a growth potential. In other words, a company
would find it impossible to target the entire market, because of time, cost and effort restrictions.
It needs to have a ‘definable’ segment – a mass of people who can be identified and targeted
with reasonable effort, cost and time.

Once such a mass is identified, it has to be checked that this mass can actually be targeted with
the resources at hand, or the segment should be accessible to the company. Beyond this, will
the segment respond to marketing actions by the company (ads, prices, schemes, promos) or,
is it actionable by the company? After this check, even though the product and the target are
clear, is it profitable to sell to them? Is the number and value of the segment going to grow,
such that the product also grows in sales and profits?

Description: Segmentation takes on great significance in today’s cluttered marketplace, with

thousands of products, media proliferation, ad-fatigue and general economic problems around
the world markets. Rightly segmenting the market place can make the difference between
successes and shut down for a company.

Segmentation allows a seller to closely tailor his product to the needs, desires, uses and paying
ability of customers. It allows sellers to concentrate on their resources, money, time and effort
on a profitable market, which will grow in numbers, usage and value.
 Basis of Segmentation

Segmenting is dividing a group into subgroups according to some set ‘basis’. These bases range
from age, gender, etc. to psychographic factors like attitude, interest, values, etc.

Gender

Gender is one of the most simple yet important bases of market segmentation. The interests,
needs and wants of males and females differ at many levels. Thus, marketers focus on different
marketing and communication strategies for both. This type of segmentation is usually seen in
the case of cosmetics, clothing, and jewellery industry, etc.

Age group

Segmenting market according to the age group of the audience is a great strategy for
personalized marketing. Most of the products in the market are not universal to be used by all
the age groups. Hence, by segmenting the market according to the target age group, marketers
create better marketing and communication strategies and get better conversion rates.

Income

Income decides the purchasing power of the target audience. It is also one of the key factors to
decide whether to market the product as a need, want or a luxury. Marketers usually segment
the market into three different groups considering their income. These are

 High Income Group

 Mid Income Group
 Low Income Group

Place

The place where the target audience lives affect the buying decision the most. A person living
in the mountains will have less or no demand for ice cream than the person living in a desert.

Occupation

Occupation, just like income, influences the purchase decision of the audience. A need for an
entrepreneur might be a luxury for a government sector employee. There are even many
products which cater to an audience engaged in a specific occupation.

Usage

Product usage also acts as a segmenting basis. A user can be labelled as heavy, medium or light
user of a product. The audience can also be segmented on the basis of their awareness of the
product.

Lifestyle
Other than physical factors, marketers also segment the market on the basis of lifestyle.
Lifestyle includes subsets like marital status, interests, hobbies, religion, values, and other
psychographic factors which affect the decision making of an individual.

Segmentation Targeting Positioning

(STP) Framework
Segmentation Targeting and Positioning (STP) is a strategic approach to modern marketing
techniques and demonstrates a link between the overall market and how any business plans its
marketing activities to compete in that market. Many times STP is referred to as a process
where segmentation is developed initially, one or more target market is selected and then the
positioning of the final product or services takes place. The overall purpose of STP is to guide
the business to the planning and implementing a marketing mix program which is appropriate
for both the company and the targeted group of people.

The STP model is very useful in the development of marketing communications plan as it
allows the marketers to prioritize their propositions and then aim in delivering relevant and
personalized messages so as to get intact with a different type of audiences.

How to Apply Segmentation Targeting Positioning “STP” to a Business?

There are basic steps in the STP model which are very useful in analyzing the products or
services being offered along with the way in which the value and benefits of the offering are
conveyed to target groups. In this marketing tutorial, we will learn how to apply segmentation,
targeting and positioning model in any business organization include the following steps to
follow:

Step 1: Segment the Market

Whatever a business is offering, it cannot be everything for everyone. This is the main concept
behind market segmentation which involves dividing various customers into different groups
that have common needs and characteristics. In this way, organizations can tailor-make their
marketing approaches so as to meet the requirements of every group cost-effectively along with
providing an edge over your competitors.

Segmenting customers can be based on different aspects like demographic, behavioral,

psychographic and geographic factors. For example, a travel agency online arranges adventure
vacations worldwide. Its customers are divided into three groups as it is very costly to make
diverse packages for additional groups.

The first segment includes people who are young and married couples and who are interested
in eco-friendly and affordable vacations at exotic places. The second segment includes middle-
income families who are willing for a family-friendly and safe vacation plan and which also
makes their trip fun and easy with children. The third segment includes wealthy retirees who
want to go for a luxurious and stylish vacation in the well-known cities.

Step 2: Target your Customers

At this step, companies need to determine which segment they have to target. Here, companies
to analyze different factors such as the profitability and effectiveness of every segment,
analyzing the potential growth and size of every segment and understand how well the
company can serve to the needs of particular segments. This step can be explained from the
previous example where the online adventure company examines the market size, revenues and
profits of every segment.

The first segment reported profits of $9,520,000, the Segment B generates profits of
$5,460,000, whereas, Segment C profits are expected to $4,360,000. Analyzing this, the
company decides to give attention more to the first segment because of the size of this segment.

Step 3: Position the Offering

The final step is positioning strategy that requires companies to determine how they want to
place their offerings to the targeted and most important customer group. After this, the most
appropriate marketing mix can be selected. Business should initially determine why the
customers will avail the offering rather than from its competitors. This can be done by
identifying the unique selling proposition (USP) and then depict a positioning plan for
understanding how the different segments will perceive the products or services. In this way,
companies can find the best marketing model to position its offerings.

In addition to this, companies should also understand the needs and wants of every segment or
understand the problem which the offering will solve. This can be done by creating value
proposition which explains how the product or service will meet the expectations of the group
better than other products.

For example, the travelling company presents itself as the ‘finest service for eco-vacation trips
for newly young married couples’. The company tends to hold a contest on social media
platforms for reaching its audience as this medium is preferred by this segment. The
competition asks participants to send pictures of previous eco-vacations; the best picture will
win a trip. This marketing campaign was a big hit and helped the company create its mailing
list for the e-newsletter on monthly basis including profiles of different destinations.

A very important concept of segmentation targeting and positioning model is that all the three
steps should be in alignment with one another so as to develop a fluid plan. Segmentation
allows reaching the right target market which paves way for an appropriate positioning
strategy. If any step within the STP model changes, it is important that the whole work from
segmentation should be done and the strategy needs to be re-worked or else the market strategy
will be destined to fail.
 Managing the Segmentation Process
1. Determine the need of the segment

What are the needs of the customers and how can you group customers based on their needs?
You have to think of this in terms of consumption by customers or what would each of your
customer like to have.

For example – In a region, there are many normal restaurants but there is no Italian restaurant
or there is no fast food chain. So, you came to know the NEED of consumers in that specific
region.

2. Identifying the segment

Once you know the need of the customers, you need to identify that “who” will be the
customers to choose your product over other offerings. Quite simply, you have to decide which
type of segmentation you are going to use in this case. Is it going to be geographic,
demographic, psychographic or what? The 1st step gives you a mass of crowd, and in the 2nd
step, you have to differentiate the people from within that crowd.

Taking the same above example of Italian restaurant – The target will be children, youngsters
and middle aged people. Italian food is generally not preferred by old age people who prefer
food which can be easily chewed (that’s what I feel at least. Lets see if I have teeth by the time
I am 60). So you know the segment now.

3. Which segment is most attractive?

Now, we approach the targeting phase in the steps of market segmentation. Out of the various
segments you have identified via demography, geography or psychography, you have to choose
which is the most attractive segment for you. This is a tough question to answer because one
of them will be left out.

If you are using psychographic segmentation, then you need to target the psychology of
consumers which takes time. So you will not be able to expand faster. But if your product is
basic, then you can use demographic segmentation as the base, and expand much faster in
surrounding regions. So this step involves deciding on ALL the different types of segmentation
that you can use.

Attractiveness of the firm also depends on the competition available in the segment. If the
competition is too much in a given segment, then it does not make sense to take that segment
into consideration. In fact, that segment is not attractive at all.

Taking the above example of an Italian restaurant, the restaurant owner realizes that he has
more middle aged people and youngsters in his vicinity. So it is better to market his store on
weekends and malls where this target group is likely to go. The middle aged people can bring
children and elders as per their convenience. So the 1st target is the middle aged group, and the
 2nd target is youngsters. He is using a combination of demographic and geographic
segmentation to target middle aged people in his region.

4. Is the segment giving profit

So, now you have different types of segmentation being analysed for their attractiveness.
Which segment do you think will give you the maximum crowd has been decided in the 3rd
step. But which of those segments is most profitable is a decision to be taken in the 4th step.
This is also one more targeting step in the process of segmentation.

Example – The Italian restaurant owner above decides that he is getting fantastic profitability
from the middle aged group, but he is getting poor profitability from youngsters. Youngsters
like fast food and they like socializing. So they order very less, and spend a lot of time at the
table, thereby reducing the profitability. So what does the owner do? How does he change this
mindset when one of the segments he has identified is less profitable? Lets find out in the 5th
step.

5. Positioning for the segment

Once you have identified the most profitable segments via the steps of market segmentation,
then you need to position your product in the mind of the consumers. I would not dive deep
into positioning here as you can read this quick guide to positioning. The basic concept is that
the firm needs to place a value on its products.

If the firm wants a customer to buy their product, what is the value being provided to the
customer, and in his mindset, where does the customer place the brand after purchasing the
product? What was the value of the product to the customer and how valuable does he think
the brand is – that is the work of positioning. And to complete the process of segmentation,
you need to position your product in the mind of your segments.

Example – In the above case we saw that the Italian restaurant owner was finding youngsters
unprofitable. So what does he do? How does he target that segment as well? Simple. He starts
a fast food chain right next to the Italian restaurant. What happens is, although the area has
other fast food restaurants, his restaurant is the only one which offers good Italian cuisine and
a good fast food restaurant next door itself. So both, the middle aged target group and the
youngsters can enjoy. He has converted the profit earned from the middle aged group, into
more profit, and has achieved top of the mind positioning for all people in his region.

6. Expanding the segment

All segments need to be scalable. So, if you have found a segment, that segment should be such
that the business is able to expand with the type of segmentation chosen. If the segment is very
niche, then the business will run out of its course in due time. Hence the expansion of the
segment is the second last step of market segmentation.

In the above example, the Italian restaurant owner has the best process in his hand – an Italian
restaurant combined with a fast food chain. He was using both Demographic and geographic
segmentation. Now he starts looking at other geographic segments in other regions where he
 can establish the same concept and expand his business. Naturally, with more expansion he
will earn more profits.

7. Incorporating the segmentation into your marketing strategy

Once you have found a segment which is profitable and expandable, you need to incorporate
that segment in your marketing strategy. How do you think McDonalds or KFC became such
big chains of fast food? They had a very clear process of segmentation because of which it
became easier to find regions to target.

With the steps of market segmentation, your segments become clear and then you can adapt
other variables of marketing strategy as per the segment being targeted. You can modify the
products, keep the optimum price, enhance the distribution and the place and finally promote
clearly and crisply to your target audience. Business becomes simpler due to the process of
market segmentation.

Deriving Market Segments and

Describing the Segments
A market segment is a group of people who share one or more common characteristics, lumped
together for marketing purposes. Each market segment is unique, and marketers use various
criteria to create a target market for their product or service. Marketing professionals approach
each segment differently, after fully understanding the needs, lifestyles, demographics, and
personality of the target consumer.

A market segment is a category of customers who have similar likes and dislikes in an
otherwise homogeneous market. These customers can be individuals, families, businesses,
organizations, or a blend of multiple types. Market segments are known to respond somewhat
predictably to a marketing strategy, plan, or promotion. This is why marketers use
segmentation when deciding a target market. As its name suggests, market segmentation is the
process of separating a market into sub-groups, in which its members share common
characteristics.

To meet the most basic criteria of a market segment, three characteristics must be present. First,
there must be homogeneity among the common needs of the segment. Second, there needs to
be a distinction that makes the segment unique from other groups. Lastly, the presence of a
common reaction, or a similar and somewhat predictable response to marketing, is required.
For example, common characteristics of a market segment include interests, lifestyle, age,
gender, etc. Common examples of market segmentation include geographic, demographic,
psychographic, and behavioral.

Examples of Market Segments and Market Segmentation

A good example of market segments and how a company markets to those groups is in the
banking industry. All commercial banks service a wide range of people, many of whom have
relatable life situations and monetary goals. If, for example, a bank wants to market to Baby
Boomers, it conducts research and finds that retirement planning is the most important aspect
of their financial needs. The bank, therefore, markets tax-deferred accounts to this consumer
segment.

Taking it a step further, if the same bank wants to effectively market products and services to
millennials, Roth IRAs and 401(k)s may not be the best option. Instead, the bank conducts in-
depth market research and discovers most millennials are planning to have a family. The bank
uses that data to market college-friendly savings and investment accounts to this consumer
segment.

Conversely, sometimes a company already has a product but does not yet know its target
consumer segment. In this scenario, it is up to the business to define its market and cater its
offering to its target group. Restaurants are a good example. If a restaurant is near a college, it
can market its food in such a way to entice college students to enjoy happy hours rather than
trying to attract high-value business customers.

Points to Remember

A market segment is a group of people in a homogeneous market who share common

marketable characteristics.

The criteria for a market segment are that there is homogeneity among the segment’s main
needs, the segment must be unique, and the segment’s members must produce a common
reaction to marketing tactics.

Common market segment traits include interests, lifestyle, age, and gender.

Cluster Analysis
Market Segmentation
Cluster analysis is the use of a mathematical model to discover groups of similar customers
based on finding the smallest variations among customers within each group. These
homogeneous groups are known as “customer archetypes” or “personas”.

The goal of cluster analysis in marketing is to accurately segment customers in order to achieve
more effective customer marketing via personalization. A common cluster analysis method is
a mathematical algorithm known as k-means cluster analysis, sometimes referred to as
scientific segmentation. The clusters that result assist in better customer modeling and
predictive analytics, and are also are used to target customers with offers and incentives
personalized to their wants, needs and preferences.
The process is not based on any predetermined thresholds or rules. Rather, the data itself reveals
the customer prototypes that inherently exist within the population of customers.

The Advantages of Cluster Analysis

As compared with threshold/rule-based segmentation, the three main advantages of the

analytical segmentation approach represented by cluster analysis are:

(i) Practicality

It would be practically impossible to use predetermined rules to accurately segment customers

over many dimensions

(ii) Homogeneity

Variances within each resulting group are very small in cluster analysis, whereas rule-based
segmentation typically groups customers who are actually very different from one another.

(iii) Dynamic clustering

The clusters definitions change every time the clustering algorithm runs, ensuring that the
groups always accurately reflect the current state of the data.

Closing the Cluster Analysis Marketing Loop

Because customer behavior changes frequently, performing cluster-based segmentation only

once in a while is not sufficient. Ideally, it should be performed daily, taking advantage of all
the latest customer behavioral and transactional data. For most online businesses, this means
identifying dozens or hundreds of different personas that can be independently targeted by
marketers. This, of course, is not something that can be easily done manually; rather, an
automated system should be employed to ensure that the entire customer base is accurately
segmented into relevant personas every day.

The next ingredient is connecting the discovered customer personas with the most relevant
marketing interactions for each one. These interactions should cater to the specific wants, needs
and preferences of each small, homogeneous group of customers represented by each persona.
Marketing creativity must be mated with an automated multi-channel marketing execution
system that will allow marketers to address any number of different personas with any number
of different marketing campaigns, every single day.

Finally, there needs to be a measurement and optimization cycle in place. By scientifically

measuring the results of each campaign in terms of monetary uplift, marketers can know which
campaigns are working well and which ones need improvement. The end result will be highly
relevant marketing communications – leaving no customer behind – that generate long-term
customer loyalty, improved brand perception and maximum customer value.
Discriminant Analysis
Discriminant Analysis is a statistical tool with an objective to assess the adequacy of a
classification, given the group memberships; or to assign objects to one group among a number
of groups. For any kind of Discriminant Analysis, some group assignments should be known
beforehand.

Discriminant Analysis is quite close to being a graphical version of MANOVA and often used
to complement the findings of Cluster Analysis and Principal Components Analysis.

When Discriminant Analysis is used to separate two groups, it is called Discriminant Function
Analysis (DFA); while when there are more than two groups – the Canonical Varieties Analysis
(CVA) method is used.

In the 1930’s, 3 different people – R.A. Fisher in UK, Hoteling in US and Mahalanob is in
India were trying to solve the same problem via three different approaches. Later their methods
of Fisher linear discriminant function, Hoteling’s T2 test and Mahalanobis D2 distance were
combined to devise what is today called Discriminant Analysis.

Benefits and Practical Applications of Discriminant Analysis

Discriminant Analysis has various benefits as a statistical tool and is quite similar to regression
analysis. It can be used to determine which predictor variables are related to the dependant
variable and to predict the value of the dependant variable given certain values of the predictor
variables. Discriminant Analysis is also widely used to create Perceptual Mapping by marketers
and has some benefits over other methods that use perceived distances; like the option of using
tests of significance to check for dissimilarities among products and that the distances between
two products would not be impacted by other products included in the study.

Discriminant Analysis has various other practical applications and is often used in combination
with cluster analysis. Say, the loans department of a bank wants to find out the creditworthiness
of applicants before disbursing loans. It may use Discriminant Analysis to find out whether an
applicant is a good credit risk or not. This would serve as method of screening applicants and
preventing later bad debts. In another scenario, say a retail chain wants to conduct market
segmentation. It might use a survey to get respondents to rate various desirable service
attributes and then use a combination of cluster analysis and Discriminant Analysis to segment
its market and assign customers to different segments. This will help the retailer get an idea of
customer’s preferences in each segment and also target them better in their marketing
campaigns.
 Targeting Concepts, Types
and Importance
Target marketing involves breaking a market into segments and then concentrating your
marketing efforts on one or a few key segments consisting of the customers whose needs and
desires most closely match your product or service offerings. It can be the key to attracting new
business, increasing sales, and making your business a success.

Targeting in marketing is a strategy that breaks a large market into smaller segments to
concentrate on a specific group of customers within that audience. It defines a segment of
customers based on their unique characteristics and focuses solely on serving them.

Instead of trying to reach an entire market, a brand uses target marketing to put their energy
into connecting with a specific, defined group within that market.

Five Different Types of Targeting

1. Behavioral Targeting (aka audience targeting)

Behavioral targeting is the practice of segmenting customers based on web browsing behavior,
including things like pages visited, searches performed, links clicked, and products purchased.
If you add mobile and physical store data into the mix, that can also include things like location,
and in-store purchases. Visitors with similar behaviors are then grouped into defined audience
segments, allowing advertisers to target them with specific, relevant ads and content based on
their browsing and purchase history. An oft cited example of behavioral targeting is retargeting
ads.

2. Contextual Targeting

Contextual targeting involves displaying ads based on a website’s content. Think: placing an
ad for dishware on a recipe site, or an ad for running shoes on a running forum. It’s kind of like
the digital version of placing a print ad in a niche magazine. It works based on the assumption
that someone reading a page about running is likely to also be interested in your ad for sneakers.

3. Search Retargeting

Search retargeting is when you serve display ads to users as they browse the web based on their
keyword search behavior. Campaigns are set up with keywords that you choose and that are
relevant to your business or products. For example, if you are a furniture retailer, you might
want to serve display ads to users who have searched for “leather couch”, or “leather sectional”.
This kind of advertising is successful because it uses intent to connect with shoppers. The
shopper may or may not know about you, but they are showing interest in a product or solution
that you offer. Think of this as an upper funnel, prospecting strategy.

4. Site Retargeting
 Site retargeting, also known as just “retargeting”, involves showing display ads to users who
visited your site and then left without completing a purchase to browse elsewhere. It differs
from search retargeting in two important ways: it is not keyword based, and it is targeting
people who are already familiar with your brand, or who at least have visited your site once
and showed interest in your offerings. Because of this brand recognition, the ROI of site
retargeting is often extremely high. Think of this as a lower funnel, conversion focused
strategy.

5. Predictive Targeting

Predictive targeting uses all of the web browsing data from behavioral targeting, layers in 3rd
party data (if available), and applies powerful AI and machine learning to analyze the data and
predict future buying patterns based on past behaviors. The AI that powers predictive targeting
can make connections between behaviors, identify similar and related products for upselling
and cross-selling, and zero in on the shoppers most likely to convert at any given time—all in
an instant. And the more data it analyzes, the more it learns and the better its models become.

Importance of Targeting

Targeting in marketing is important because it’s a part of a holistic marketing strategy. It

impacts advertising, as well as customer experience, branding, and business operations. When
your company focuses on target market segmentation, you can do the following:

1. Speak directly to a defined audience

Marketing messages resonate more deeply with audiences when readers can relate directly to
the information. Brands that have a large, varied market of customers often struggle with
creating marketing campaigns that speak directly to their audience. Because their viewers are
very different, few slogans or stories can resonate with each person on a personal level.
Through target marketing, you can alleviate this problem and focus on crafting messages for
one specific audience.

2. Attract and convert high-quality leads

When you speak directly to the people you want to target, you are more likely to attract the
right people. Your marketing will more effectively reach the people most likely to want to do
business with you. When you connect with the right people, you are then more likely to get
high-quality, qualified leads that will turn into paying customers.

3. Differentiate your brand from competitors

When you stop trying to speak to every customer in your market and start focusing on a smaller
segment of that audience, you also start to stand out from competitors in your industry. When
customers can clearly identify with your brand and your unique selling propositions, they will
choose you over a competitor that isn’t specifically speaking to or targeting them. You can use
your positioning in marketing to make your brand more well-known and unique.

4. Build deeper customer loyalty

 The ability to stand out from competitors by reaching your customers on a more personal,
human level also creates longer-lasting relationships. When customers identify with your brand
and feel like you are an advocate for their specific perspectives and needs, they will likely be
more loyal to your brand and continue to do business with you over a longer period of time.

5. Improve products and services

Knowing your customers more intimately also helps you look at your products and services in
a new way. When you have a deep understanding of your target audience, you can put yourself
in their shoes and see how you can improve your offerings. You can see what features you can
add to better serve your customers.

6. Stay focused

Finally, the benefit of using targeting in marketing is that it also serves to help your brand and
team. Target marketing allows you to get more specific about your marketing strategies,
initiatives, and direction of your brand. It helps you clarify your vision and get everyone in the
organization on the same page. You have more direction when it comes to shaping upcoming
plans for both marketing and the business as a whole. A focused approach helps you fully
optimize your resources, time, and budget.

The Concept of Product Positioning

Product positioning is the process of identifying the needs of different groups of customers and
the extent to which competing products are perceived to meet customers needs. In other words,
relating a product to the market is termed as ‘product positioning’.

It also includes activities like determining the market segments towards which major marketing
effort will be directed on behalf of a product and suggesting methods to differentiate products
from competing ones. Thus, the whole process is meant to bring together the market segments
and products. The process can be used to retain existing products and services as well as to
introduce new ones.

Thus, product positioning refers to targeting the product at specific class of customers or for
specific needs. It determines the image of the product in relation to the rival products. The
strategies used for this purpose are product differentiation and segmentation.

These strategies are often employed by the firms who want to engage in non-price competition
in markets characterised by imperfect or monopolistic competition. Both the strategies involve
financial investment in promotional programmes.

Product differentiation means making the product different in some manner from the
competitive products. It is an important product strategy in a competitive market. A marketer
cannot control the price of his product which is identical in all respects to the products of
competitors.

Product differentiation can offer the following advantages:

(i) It helps in facing competition.

(ii) It facilitates some control over the price of the product.

(iii) It enables the marketer to create brand loyalty.

(iv) Awareness of differences in the product helps to boost the firm’s goodwill.

(v) It provides ideas for advertising.

However, product differentiation tends to increase the problem and costs of advertising and
sales promotion. Firms with limited product line find product differentiation particularly
useful.

Customer Lifetime Value: Concept,

Basic Customer Value
Customer Lifetime Value or CLTV is the present value of the future cash flows or the value
of business attributed to the customer during his or her entire relationship with the company.

Description: CLTV is the value a customer contributes to your business over the entire lifetime
at your company. It is a very important metric and is used while making important decisions
about sales, marketing, product development, and customer support.

By applying Customer Lifetime Value marketing managers can easily arrive at the rupee value
associated with the long-term relationship with any customer. It is difficult to predict how long
each relationship will last, but marketing managers can make a good estimate and state CLTV
as a periodic value.

It is useful metric used by marketing managers especially at a time of acquiring a customer.

Ideally, lifetime value should be greater than the cost of acquiring a customer. Some also call
it a break-even point.

The basic formula for calculating CLTV is the following:

(Average Order Value) x (Number of Repeat Sales) x (Average Retention Time)

For example, let’s say you run a Health Club where customers pay Rs 1000 per month and the
average time that a person remains a customer in your club is 3 years. Then the lifetime value
of each customer is (according to the formula above):

Rs 1,000 per month x 12 months x 3 years = Rs 36,000. This means each customer is worth a
lifetime value of Rs 36,000.

Once we calculate CLTV we know how much the company can spend on paid advertising such
as Facebook ads, YouTube ads, Google Adwords etc. in order to acquire a new customer.

Basic Customer Value

In marketing, customer lifetime value (CLV) is a metric that represents the total net profit a
company makes from any given customer. CLV is a projection to estimate a customer’s
monetary worth to a business after factoring in the value of the relationship with a customer
over time. CLV is an important metric for determining how much money a company wants to
spend on acquiring new customers and how much repeat business a company can expect from
certain consumers.

CLV is different from customer profitability (CP), which measures the customer’s worth over
a specific period of time, in that the metric predicts the future whereas CP measures the past.

CLV is calculated by subtracting the cost of acquiring and serving a customer from the revenue
gained from the customer and takes into account statistics such as customer expenditures per
visit, the total number of visits and then can be broken down to figure out the average customer
value by week, year, etc.

But the process is more nuanced than that. By concentrating on what a customer has previously
spent, companies neglect how their marketing or advertising practices have changed over time,
resulting in new customers who behave differently than old ones. CLV should never be
determined by dividing the total revenue by the number of total customers, since this is too
simple a calculation and does not factor into how long some customers have had a relationship
with the company. Changes to any of these strategies, as well as any shifts in a company’s
customer base as a whole, in the future will prevent companies from depending on past CLVs
to predict upcoming ones.

Customer life time

Value Calculations
The goal of the CLV is to take into account your customers’ loyalty and retention to calculate
the turnover (or profit) that a customer will generate during his or her “life” on your site.
 The customer lifetime value is essential since it allows us to predict our turnover over the long
term and to adjust our marketing or acquisition budget in consequence.

If you thought that the cost of acquisition was calculated based on a single hypothetical
purchase, here is some data that will surely make you change your mind.

How do you calculate your customer lifetime value?

There are several formulas for calculating the LTV. However, many of them are complicated
and time consuming to put in place.

There is a simpler way to calculate your LTV.

For this, you will need some bits of data from your business:

1. The average cart

2. Purchase frequency
3. The customer value
4. The average customer lifespan

To make your calculations easier, use the above indicators over the same period of time: 1 year,
preferably.

(1) Average cart

The average cart is just turnover divided by the number of orders. It’s the average value of a
purchase on your site.

Average cart = Turnover / Number of orders

(2) Purchase frequency

Purchase frequency is a piece of data that allows you to understand how many purchases are
made by the same customer during a given period. This is essential since it tells you how many
purchases your unique customers make over a given period of time and whether your customers
tend to make new purchases on your e-commerce site.

Use the following formula:

Purchase frequency = Number of orders / Unique customers

(3) Customer value

Customer value is the average value of your shopping cart multiplied by the average purchase
frequency of your customers over a given period. It’s the multiplication of the two pieces of
data that we have just explained:

Average cart X Purchase frequency

(4) Customer average lifespan

The customer average lifespan is the last piece of the puzzle. However, it is also the most
complicated to understand because it depends on the type of activities you occupy.

Generally speaking, the customer average lifespan is considered to be between 1 and 3 years.
However, this piece of data will change depending on your business model: do you offer a
subscription service or a one-time purchase?

If your business is a very occasional niche, consider a lifetime of between 1 and 2 years. If you
are working on a clothing or decoration brand and your designs are renewed regularly, you can
take 3 years as a basis for your calculations.

Calculating the Customer Lifetime Value

Now that we have prepared all the data we need, it’s time to finally discover how much our
customers are bringing in during their lives on our site! Here is the formula:

Customer Lifetime Value = Client Value X Average Lifetime

By multiplying the value of a customer over a year (average cart x number of purchases) by
the average lifetime of your customers (1-3 years), you obtain the turnover that a customer
brings in during his or her period of activity (1-3 years) on your e-commerce site.

Some calculation variants

Before going on to the 5 concrete methods to increase your Customer Lifetime Value, here are
some variants of calculating the CLV for those who would like to push the analysis a little
further:

(I) CLV expressed in profits: on the same basis as the calculation that we have just made, you
can reason in terms of profits rather than in terms of turnover. For this, simply replace the
monetary data (previously expressed in turnover) by the profit generated by purchase.

(II) CLV expressed in segments: to further analyze your customers’ behavior, you can
analyze the CLV for each segment. For example, you can calculate the LTV for each of your
acquisition channels, each demographic or geographic profile, etc. The possibilities are endless,
and we can only advise you to push the analysis further.
5 practical methods to increase customer lifetime value

You now have a reliable method to calculate your CLV.

The goal is to increase this customer lifetime value to make each customer more profitable.

While a customer can be expensive to acquire, there are several ways to increase the “customer
value” and thus increase the profits from each customer.

Focusing too much on acquiring new customers, and we forget that, according to
BusinessInsider, regular visitors are twice as likely to put an item in their cart as new visitors.

Similarly, it is important to know that regular visitors have a lower bounce rate and a better
conversion rate compared to new visitors.

Improving your LTV means working on the purchase experience and tunnel, customer service,
and brand loyalty.

In short, working on the entire customer lifecycle to maintain a connection with your brand for
as long as possible.

Using Customer Value to Value

a Business
Customer lifetime value (CLV) is a term in English that translates the value of a customer’s
life. It is an indicator that represents the profits made by a company through its relationship
with certain customers.
 It is used to know the value of a customer, that is to say, how much this customer can generate,
but also identify other strategies to attract new customers. It is also by calculating the CLV that
the marketer can predict the lifetime of a customer.

The mechanism of the “Customer lifetime value”

The principle of the value of a customer’s life is essential when it comes to customer value and
sound if customers are rather satisfied with the services offered. It validates the relevance and
profitability of marketing campaigns, in particular by comparing the lifetime value and the cost
of customer acquisition. The CLV involves all the monetary transactions a customer generates
and all that he could bring back in the future.

Customer lifetime value is mostly used to determine the intersection between marketing and
customer relationship management. When measures are calculated to improve the customer
relationship, we get the value of each transaction or marketing action.

The value of a customer’s life is based on the average life of a customer and the price of
consumption. It will also make it possible to calculate the acquisition cost of a customer, to
value a company from the client portfolio.

As the concept of customer loyalty is essential for most B2B companies, it is essential to use
modeling to begin its calculation.

Indeed, it is not uncommon for companies wishing to calculate the value of their client’s life
face difficulties related to uncertainties caused by the lack of information and the instability of
market conditions. Especially since some companies tend to overestimate the value of their
customers by developing overly optimistic assumptions about consumption.

Several models also make it possible to obtain the CLV during the customer journey, in
particular during the specific requests made by the customers. It is then necessary to take the
duration of the customers into consideration according to the stages of the purchase. (First
contact, relationship building, cross-selling, etc.)

It can, therefore, be said that the value of a customer is significant for a customer in terms of
investment, and constitutes a calculation element of the CLV.

The main vocations of the “Customer lifetime experience”

In practice, the CLV focuses on three kinds of variables, namely:

 The cost of acquiring a target that can be authorized, given the profitability of the latter over a given
time.
 The retention by a segment that will be obtained from a survey of the customer base
 Customer capital valued at the time of an assignment within the company

Companies are interested in customer segmentation to develop clear and precise plans of
action. They will observe their promotional campaigns from the attitude and behavior of
customers. Thus, marketers and salespeople can characterize segments as advantageous or not
for the company and determine the quality of their customers.

Calculation of “Customer lifetime value”

To calculate the value of a customer’s life, we apply the following formula:

Life Value = Total Customer Revenues – Total Costs for Customers

Let’s take an example where your customer has an income of 2,000$ in lifetime value or
contribution. Knowingly, you would obviously not spend 2000$ for the acquisition of a new
customer. However, you should expect about 10%, that is, 200$ for the cost of acquiring a new
customer.

There are other ways to calculate the CLV from other variables such as termination rate,
discount rate, profit margins, loyalty costs. The formula must be adapted to the various offers.
But we also remember this formula:

Life value = (Average order value) x (Number of sales) x (Average duration of the
relationship)
Also, remember that not all customers have the same economic situation. It is to this belief that
the shoe pinches. It is possible that passive customers are more profitable, and that those who
are active do not consume much and do not improve the products.

You will also meet customers who will give you more opportunities because they really
appreciate what you do and what you offer them. For all these reasons, the segments all have
different values. Hence the interest in having different strategies for each of them.

The important thing is to say that by improving the value of a customer’s life, you also improve
his career.