CRM Segmentation

Collaborative CRM Workshop
03 Segmentation and Scorecard
1 Collaborative CRM 2005 03 Segmentation & Scorecard
Copyright ECR Europe 2005. All rights reserved. Version 7.0 June 2005
Collaborative CRM Workshop Agenda

Introduction to Collaborative Introduction to Collaborative CRM CRM Partner Alignment & Partner Alignment & Project Objectives Project Objectives Segmentation & Scorecard Segmentation & Scorecard
What are the key challenges facing the industry in Europe What is Collaborative CRM How can Collaborative CRM improve the industry dynamics and
performance
What are the personal opportunities for certification How do you identify and engage with the right Partner for
Collaborative CRM What are the key decisions to make before working collaboratively How do you establish objectives, target benefits and project plan
Collaborative Segmentation How is it done How do you develop a pragmatic, valid Segmentation How do you establish goals which focus on the target Segment What are the strategic options and how do you choose them What are the Tactical options for delivering the Strategies How do you plan effectively together to ensure the best implementation What are the key considerations for success What measurement criteria can you use Which real world initiatives will be progressed What are the barriers to progress and how can they be overcome What is the plan & next steps to make them happen
Strategy & Tactics Strategy & Tactics Development Development Implementation & Implementation & Measurement Measurement Project Scoping & Next Steps Project Scoping & Next Steps

Introduction to Collaborative CRM Introduction to Collaborative CRM
Partner Alignment & Partner Alignment & Project Objectives Project Objectives
Segmentation & Scorecard Segmentation & Scorecard
The objective of this section is: To learn the options and approach for developing a pragmatic COLLABORATIVE Segmentation To identify the PROVISIONAL Scorecard measures which can be used for Collaborative CRM At the end of this section you will be able to: Manage the segmentation process Develop a provisional Scorecard, to be validated during Strategy development
Strategy & Tactics Development Strategy & Tactics Development
Implementation & Measurement Implementation & Measurement
Project Scoping & Next Steps Project Scoping & Next Steps
The Value of Segmentation

BENEFITS Better understanding of your customers than your competition Learn where new and/or better opportunities to penetrate the market Targeted communications delivering a higher ROI A higher customer retention rate ULTIMATE BENEFITS:
Shopper Satisfaction
Sales & Profit
What types of Segmentation can be done?
Demographic
Behaviour
Psychographic
Life Stage
Shopping Mission
Greenfield
Demographic

Demographic One of the most straightforward bases for segmenting markets
Demographic Basis Age Gender Family Size Why Use it Buying behaviour can be closely related to age category For certain categories gender is a clear differentiator Family remains an important social unit, which drives consumption
Social Class/ Income Despite criticisms of this classification for being inadequate to describe consumer head of household groups, it still maintains a discriminating power, for example Pensioners and Low income Geo-demographic Combines a number of variables such as where a customer lives, with home ownership, size of family, and so on. Assumes demographic/socio economic characteristics of people can be correlated to the housing characteristics of a particular area.

Behavioural segmentation
Takes customer Purchasing Behaviour as the starting point for segmentation Behaviour
Usage;
Light Medium Heavy
Loyalty;
Light Medium Heavy
What the purchaser wants from the product

People buy the same product for different reasons, for example: cheap, branded, premium, an image, thickness, non-stick
Benefit;

Psychographics segmentation

To describe the wide variations in behaviour and outlook of a sophisticated population. Cluster consumers into groups depending upon common interests and attitudes Determines the way they spend their time and money,
Psychographic
e.g.; Finer Foods Foodies who are time poor, money rich and choose everyday luxury items
e.g.; Price Sensitive Cost conscious customers who tend to buy cheapest on display
The Blue Book refers to this area as beliefs & value systems

Life Stage Segmentation

A logical follow on from Psychographic Consumers pass through a series of quite distinct phases in their lives, each phase giving rise to different purchasing patterns and needs.
Life Stage

Shopping Mission Segmentation Segmentation based on identified Shopping Trips, which are deemed
to include certain behaviours and purchasing patterns
Shopping Mission

GREENFIELD segments are modelled after the collection and
analysis of multiple info - i.e. attitudinal segmentation
Greenfield
Examples What segmentation is this?

Twice Weekly Stop Start Now & Then
Daily High Spend Medium Spend Low Spend
Weekly
Hardly Ever
Premium Standard Potential

Frequent
Standard Potential
Potential Uncommitted
Uncommitted
Infrequent Rare
Demographic
Behaviour
Psychographic
Life Stage
Shopping Mission
Greenfield
x2
Copyright,dunnhumby 2002 Copyright, dunnhumby 2003
Weekly 20+ 10 to 20 5 to 10 Up to 5
A Customer B Customer C Customer D Customer
Purchase Frequency Monthly

B Customer C Customer D Customer All Others
Sporadic
C Customer D Customer
Spend per Purchase
Demographic
Behaviour
Psychographic
Life Stage
Shopping Mission
Greenfield
x2
Big families child 3-11 baby 0-2 > 65 Families 1/2 components
OPPORTUNITIES
UNLOSABLE
MARGINALS
FRIENDS
Loyalty No. Shoppers & Turnover

Demographic Behaviour
Psychographic
Life Stage
Shopping Mission
Greenfield

Affluence
Finer Foods
Foodies who are time poor, money rich and choose everyday luxury items
Healthy
Organic shoppers, fruit and vegetables weight watchers etc
Upmarket
Mid-market
Convenience Mainstream
Family type meals Popular brands Kids products People on the go who havent time or inclination for scratch cooking
Traditional
Traditional housecraft with time to buy and prepare ingredients
Price Sensitive
Cost conscious customers who tend to buy cheapest on display
Cost conscious
Age
Shopping Mission Greenfield
Demographic
Behaviour
Psychographic
Life Stage
Copyright, dunnhumby 2003
HEAVY USERS OFLOYALTY CARD TOP PLB ACTIVE INTERDIS COMPLEMENTARY BRANDED PRODUCTS HOLDERS HIGH SPENDERS CATEGORY USERS
THE BULLS EYE TARGET

Demographic Behaviour
Psychographic
Life Stage
Shopping Mission
Greenfield
Segmentation types Whats the right solution?
Predictive modelling
Database richness
Psychographical/ attitudinal segmentation
Life Stage segmentation
Understanding of the Shopper increases as you go up the scale! New Insights can be developed
Buying Pattern segmentation
Sociodemographical segmentation
Degree of analytical capability

Source: Cap Gemini Ernst & Young
Segmentation types Strengths & Weaknesses

Segmentation Type Demographic
Simple
STRENGTHS
to understand Measurable Accessible from many sources
Usage Can Not
LIMITATIONS
easy to link to behaviour People do not always behave to type! Shoppers use credits and debits
Benefit Usage
Behaviour
is easy to measure be tracked and measured over time Actionable (within limitations)
based can be difficult to identify the Why?? is not forward looking Data source needs to be representative
Life Stage
Can often be a clear link between life stage and Need to treat with caution not all pensioners watch purchasing/needs, i.e.; young families TV all day! Can provide a definite segment which has clear Not all people in life stage behave in same way are needs making value proposition easier other drivers, such as income, attitude etc
Psychographic
valuable insights The research required can be expensive Descriptions can be rich and point to clear value Interpretation of findings can be subjective, based propositions on judgment requires consensus Can be challenging to action
Immediate link to purchasing & CCRM environment Often clear relationship between Mission, needs and Categories bought Helps Information
Provides
Shopping Mission
not readily available Can be costly to research Requires Quant and Qual mix to retain its relevance Specific segmentation may have short life cycle and limited use
Needs
Greenfield
to focus directly on the issue at hand
Segmentation types Whats the right solution?

The most informative and added value Segmentation is often a
combination!
Behaviour
Demographic
Psychographic
Life Stage
Greenfield
Shopping Mission
A combination can give you the WHAT and the WHY!!

So How do you do it?

An overall Process, not the finite detail on Segmentation
Brief Experts / Review Data
Select Segmentation Approach Measurable Measurable Substantial Substantial Different Different Accessible Accessible
Develop the Segmentation Choose Segment Measurable Measurable Substantial Substantial Different Different Accessible Accessible
Briefing the Experts
The risk in briefing the Experts is over-complication Keep it simple;

Establish Criteria for the Segmentation outcome, to ensure the Segments are VALID
Use Business Questions to prevent going too wide and deep Leave the Data Mining speciality to the Specialists!
So what is a valid Segment?

A valid Segment should meet 4 Criteria;

Measurable behaviour measures, value, growth potential Substantial maximum homogeneity value/volume/profit Different - clear differences between segments
Want different benefits from the Offer So that the offer can be tailored Question what does the segment see as value
Accessible can reach the segment(s)

Through a specific media channel (store, banner, magazine, TV, internet, SMS) with a specific and cost effective communications message that leads to a response from the segment
Business Questions Examples

Business Question
Who are the groups of similar shoppers?
Data Source
Loyalty card data Panel data Qualitative research Loyalty card data Panel data Qualitative research Retailer Loyalty Card
database
Example
TNS - GFK
What are they purchasing? How are specific shoppers behaving in-store? Why are Shoppers buying the Products? How are consumers using the products? How much of each product is being sold? What are their attitudes & preferences to products? What does the Segment value that is unique?
Dunnhumby Tesco TNS GFK Dunnhumby Tesco Company specific TNS GFK Retail Link Other Retail direct data Company specific Company specific
Qualitative research Market Research Panel Data POS store level data Scanning census data Joint/Sole Research Ad Hoc Research All Research!!
What other data sources exist that you could use?

What if you dont have loyalty card data?
What can you do?

Focus on the business question Focus on the cost benefit
Illustrative Example
How to answer the Business Question Who are the groups of similar shoppers? Robust?
High Medium-Low Medium
Approach
1. 1000 Entry/ Exit interviews 2. Qualitative groups 3. Public Surveys
Insight?
Medium High Med-Low
Cost?
High Medium Low
It sounds complex! How is the data interpreted? Data Mining!
Business Questions
Who are the Shoppers? Why are Shoppers buying? What are attitudes?
To answer Questions
Data
Tools
To manipulate Data
Statistics
To find correlations To find clusters
The improvement in IT has enabled more sophisticated and easier segmentation analysis
How is the data interpreted - Data Mining!
Data Mining techniques are used to make sense of complex data and provide meaningful answers that can be actioned.
Market Basket Analysis

Identify relationships between variables i.e. diapers and baby food i.e.; Spend and Purchase Frequency
Classification techniques
Establish relationships between an object and its behaviour i.e.; shopper store choice will depend on shopper characteristics, the trip, other needs
Clustering techniques
Group the observations to find correlations between purchases, store choice, other factors
Forecasting
After a relationship between 2 variables is established it is possible to forecast a change in 1 variable if the other moves first
Segmentation Golden Rule SIMPLIFICATION !

Keep the Segmentation as simple as possible
Easy to understand Easy to action
For example;
Category-Retailer Segmentation High-Medium-Low Purchasers
100%
High
To be developed Consumers Purchasing the Category HIGH VALUE for both Parties
80%
60%
40%
70%
20%
60% 30%
To be developed
0%
Low
Consumers Category Sales Segment Sales
Consumers purchasing in the Retailer
High
What is a valid Segment
A final Sense Check

Segmentation should be contained Unrestrained segmentation can lead to
unsustainable complexity i.e., range proliferation
BUT.Listen to your experts, they can

give you unbiased and often new perspectives on the insights
Let the data talk!
Validating the Segmentation approach is a central part of the approach
Which Segmentation Approach Should we use?
Develop the Segmentation Choose the Segment Measurable Measurable Substantial Substantial Different Different Accessible Accessible
Select Segmentation Approach
Select Select Segmentation Segmentation Approach Approach
Which Segmentation Approach Should we use?

First step is to decide whether the Segmentation options are able to provide answers to the QUANTITATIVE Business Questions; MEASURABLE SUBSTANTIAL
Segmentation Options - Enter Yes/No if Business Question can be answered Option 2: (type) Option 3: (type) Option 1: (type) Option 4: (type)
APPROACH SELECTION
2.1a MEASURABLE
Penetration Frequency Weight of Purchase Other Other
Yes Yes Yes
No No No
Yes Yes Yes
Yes Yes Yes
2.1b SUBSTANTIAL
Value Volume Profit Yes Yes Yes Yes Yes Yes Yes No No Yes Yes Yes
Simply enter Yes or No and evaluate the best segmentation approach, based on its ability to provide detailed answers to the Business Questions
Select Segmentation Approach
Select Select Segmentation Segmentation Approach Approach
Which Segmentation Approach Should we use? Repeat the same steps for the QUALIITATIVE Business Questions;
i.e.; Yes or No?? DIFFERENT ACCESSIBLE
APPROACH SELECTION
2.1c DIFFERENT
What are they purchasing? How are they behaving in-store? Why are Shoppers buying the Products? What are their attitudes and preferences towards products? What does the Segment value that is UNIQUE? Other BUSINESS QUESTIONS
Segmentation Options - Enter Yes/No if Business Question can be answered Option 2: (type) Option 3: (type) Option 1: (type)
Option 4: (type)
Yes No No No
Yes Yes Yes
Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes
2.1d ACCESSIBLE
How can they be reached? How much would it cost?
Yes The Business No Yes Questions used for the Brief! Yes Yes Yes Yes
No No
Yes Yes
2.1e APPROACH SELECTED
Yes/No
Yes/No
Yes/No
Yes/No
Example Segmentation Approach
Affluence
Finer Foods
Foodies who are time poor, money rich and choose everyday luxury items
Healthy
Organic shoppers, fruit and vegetables weight watchers etc
Upmarket
Mid-market
Convenience Mainstream
Family type meals Popular brands Kids products People on the go who havent time or inclination for scratch cooking
Traditional
Traditional housecraft with time to buy and prepare ingredients
Price Sensitive
Cost conscious customers who tend to buy cheapest on display
Cost conscious
Age
Once the Segmentation approach has been selected, the next step is to Choose the Target Segment(s)
Develop the Segmentation Choose the Segment Measurable Measurable Substantial Substantial Different Different Accessible Accessible
Choose the Target Segment(s)

Enter the detailed data for each Segment Answer the questions and evaluate each Segment against the
QUANTITATIVE criteria; MEASURABLE SUBSTANTIAL
Choose the Choose the Segment Segment

Next, assess the Segments against the QUALITATIVE criteria; DIFFERENT ACCESSIBLE
Segmentation Options - Answer Business Questions
SEGMENT SELECTION
2.2c DIFFERENT
What are they purchasing? How are they behaving in-store? Why are Shoppers buying the Products? What are their attitudes and preferences towards products? What does the Segment value that is UNIQUE? ALIGNMENT TO BRAND(S) ALIGNMENT TO RETAILER
Option 1: (segment name)
The Business Questions used for the Brief!
2.2d ACCESSIBLE
How can they be reached? How much would it cost?
2.2e APPROACH SELECTED
Yes/No Selected Segment?
Yes/No
Yes/No Summary of Why chosen?
Yes/No
Summary of Decision

Next, assess the Segments against the QUALITATIVE criteria; DIFFERENT ACCESSIBLE
Choose the Target Segment(s) Finalisation

Select the Target Segment based on the answers to the Business
Questions Review THE CCRM Working Proposal to check for alignment or new opportunities VERSION 2
?
Segmentation Outcome
VERSION 2
Brief Experts / Brief Experts / Review Data Review Data
Develop the Develop the Segmentation Segmentation Choose the Segment Measurable Measurable Substantial Substantial Different Different Accessible Accessible
What is a valid Segment? Ultimately, the segment should be viable;

The Value proposition must be economically viable
Collaboration
Analysis
HIGH VALUE for both Parties HIGH VALUE for both Parties
Financial Benefits from a Segment
HIGH VALUE for both Parties
Greater than
Total Costs
Communication/ marketing
Product
What is a valid Segment?
! CHECK STEP !
What if the segment isnt viable?
What do you do next?
What are the risks of continuing with a segment that is

unviable?
Workshop Segmentation 03
The purpose of this workshop is to choose a Target Segment to focus on.

Assume that you have chosen the segmentation approach it is a Psychographic/Demographic Segmentation
In your pack you have information on:
The potential Segments that you could choose
Information on the segments quantitative measures Information on the segments qualitative measures
Complete the Segment Selection Grid 1. Which segment will you choose and why? Quantitative reasons Qualitative reasons ALIGNMENT TO RETAILER AND BRAND!! 2. Sense check this choice against your draft Working Proposal What are the issues, if any? 3. Refine your Working Proposal to produce draft 2 with more detail
Please write your feedback on the flip charts
The segments you have chosen to analyse are:

Family Treat
Families who buy desserts regularly, and in large amounts, as a treat after family meals
Stylish Singles
Younger adults, buying desserts as a special occasion purchase, like premium products
Male Snackers
Males who buy and eat on impulse to satisfy hunger
Upmarket Speciality
Older adults, buying special desserts for specific occasions (birthday, dinner party)
Segment Selection Grid
Segment Choice
Why?
Quantitative Reasons Qualitative Reasons Alignment to Brand (H/M/L) Alignment to Retailer (H,M,L)
Sense Check Versus Working Proposal
Refinements To Working Proposal
H/M/L = High/Medium/Low
Segment Quantitative Criteria
Segment Qualitative Criteria
Update Your Working Proposal
Key Lesson Number 1!

A valid Segment should meet 4 Criteria;

Measurable behaviour measures, value, growth potential Substantial maximum homogeneity value/volume/profit Different - clear differences between segments
Want different benefits from the Offer So that the offer can be tailored Question what does the segment see as value
Accessible can reach the segment(s)

Through a specific media channel (store, banner, magazine, TV, internet, SMS) with a specific and cost effective communications message that leads to a response from the segment
Key Lesson Number 2! Ultimately, the segment must be viable;

The Value proposition must be economically viable
Collaboration
Analysis
HIGH VALUE for both Parties HIGH VALUE for both Parties
Financial Benefits from a Segment
HIGH VALUE for both Parties
Greater than
Total Costs
Communication/ marketing
Product

The objective of this section is: To learn the options and approach for developing a pragmatic COLLABORATIVE Segmentation To identify the PROVISIONAL Scorecard measures which can be used for Collaborative CRM At the end of this section you will be able to Undertake effective Segmentation Develop a provisional Scorecard, to be validated during Strategy development
What is a scorecard?
A scorecard is used to establish;

Specific business goals for the initiative Alignment between Manufacturer and Retailer on what is important
Key Inputs
Retailer and Manufacturer performance measures
Characteristics of a Good Scorecard
Balanced Architecture
It measures more than one area;
Shopper Behaviour, Share, Financial results, Process Both Retailer AND Supplier perspective Focused on both short and long term.
Timely, understandable and actionable measures

Measures are reported to help make good decisions Measures are easy to understand and track the effect of strategy/tactics
A management and evaluation tool

Designed to measure, evaluate and manage the Collaborative CRM initiative, not necessarily the people involved
Characteristics of Good KPIs SMART
S Specific
Measurable M Agreed A Realistic R
Define objective in clear and unambiguous way Make sure there is no misunderstanding Think which means what? can it be written in any more
detail?
Objective has numerical success criteria Criteria can be easily measured to evaluate success/failure Think could someone argue subjectively that the objective
wasnt reached?
Joint action can be taken to achieve objective Think Is everybody supporting this?
Is objective achievable in a realistic time frame? Is objective achievable with realistic amount of effort and cost? Think Can we really achieve this or are we asking too much ? The objective has a timeframe on it. If the timeframe is not achieved the objective has failed Think When do we need to do this by?
T Timed
Scorecard Options
Measures
STANDARD
Penetration Buying Frequency Buying Rate Loyalty (Share of stomach) Retail Visit Frequency Shopper Conversion Value/Volume - Retail Sales
ADVANCED
Shopper Behaviour
(Purchase)
Satisfaction Measures Brand Affinity Index
Financial Share of Market

(Retailer, Category, Brand)
(/Units) Gross Profit Margin Gross Profit
Return on CCRM Investment Net Profit Activity Based Costing (ABC)
Retailer Share of ACV Retailer Share of Category Brand Share Redemption Rate Retention
Image
CCRM Effectiveness
Cost per Contact Business Process Costs
ACV = All Commodity Volume Image refers to qualitative research findings on shopper preferences
Develop the Joint PROVISIONAL Measures from the CCRM Working Proposal document
VERSION 2
Provisional Scorecard
ONE Scorecard per Segment ONE Behaviour Change per Segment

Scorecard Targets answer some fundamental questions!
What Behaviour will we change?
What will it be worth?
What if the Scorecard Measures and Targets are low?
! CHECK STEP !
What if the size of the prize is too low?
What do you do next?
What are the risks of continuing with scorecard targets
that deliver lower performance than many other options?

The objective of this section was: To learn the options and approach for developing a pragmatic COLLABORATIVE Segmentation To identify the PROVISIONAL Scorecard measures which can be used for Collaborative CRM At the end of this section you are able to: Manage the segmentation process Develop a provisional Scorecard, to be validated during Strategy development
Collaborative CRM Costs v Benefits
Where do they occur and what are the implications?
Strategy & Tactics Strategy & Tactics Development Development Implementation & Implementation & Measurement Measurement
~0%
Costs
Costs build throughout the process but there is no real business benefit until the end of the process! Check to ensure plans deliver against scorecard objectives at every stage
use the budget planner to estimate costs v benefits
Benefits
Budget Planner
Collaborative CRM
The Million Euro Shopper Question!
Ultimately, will our Collaborative CRM plans result in a positive, loyalty building experience for the Shopper?
Positive, loyalty building experience from a brand perspective?
Positive, loyalty building experience from a retailer perspective?

CRM Segmentation

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CRM Segmentation

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Collaborative CRM Workshop

03 Segmentation and Scorecard

1 Collaborative CRM 2005 03 Segmentation & Scorecard

Collaborative CRM Workshop Agenda

2 Collaborative CRM 2005 03 Segmentation & Scorecard

Collaborative CRM Workshop

Segmentation & Scorecard Segmentation & Scorecard

Strategy & Tactics Development Strategy & Tactics Development

Implementation & Measurement Implementation & Measurement

3 Collaborative CRM 2005 03 Segmentation & Scorecard

The Value of Segmentation

Sales & Profit

4 Collaborative CRM 2005 03 Segmentation & Scorecard

What types of Segmentation can be done?

5 Collaborative CRM 2005 03 Segmentation & Scorecard

What types of Segmentation can be done?

6 Collaborative CRM 2005 03 Segmentation & Scorecard

What types of Segmentation can be done?

What the purchaser wants from the product

7 Collaborative CRM 2005 03 Segmentation & Scorecard

What types of Segmentation can be done?

What types of Segmentation can be done?

9 Collaborative CRM 2005 03 Segmentation & Scorecard

What types of Segmentation can be done?

10 Collaborative CRM 2005 03 Segmentation & Scorecard

What types of Segmentation can be done?

11 Collaborative CRM 2005 03 Segmentation & Scorecard

Examples What segmentation is this?

Daily High Spend Medium Spend Low Spend

Premium Standard Potential

12 Collaborative CRM 2005 03 Segmentation & Scorecard

Examples What segmentation is this?

Purchase Frequency Monthly

Spend per Purchase

Examples What segmentation is this?

Loyalty No. Shoppers & Turnover

14 Collaborative CRM 2005 03 Segmentation & Scorecard

Examples What segmentation is this?

Copyright, dunnhumby 2003

15 Collaborative CRM 2005 03 Segmentation & Scorecard

Examples What segmentation is this?

THE BULLS EYE TARGET

16 Collaborative CRM 2005 03 Segmentation & Scorecard

Segmentation types Whats the right solution?

Psychographical/ attitudinal segmentation

Life Stage segmentation

Buying Pattern segmentation

Degree of analytical capability

17 Collaborative CRM 2005 03 Segmentation & Scorecard

Segmentation types Strengths & Weaknesses

to focus directly on the issue at hand

18 Collaborative CRM 2005 03 Segmentation & Scorecard

Segmentation types Whats the right solution?

A combination can give you the WHAT and the WHY!!

So How do you do it?

Brief Experts / Review Data

20 Collaborative CRM 2005 03 Segmentation & Scorecard

Brief Experts / Review Data

Briefing the Experts

The risk in briefing the Experts is over-complication Keep it simple;

21 Collaborative CRM 2005 03 Segmentation & Scorecard

Brief Experts / Review Data

So what is a valid Segment?

Accessible can reach the segment(s)