Optimising share-of wallet with customer segmentation
Posted by Julian Diaz
October 19, 2015
Since the early days of commerce, competing brands have grappled with how to be the one that comes to mind first when customers discover a “need” for a product. It is also fairly common knowledge that the cost of acquiring new customers is significantly higher than retaining the most valuable ones, highlighting the need to pre-empt the ebbs and flows of existing customer lifecycle stages and their respective segments as a means to optimise share-of-wallet. In the age of big data and predictive analytics, we’re getting much closer to reaching the level of brand awareness that helps us be present at the decisive moment our customers commit to the purchase.
Segmentation: know thy customer
It simply can’t be assumed that two neighbours of the same demographic, age and income bracket will have the same disposable income, line of credit or risk propensity – even if those neighbours were identical twins. Accurate customer segmentation requires the deep analysis of personal, historic, demographic, transactional and financial data to dissect, group and categorise customers in such a way that we can gain a per-individual vantage point and fine-tune offerings to increase share-of-wallet. This requires companies to embrace multiple segmentation models to more accurately draw parallels between customer segments and perform more scientific cohort analyses. For financial institutions in particular, micro-segmentation of this kind allows for selective credit limit management, tailored financing of goods, more targeted loyalty programs and upselling of exclusive banking products while minimising risk to both parties.
Customer segmentation lays the building blocks for forward looking analysis
Detailed and considered segmentation also facilitates predictive analyses by giving organisations the granularity they need to calculate individual reactions to sales, marketing and product stimuli and hone their strategies based on the outcome of analyses. This article by industry analysts, Forrester Research, discusses how Chinese bank, CNCB, was able to significantly increase their share-of-wallet through detailed customer analytics and segmentation. The article also mentions that while the bank was able to increase credit card revenue by 50%, it also managed to reduce marketing spend by 7%. This is remarkable in light of conventional wisdom which dictates that a higher marketing spend would have been necessary to achieve such impressive growth figures. But thanks to the availability of so much contextual customer data and increasingly powerful data analysis platforms, organisations are seeing much higher returns on efforts to optimise their share-of-wallet.
Segment migration: Understanding your customer’s growing pains
Traditional segmentation methods gave little indication of when customers were ready to migrate to higher spending - or completely different segments altogether. By taking an iterative analytical approach across all micro-segments and constantly augmenting customer data with new metrics, patterns and trends emerge that unveil those micro-segments’ propensity or likelihood to spend more or less. CRM tools available today are helping organisations better manage the accelerating pace at which customers are traversing various market segments. Forrester’s prediction on CRMs’ future role in customer segmentation and lifecycle management argues that CRMs will help organisation achieve, “….better planning and anticipation of future customer needs, proactive, and even pre-emptive service with faster resolution, lower costs in times of failure and better customer satisfaction”
It is at these critical junctures in the customer lifecycle that organisations need to be present to ensure maximum share-of-wallet. With the availability of data and the tools needed to more accurately dissect our markets, we’re coming ever closer to achieving the level of presence in the minds of our customers that make our brands, products and services the natural choice.
Julian Diaz is Head of Marketing for Principa. American born and raised, Julian has worked in the IT industry for over 20 years. Having begun his career at a major software company in Germany, Julian made the move to South Africa in 1998 when he joined Dimension Data and later MWEB (leading South African ISP). Since then, Julian has helped launch various South African technology brands into international markets.