CRM Segmentation

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1 Collaborative CRM 2005 03 Segmentation & Scorecard Copyright ECR Europe 2005. All righ ts reserved. Version 7.0 June 2005

Collaborative CRM Workshop

03 Segmentation and Scorecard


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Introduction to CollaborativeCRM

Introduction to CollaborativeCRM

Segmentation & Scorecard


Implementation &Measurement


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

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

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 & TacticsDevelopment


Collaborative CRM Workshop Agenda

Partner Alignment &Project Objectives


Project Scoping & Next Steps


What are the strategic options and how do you choose them What are the Tactical options for delivering the Strategies

How do you identify and engage with the right Partner forCollaborative CRM

What are the key decisions to make before working collaboratively How do you establish objectives, target benefits and project plan


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Introduction to Collaborative CRM

Introduction to Collaborative CRM



Implementation & Measurement

Implementation & Measurement

Strategy & Tactics Development

Strategy & Tactics Development






The object ive of this section is:

To learn the options and approach fordeveloping a pragmatic COLLABORATIVESegmentation

To identify the PROVISIONAL Scorecardmeasures which can be used for CollaborativeCRM

At the end of this section you w ill be able to:

Manage the segmentation process

Develop a provisional Scorecard, to be validatedduring Strategy development


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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:

ShopperSatisfaction

Sales &Profit


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Demographic

GreenfieldLife Stage

PsychographicBehaviour

Shopping Mission

What types of Segmentation can be done?


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Demographic

One of the most straightforward bases for segmenting markets

Demographic

Family remains an important social unit, which drives consumptionFamily Size

Despite criticisms of this classification for being inadequate to describe consumergroups, it still maintains a discriminating power, for example Pensioners and Lowincome

Social Class/ Income head of household

Combines a number of variables such as where a customer lives, with homeownership, size of family, and so on.

Assumes demographic/socio economic characteristics of people can be correlated tothe housing characteristics of a particular area.

Geo-demographic

For certain categories gender is a clear differentiatorGender

Buying behaviour can be closely related to age categoryAge

Why Use itDemographic Basis


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Behavioural segmentation Takes customer Purchasing Behaviour as the starting point for segmentation

Behaviour


Usage;Light

MediumHeavy

Loyalty;Light

MediumHeavy

Benefit;What the purchaser

wants from the product

People buy the same product fordifferent reasons, for example:

cheap, branded, premium,

an image, thickness, non-stick


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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 andchoose everyday

luxury items

e.g.;PriceSensitive

Cost consciouscustomers who tend to

buy cheapest ondisplay

The Blue Book refers to this area as beliefs & value systems


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Life Stage Segmentation A logical follow on from Psychographic

Consumers pass through a series of quite distinct phases in their lives, eachphase giving rise to different purchasing patterns and needs.

Life Stage



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Shopping Mission Segmentation Segmentation based on identified Shopping Trips, which are deemed

to include certain behaviours and purchasing patterns

Shopping Mission



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GREENFIELD segments are modelled after the collection andanalysis of multiple info - i.e. attitudinal segmentation

Greenfield


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Examples What segmentation is this?

High Spend

Medium Spend

Low Spend

Twice

WeeklyDaily Weekly

Stop

Start

Now &

ThenHardly Ever

Premium

Standard

Standard

Potential

Potential

Potential

Uncommitted

Uncommitted

Frequent Infrequent Rare

Demographic GreenfieldLife StagePsychographicBehaviourShoppingMission

x2 Copyright,dunnhumby 2002

Copyright, dunnhumby 2003


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All OthersD Customer

D CustomerC Customer

D CustomerC CustomerB Customer

C CustomerB CustomerA Customer

Up to 5

5 to 10

10 to 20

20+

Spend perPurchase

Purchase Frequency

Weekly Monthly Sporadic

Demographic GreenfieldLife StagePsychographicBehaviour ShoppingMission

x2


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Loyalty No. Shoppers & Turnover

FRIENDS

OPPORTUNITIES

MARGINALS

UNLOSABLEUNLOSABLE

Famil ies 1/ 2components

baby 0-2

child 3-11

Bigfamilies

> 65



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Age

Affluence

MainstreamFamily type

meals

Popular brands

Kids products

Finer FoodsFoodies who are

time poor, money

rich and choose

everyday luxury

items

Price SensitiveCost conscious

customers who tend to

buy cheapest on

display

TraditionalTraditional

housecraft with time

to buy and prepare

ingredients

HealthyOrganic

shoppers,

fruit and

vegetables

weight watchers

etc

Upmarket

Mid-market

Cost conscious

ConveniencePeople on the go

who havent time or

inclination for

scratch cooking


Copyright, dunnhumby 2003


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ACTIVE LOYALTY CARDHOLDERS

INTERDIS

HIGH SPENDERS

HEAVY USERS OF

BRANDED PRODUCTS

TOP PLBCOMPLEMENTARY

CATEGORYUSERS

THE BULLS EYE TARGET



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Socio-demographical

segmentation

Buying Patternsegmentation

Life Stagesegmentation

Psychographical/attitudinal

segmentation

Predictivemodelling

Degree of analytical capability

Databa

se

richness

Source: Cap Gemini Ernst & Young

Segmentation types Whats the right solution?

Understandingof the Shopperincreases as you go

up the scale!

New Insights can be developed


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Segmentation types Strengths & Weaknesses

Need to treat with caution not all pensioners watchTV all day!

Not all people in life stage behave in same way areother drivers, such as income, attitude etc

Can often be a clear link between life stage andpurchasing/needs, i.e.; young families

Can provide a definite segment which has clearneeds making value proposition easier

Life Stage

Helps to focus directly on the issue at hand

Immediate link to purchasing & CCRM

environmentOften clear relationship between Mission, needsand Categories bought

Provides valuable insights

Descriptions can be rich and point to clear valuepropositions

Usage is easy to measure

Can be tracked and measured over time

Actionable (within limitations)

Simple to understand

Measurable

Accessible from many sources

STRENGTHS

The research required can be expensive

Interpretation of findings can be subjective, basedon judgment requires consensus

Can be challenging to action

Psychographic

Information not readily available

Can be costly to research

Requires Quant and Qual mix

Shopping

Mission

Needs to retain its relevance

Specific segmentation may have short life cycle andlimited use

Greenfield

Benefit based can be difficult to identify the Why??

Usage is not forward looking

Data source needs to be representative

Behaviour

Not easy to link to behaviour

People do not always behave to type!

Shoppers use credits and debits

Demographic

LIMITATIONSSegmentationType


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Segmentation types Whats the right solution?

The most informative and added value Segmentation is often acombination!

Demographic

GreenfieldLife Stage

Psychographic

Behaviour

Shopping Mission

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


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So How do you do it?

An overall P rocess, not the finite detail on Segmentation

Brief Experts /Review Data

MeasurableMeasurable

SubstantialSubstantial

DifferentDifferent

AccessibleAccessible

Select Segmentation Approach



DifferentDifferent


Choose Segment

Develop theSegmentation


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Briefing the Experts

The risk in briefing the Experts is over-complication

Keep it simple;

EstablishCriteria for the Segmentation outcome, to ensure the SegmentsareVALID

UseBusiness Questions to prevent going too wide and deep

Leave the Data Mining speciality to the Specialists!



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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



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Business Questions Examples

All Research!!

Joint/Sole Research

Ad Hoc Research

POS store level data

Scanning census data

Market Research

Panel Data

Qualitative research

Retailer Loyalty Carddatabase

Loyalty card data

Panel data


Loyalty card data

Panel data


Data Source

Company specific

Company specific

Retail Link

Other Retail direct data

TNS GFK

Company specific

Dunnhumby Tesco

Dunnhumby Tesco

TNS GFK

TNS - GFK

Example

What are their attitudes & preferences to products?

What does the Segment value that is unique?

What are they purchasing?

Who are the groups of similar shoppers?

Why are Shoppers buying the Products?

How are consumers using the products?

How much of each product is being sold?

How are specific shoppers behaving in-store?

Business Question


What other data sources exist that you could use?


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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 similarshoppers?

Med-Low

High

Medium

Insight?

Low

Medium

High

Cost?

Medium3. Public Surveys

Medium-Low2. Qualitative groups

High1. 1000 Entry/ Exitinterviews

Robust?Approach



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I t sounds complex!How is the data interpreted? Data Mining!

Business

Questions

DataTo answer

Questions

ToolsTo manipulateData

StatisticsTo find correlations

To find clusters

Who are the Shoppers?Why are Shoppers buying?What are attitudes?

The improvement in IT has enabled more sophisticated andeasier segmentation analysis



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Data Mining techniques are used to make sense ofcomplex data and provide meaningful answers that canbe 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

How is the data interpreted - Data Mining!Brief Experts /Review Data


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Keep the Segmentation as simple as possible

Easy to understand

Easy to action

For example;

Segmentation Golden RuleSIMPLIFICATION !

0%

20%

40%

60%

80%

100%

Consumer s Categor y Sal es Segment S al es

30%

60%

70%

High-Medium-Low Purchasers

Low

High

High

ConsumersPurchasingthe Category

Consumers purchasingin the Retailer

To be

developed

To bedeveloped

HIGH VALUE

for bothParties

Category-Retailer Segmentation



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What is a valid Segment

A final Sense Check

Segmentation should be contained

Unrestrained segmentation can lead tounsustainable complexity i.e., rangeproliferation

BUT.Listen to your experts, they cangive you unbiased and often newperspectives on the insights

Let the data talk!



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Validating the Segmentation approach is a

central part of the approach




DifferentDifferent



MeasurableMeasurable SubstantialSubstantial DifferentDifferent AccessibleAccessible

Choose the Segment


WhichSegmentationApproachShould we use?


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First step is to decide whether the Segmentation options are able to provideanswers to the QUANTITATIVE Business Questions;

MEASURABLE

SUBSTANTIAL

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 ApproachWhich Segmentation Approach Should we use?

SelectSegmentation

Approach

SelectSegmentation

Approach

Segmentation Options - Enter Yes/No if Business Question can be answeredOption 1: (type) Option 2: (type) Option 3: (type) Option 4: (type)

2.1a MEASURABLE

Penetration

Frequency

Weight of Purchase

Other

Other

2.1b SUBSTANTIAL

Value

Volume

Profit

APPROACH SELECTIONSegmentation Options - Enter Yes/No if Business Question can be answeredOption 1: (type) Option 2: (type) Option 3: (type) Option 4: (type)

2.1a MEASURABLE

Penetration Yes No Yes Yes

Frequency Yes No Yes Yes

Weight of Purchase Yes No Yes Yes

Other

Other

2.1b SUBSTANTIAL

ValueYes Yes Yes Yes

Volume Yes Yes No Yes

Profit Yes Yes No Yes

APPROACH SELECTION


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2.1c DIFFERENT


How are they behaving in-store?


What are their attitudes and preferences

towards products?

What does the Segment value that is

UNIQUE?

Other BUSINESS QUESTIONS

2.1d ACCESSIBLE

How can they be reached?

How much would it cost?

2.1e APPROACH SELECTEDYes/No Yes/No Yes/No Yes/No

APPROACH SELECTION

The BusinessQuestions usedfor the Brief!


2.1c DIFFERENT

What are they purchasing? Yes Yes Yes Yes

How are they behaving in-store? No Yes Yes Yes

Why are Shoppers buying the Products? No Yes Yes YesWhat are their attitudes and preferences

towards products? No Yes Yes YesWhat does the Segment value that is

UNIQUE? No Yes Yes Yes

Other BUSINESS QUESTIONS

2.1d ACCESSIBLE

How can they be reached? Yes Yes No Yes

How much would it cost? Yes Yes No Yes

2.1e APPROACH SELECTEDYes/No Yes/No Yes/No Yes/No

APPROACH SELECTION

Select Segmentation ApproachWhich Segmentation Approach Should we use?

Repeat the same steps for the QUALIITATIVE Business Questions;i.e.; Yes or No??

DIFFERENT

ACCESSIBLE

SelectSegmentation

Approach

SelectSegmentation

Approach


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Example Segmentation Approach

Age

Affluence

MainstreamFamily type

meals

Popular brands

Kids products

Finer FoodsFoodies who are

time poor, money

rich and choose

everyday luxury

items

Price SensitiveCost conscious

customers who tend to

buy cheapest ondisplay

TraditionalTraditionalhousecraft with time

to buy and prepare

ingredients

HealthyOrganic

shoppers,

fruit and

vegetables

weight watchers

etc

Upmarket

Mid-market

Cost conscious

Convenience

People on the gowho havent time or

inclination for

scratch cooking


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Once the Segmentation approach has been selected, the

next step is to Choose the Target Segment(s)

Brief Experts /

Review Data



DifferentDifferent



MeasurableMeasurable SubstantialSubstantial DifferentDifferent AccessibleAccessible

Choose the Segment



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Enter the detailed data for each Segment

Answer the questions and evaluate each Segment against theQUANTITATIVE criteria;

MEASURABLE

SUBSTANTIAL

Choose the Target Segment(s)Choose theSegment

Choose theSegment


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Next, assess the Segments against the QUALITATIVE criteria;

DIFFERENT

ACCESSIBLE


Choose theSegment

Segmentation Options - Answer Business QuestionsOption 1: (segment name) Option 2: (segment name) Option 3: (segment name) Option 4: (segment name)

2.2c DIFFERENT


How are they behaving in-store?


What are their attitudes and preferences towards products?

What does the Segment value that is UNIQUE?

ALIGNMENT TO BRAND(S)

ALIGNMENT TO RETAILER

2.2d ACCESSIBLE

How can they be reached?

How much would it cost?

2.2e APPROACH SELECTED Yes/No Yes/No Yes/No Yes/No

Selected Segment? Summary of Why chosen?

Summary of Decision

SEGMENT SELECTION

The Business

Questions usedfor the Brief!

Ch h


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Next, assess the Segments against the QUALITATIVE criteria;

DIFFERENT

ACCESSIBLE


Choose theSegment

Choo e the


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?

Select the Target Segment based on the answers to the BusinessQuestions

Review THE CCRM Working Proposal to check for alignment or newopportunities

Choose the Target Segment(s) Finalisation

Choose theSegment

Choose theSegment

VERSION 2


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Segmentation Outcome





DifferentDifferent





DifferentDifferent


Choose the Segment

Develop theSegmentationDevelop the

Segmentation

VERSION 2


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What is a valid Segment?

Ultimately, the segment should be viable;

The Value proposition must be economically viable

HIGH VALUEfor bothParties


HIGH VALUEfor bothPartiesFinancial

Benefits froma Segment

Greaterthan

Collaboration Analysis

ProductCommunication/marketing

TotalCosts


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What is a valid Segment?

What if the segment isnt viable?

What do you do next?

What are the risks of continuing w ith a segment that isunviable?

! CHECK STEP !


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Workshop Segmentat ion 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/DemographicSegmentation

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 Work ing Proposal

What are the issues, if any?

3. Refine your Work ing Proposal to produce draft 2 with more detail

Please write your feedback on the fl ip charts


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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 premiumproducts

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)



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QualitativeReasons

Alignmentto Brand

(H/M/L)

Sense CheckVersusWorkingProposal

QuantitativeReasons

Why?

Alignmentto Retailer

(H,M,L)

SegmentChoice Refinements To

Working Proposal

Segment Selection Grid

H/ M/ L = High/ Medium/ Low


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Segment Quan t i t a t i ve Criteria


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Segment Qua l i ta t i ve Criteria


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Update Your W ork ing Proposa l


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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


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Ultimately, the segment must be viable;

The Value proposition must be economically viable



HIGH VALUEfor bothPartiesFinancial

Benefits froma Segment

Greaterthan

Collaboration Analysis

ProductCommunication/marketing

TotalCosts

Key Lesson Number 2!


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Introduction to Collaborative CRMIntroduction to Collaborative CRM

Segmentation & ScorecardSegmentation & Scorecard

Implementation & MeasurementImplementation & Measurement

Strategy & Tactics DevelopmentStrategy & Tactics Development




Project Scoping & Next StepsProject Scoping & Next Steps

The object ive of this section is:

To learn the options and approach for

developing a pragmatic COLLABORATIVESegmentation

To identify the PROVISIONAL Scorecardmeasures which can be used forCollaborative CRM

At the end of this section you w ill be able to

Undertake effective Segmentation

Develop a provisional Scorecard, to bevalidated during Strategy development


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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


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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


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S

M

A

R

T

Specific 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?

Measurable Objective has numerical success criteria Criteria can be easily measured to evaluate success/failure Think could someone argue subjectively that the objective

wasnt reached?

Agreed Joint action can be taken to achieve objective Think Is everybody supporting this?

Realistic 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 ?

Timed 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?

Characterist ics of Good KPI s SMART


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Scorecard Options

Return on CCRM Investment Net ProfitActivity Based Costing (ABC)

Value/Volume - Retail Sales

(/Units) Gross Profit Margin Gross Profit

Financial

Cost per Contact Business Process Costs

Redemption Rate Retention

CCRMEffectiveness

Image Retailer Share of ACV Retailer Share of Category Brand Share

Share of Market(Retailer,

Category, Brand)

Satisfaction Measures Brand Affinity Index

Penetration

Buying FrequencyBuying RateLoyalty (Share of stomach)

Retail Visit FrequencyShopper Conversion

ShopperBehaviour(Purchase)

ADVANCEDSTANDARDMeasures

Return on CCRM Investment Net ProfitActivity Based Costing (ABC)

Value/Volume - Retail Sales

(/Units) Gross Profit Margin Gross Profit

Financial

Cost per Contact Business Process Costs

Redemption Rate Retention

CCRMEffectiveness

Image Retailer Share of ACV Retailer Share of Category Brand Share

Share of Market(Retailer,

Category, Brand)

Satisfaction Measures Brand Affinity Index

Penetration

Buying FrequencyBuying RateLoyalty (Share of stomach)

Retail Visit FrequencyShopper Conversion

ShopperBehaviour(Purchase)

ADVANCEDSTANDARDMeasures

ACV = All Commodity Volum eImage refers to qualitative research findings on shopper preferences

Develop the Joint PROVISIONAL Measures from


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Develop the Joint PROVISIONAL Measures from

the CCRM Working Proposal document

Provisional ScorecardVERSION 2

ONE Scorecard per SegmentONE Behaviour Change per Segment


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Scorecard Targets answer some fundamental

questions!

What will it beworth?

What Behaviourwill we change?


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What if the Scorecard Measures and Targets are low?

What if the size of the prize is too low?

What do you do next?

What are the risks of continuing w ith scorecard targetsthat deliver lower performance than many other options?

! CHECK STEP !


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Introduction to Collaborative CRMIntroduction to Collaborative CRM


Implementation & MeasurementImplementation & Measurement

Strategy & Tactics DevelopmentStrategy & Tactics Development




Project Scoping & Next StepsProject Scoping & Next Steps

The objective of this section was:

To learn the options and approach for

developing a pragmatic COLLABORATIVESegmentation

To identify the PROVISIONAL Scorecardmeasures which can be used for CollaborativeCRM

At the end of this section you are able to:

Manage the segmentation process

Develop a provisional Scorecard, to be validatedduring Strategy development

Collaborative CRM Costs v Benefits


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Where do they occur and what are the implications?

Collaborative CRM Costs v Benefits

Costs Benefits

Budget Planner



Implementation &

Measurement

Strategy & Tactics

Development


Partner Alignment &

Project Objectives


~0%

Costs build throughout the process but there is norealbusiness benefit until the end of the process!

Check to ensure plans deliver against scorecardobjectives at every stage

use the budget planner to estimate costs v benefits

Collaborative CRM


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Collaborative CRM

The M ill ion Euro Shopper Question!

Ultimately, w ill our Collaborative CRM plans result in a positive,loyalty building experience for the Shopper?

Posi tive, loyaltybuildingexperience from abrand perspective?

Posi tive, loyaltybuildingexperience from aretailerperspective?

CRM Segmentation

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