Modeling Customer Behavior for Segmentation and Target Marketing
Before you design your next marketing campaign, you should consider the ideal customer that you want to target. To maximize effectiveness and ROI, your marketing collateral should target the right audience, with the right offer and be delivered through the right medium. However, knowing the best offer, storyline, theme, length and medium to use requires in-depth knowledge about your target. Gaining this level of knowledge often requires marketing research and the aid of predictive marketing analytics.
Where do I start?
Without much effort, many companies can identify a number of good marketing segmentation variables. For example, direct mail marketers might identify demographic and psychographic factors. Marketers that are more sophisticated might apply a crude RFM model. RFM models have been around for years. In short, RFM is based on the premise that the people who bought from you recently are more likely to respond to new offers than people who made a purchase in the distant past. Large financial institutions will likely take the RFM approach a step further by combining data purchased from external suppliers. Next, genetic algorithms are trained to classify customers into groups based on their propensity to use a particular product or respond to specific types of offers.
Unsure Where You Should Start? . . . Spend A Day With Your Customers
If you are unsure where to start, then you need to connect with your customers. You need to be in front of your ideal customers as much as possible to understand them. While you can easily conduct a survey, it is often better to start by “spending a day” with your customers. Try to figure out what your customers do in the morning, noon and at night. Can learn more about them by follow them online through social media circles?
Surveying Your Customers
If you decide to conduct a survey, you might consider collecting the following types of data.
- Demographic Factors: Age/lifecycle, income, disabilities, mobility (in terms of travel time to work or number of vehicles available), educational attainment, home ownership, employment status, and even location
- Socioeconomic: Disposable Income, Memberships to clubs, Vacations, Entertainment patterns, Assets owned, Investments
- Customer Behavior and usage patterns
- Risk profiles
- Profitability of customer
- Customer tenure
However, collecting this data through surveys will be challenging. As an alternative, you might consider purchasing equivalent data from information suppliers or coming up with creative ways of capturing this information on your own.
Once you have completed your research, you should know enough about your customers to start developing customer profiles. When you can start answering the following questions, you are close to developing a segmentation strategy and a predictive model for target marketing.
- Who is your “perfect customer”?
- Why does a customer buy (or not buy) your product?
- Do customers buy from you (or your competitor) for any particular reason?
- Do customers tend to buy specific products at particular times?
- How much consideration do your customers give when making these types of purchases?
- What benefits do they see in your company (or your products)?