The question of segmentation comes up very frequently, as it should since it is the most important success variable in any direct marketing program. (The second being message/offer and the third being creative design/delivery.)
Segmentation, at its most basic, is treating customers based on value. You don’t treat your spouse the same way you treat the person behind the dry cleaning counter (or, if you do, you should look into couple’s therapy). Thus, you should treat your customers differently depending on their relationship with you. (This is one of the basic premises of CRM: Customer Relationship Management).
Segmentation is the logical assumption that similar groups respond in similar ways. This is useful in both acquisition and retention.
In acquiring customers, you look at both a) activities that were successful in the past to repeat, and b) the ideal kind of customer (translation: one that buys a lot). In both cases your goal is to predict what activities will yield more customers like the ones you’ve got who are valuable to you. For instance, if your winery gives out 2-for-1 tasting room coupons, and a certain hotel concierge always sends you good customers who purchase, but a limo company never brings you buyers, only partiers, you’ll start to approach more concierges who are similar to the hotel that is bringing you good guests and decrease outreach to tours and drivers who aren’t.
This is a very simple example of looking at data and seeing that the ideal customers have certain qualities, and it can be taken to an absurd degree. Catalog and finance companies have this down to a science with American Express being the master in this area. By looking through our credit card purchases, and performing complex algorithms, they see that people who are about ready to buy patio furniture also index high on buying olives. (So, if you’re a patio furniture company, you’d want to buy a list of olive buyers.) Ok, I made that up, but you get the point. Sometimes the connections aren’t obvious.
In retaining customers and increasing sales to existing customers, segmentation is, at worst, a common courtesy (i.e. recognizing a Club Member), and, at best, a sophisticated tool to make your customer feel like they’re known, loved and a VIP guest. This would mean knowing as much as you can about your customer’s needs/likes/desires in relation to your winery and what you can provide, and interacting with them accordingly. Break out a special white wine not on the list automatically for the customer that is in your White Club and has said in the past “red wine gives her headaches”. Check and see what your magnum situation is beforehand for the collector that always asks for large formats. Or simply acknowledge that someone has been to the tasting room before (“welcome back” versus “have you been here before?”) Hotels do this the best, with the Ritz Carlton example I brought up before as a reference. The results? An increase in sales. And, perhaps customers that don’t feel taken for granted.
Segmentation works off-site, too. One of the most basic, easiest, and most powerful segmentations you can perform is to remove responders when you send out a reminder for an offer or event. Nothing says the winery didn’t appreciate my ordermore than getting a LAST CHANCE TO ORDER!!! email the day after I just ordered two cases. Thanks a lot. Glad you noticed.
But, in addition to not making your customers wince, you will see increased response rates.
How much is hard to say. Although the application of segmentation and predictive modeling is an important topic in the database marketing (DBM) literature, no study has yet investigated the extent of adoption of these techniques. A Dutch survey involving 228 database marketing companies found the application of segmentation was positively related to company and database size, frequency of customer contact, and the use of a direct channel of distribution. Meaning, the bigger your database, the number of channels you use and the frequency in which you reach out, the better segmentation will perform for you.
In both acquisition and retention, find the data that is predictive. It is probably not olive consumption in your case, but, it could be attendance at a certain type of event or other behavioral patterns. And, while your price-point, varietal and brand may appeal in general to a demographic, I would submit that age is not predictive. This is why I don’t believe Millennials are a target. (Another future blog post spoiler.)
Demographics are not as predictive as behaviors. Focus your attention on what your customers do. What, specifically, you ask? Ah, there is the million dollar question. The American Psychological Association just surveyed 1,150 wine drinkers in a comparison of occasion-based (the motivation or the “why” and user-based (the “who”) segmentation. They documented the occasions when the participants consumed wine and the brand they consumed and rated each consumption occasion with regard to the importance of each of 33 wine benefits. Results indicate that (1) occasion-based benefits segmentation was a better predictor and (2) user-based and occasion-based approaches produced different clusters (segments). (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Translation: 1) the best predictor of sales is need (why someone is buying your wine, such as a dinner party). And, looking at who a customer is (age, location, gender, income) produces different, and not as predictive segments, than why they want your wine.
I like to leave you with some actionable items in each post, so let me boil it down:
p.s. I’ll write more about this and other CRM basics over the coming weeks. Sign up for the blog to get these articles in your inbox.
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