Category: Academic Life

Pointers on Behavioral Segmentation

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Behavioral segmentation is the practice of segmenting your customers based on what they do. I wrote previously about the basics of behavioral segmentation. During the last year, I’ve been putting it into practice through a customer segmentation project with a CASC business partner. Today I’d like to share with you some of the lessons I’ve learned through that experience.

NOT Just an Analytics Exercise

Behavioral segmentation has the advantage of revealing segments of similarly behaved consumers that you may not have thought of previously. It requires a lot of data crunching. There is no doubt about that. However, it is important to remember that behavioral segmentation is not entirely an exercise in numbers. If data crunching is all that you do, you risk creating segments that either are based on artificial or fake relationships or are not very actionable from a target marketing perspective.

Successful behavioral segmentation should be a collaborative exercise between your analytics team and those who have a good grasp of your business and your customers. The latter are most likely found in your marketing or sales department. The process of behavioral segmentation should be developed as an iterative process that goes back and forth between analytics and marketing. The analytics team should start by understanding from the marketing team the purpose of the segmentation exercise, the observed behaviors at hand, and the capability of marketing to implement behavioral segmentation insights. Based on this initial information, the analytics team can produce an initial set of behavioral segments based on customer data.

This initial segmentation scheme should be presented to the marketing team both to make sense of the results and to see if meaningful actions can be taken to target each segment. The input from the marketing team is then fed back to the next round of data crunching to adjust the segmentation focus and approach. This process is repeated until both sides are satisfied with a meaningful set of segments to be implemented in practice.

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Research Focus: Gamify Your Loyalty Program

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Author’s note: With this post, I am restarting a previous tradition on my blog to report from time to time the findings from a single research paper. Now named “Research Focus”, these slightly shorter posts will summarize each research paper in accessible and practically relevant lingo. The focus is on what the research findings mean to practice. The research papers featured will be chosen from recently published or soon-to-be-published work as well as significant working papers that I consider to be highly relevant to loyalty marketing practice. The goal is to facilitate the dissemination of scientific research, build practice knowledge, and speed up the scientific discovery to practice cycle time. I hope you will enjoy the feature!

Loyalty program is everywhere, yet engaging consumers in a loyalty program remains elusive to businesses. Look at your own wallet or key ring, and you are likely to see at least a few loyalty cards that you no longer use. You are not alone. The 2017 Colloquy Loyalty Census reports that as many as 54% of loyalty program memberships in the US are inactive. A more recent loyalty program engagement survey of 1000+ consumers by CodeBroker shows that 65% of those surveyed are engaged with less than half of their loyalty programs.

The loyalty program (dis)engagement problem has various possible solutions. One solution is gamification, that is, introducing gaming into a loyalty program. Examples of this approach abound in practice, offered by familiar brands such as Victorial’s Secret, Domino’s Pizza, and Starbucks (see the picture at the beginning of this post for a screenshot of the currently running Starbucks Bonus Star Hopscotch game). In today’s Research Focus paper, to be published in Journal of Business Research, Professor Jiyoung Hwang and her colleague studied when and how gamification helps in a loyalty program context. Continue reading “Research Focus: Gamify Your Loyalty Program”

Earn Back the Love of Demoted Customers

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If your business offers a tiered loyalty program with an annual cycle, beginning of the year may be a “heartbreaking” time for customers who failed to earn enough and was demoted from their previous premium tier status. Some argue that this is one of the downsides of a hierarchical loyalty program. What can you expect from these customers? What can you possibly do to earn back the love (or at least not lose the respect) of these demoted customers? I looked into research in this area to find some answers.

Negative Impact from Demotion

Just like anyone who have flown first class may feel quite miserable going back to the economy cabin, losing one’s premier tier status in a loyalty program is likely to have some damaging impact. This negative impact can have a more “rational” source and a more emotional source. On the rational side, getting demoted means the loss of important benefits such as higher point earning ratio and free perks. So objectively speaking, consumers lose something concrete when they get demoted. But that objective loss is only part of the story. The most important impact comes from the emotional effect of demotion. It is common for demoted customers to feel frustrated, disappointed, uncomfortable, or even angry.

Whether the demoted customer is driven by rational loss or by an emotional response, the ultimate outcome is higher dissatisfaction, lower loyalty toward the company, and a higher likelihood to switch brands. Not surprising? Here comes the kicker. Not only is demotion bad, the damage from demotion (e.g., silver to base tier) is much stronger than the positive effect from an equivalent promotion in the opposite direction (e.g., base tier to silver). In one study, researchers found that even after a demoted customer is restored to the lost premier tier at a later point, the overall loyalty level is still lower than before the customer was demoted. This is quite a serious issue. Unless most of your customers are on an upward trajectory in terms of how much they spend with your business, your gain from rewarding customers with premium tiers may never quite compensate for the loss you will suffer when consumers lose their premium tiers.

Who Suffer the Most?

The negative impact from demotion is not the same across customers though. Knowing which customers tend to respond more strongly can help you take proactive measures to avoid really negative consequences, e.g., keeping some customers in the old tier even if they have not quite spent that much last year. Below are some factors suggested by previous research, many of which should be fairly intuitive. Continue reading “Earn Back the Love of Demoted Customers”