Category: Customer Relationship Management

The Basics of Behavioral Segmentation

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What is Behavioral Segmentation?

There are lots of things that you can try to learn about your customers. For example, you might want to gather information on how old they are, where they live, and whether they are married and have kids. You’re probably also using information about how often they buy from you and when they last bought from you to predict their likelihood of buying again in the future. Knowing such information can help you optimize your loyalty program and target the most enticing rewards and marketing communication to a particular group of consumers.

Traditional customer segmentation has often been based on demograhpics, geographics and socioeconomic status. However, as Gibson Biddle, former VP of Product at Netflix pointed out in his Habit Summit talk earlier this year, common demographics tend to predict consumer preferences rather poorly. Instead, what people do are often more telling about their taste and what they may like or dislike. Together with an increasing amount of available data about consumers, this has prompted rising interests in behavioral segmentation, that is, segmentation based on what people do. Over the course of this year, I have worked with a CASC business partner on a customer segmentation project using loyalty program data. The practice has been really insightful in revealing hidden groups of customers for great targeted marketing opportunities that may not have been apparent on first look. Continue reading “The Basics of Behavioral Segmentation”

Expressing Gratitude to Loyal Customers

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My favorite holiday, Thanksgiving, is just around the corner. This is a great time of the year for companies to send out words or gifts of appreciation to their loyal customers. The insurance company AMICA sends out artistic Thanksgiving cards to their customers every year; many real estate agents send out fresh calendars for the next year to their clients; and I once even received a BIG can of popcorns as a customer appreciation gift during this time of the year. Are such gestures beneficial for companies? How should such thank-you’s be conveyed? In this week’s post, I pull academic research on gratitude to shed some light on these questions.

Feelings of Gratitude

According to philosophy and social psychology research, gratitude is an important emotional foundation for sustained reciprocity in human relationships. When an individual feels gratitude, he or she is motivated to repay the favor by conducting an act of kindness in return. Many of us probably still remember the paying it forward story at a Starbucks in Florida a few years ago. It started with a woman offering to pay coffee for the customer behind her, who then passed on the kindness by paying for the next customer. This chain continued unbroken for a total of 378 customers. That is the power of gratitude. In a bilateral relationship between a customer and a company or brand, feelings of gratitude can provide the drive to sustain a trusted and committed relationship and increase customer loyalty.

Gratitude Needs to be Expressed

The feeling of gratitude has a unique social component that prompts it to be expressed. In an eloquent essay written by Dr. James W. Ceasar, he describes gratitude as having developed into an objective standard of behavior. In his words, “Gratitude has a social aspect and is incomplete if it does not include the act of acknowledgment”. Or in more plain words, not saying “thank you” when someone has done something nice for you is just rude. Although much of Dr. Ceasar’s arguments relate to political and social domains, they are just as relevant to customer relationships. It is not quite enough for a company to claim its commitment to its customers when it does not properly express its gratitude to customers. Continue reading “Expressing Gratitude to Loyal Customers”

Measuring Loyalty Program Performance and ROI Part 2

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Last week I started a new series on measuring loyalty program performance and ROI. I discussed the proper metrics and related measurement issues if the program’s primary goal is to growth your business. Today I would like to take a look at goal #2 (to reward the best customers) and goal #3 (to catch up to competition).

When Your Loyalty Program Aims to Reward Your Best Customers (Goal #2)

Although rewarding your best customers seems intuitive, it is not without controversies. On one hand, your top customers spend the most at your business and may be the most responsive towards your marketing messages. On the other hand, these customers may already be heavy product category users with limited growth potential. They may also have higher expectations and are harder to please. So rewarding the best customers as the primary loyalty program goal will make sense for some businesses and will not for some others.

I’ll assume that you have done your work and have decided that you indeed want to build a loyalty program to show appreciation to your top customers. How do you gauge success in reaching this goal? I believe four measurable success metrics suitable for this purpose are:

  • Retention rate, for use it or lose it type of business;
  • Purchase loyalty level, for always a share type of business;
  • Habit level, for frequently purchased product categories; and
  • Positive word-of-mouth volume among social media fans.

Retention Rate or Purchase Loyalty as Success Metric

Depending on your industry, customer loyalty may be manifested very differently. We can think of it in two broad categories. In the first category, customers can always buy simultaneously from multiple businesses, and buying from one business most likely does not preclude purchases from another business. Businesses that fall into this always-a-share category include grocery stores, airlines, and restaurants. For these businesses, share-of-wallet is typically a good indicator of purchase loyalty. In the second category, consumers typically use only one provider. If they leave, they will take all of their business away to switch to a different business. Examples of businesses in this all-or-none category are wireless service providers, insurance companies, and TV and Internet providers. For them, retention rate and customer lifetime duration would be better proxies of purchase loyalty. Continue reading “Measuring Loyalty Program Performance and ROI Part 2”