Basic b-to-b segmentation

Sep 01, 2009 9:30 PM  By

Every direct marketer’s career begins with a lesson in the power of recency, frequency and monetary. We are told these simple tools will help you select the names that will generate the greatest response.

As powerful as this basic approach is, too many marketers fail to translate the list selection process into a true segmentation strategy. A fully developed segmentation strategy takes your unique target audiences and builds specific offer, content and contact plans to maximize yield from your file.

If your customer service, telemarketing and creative teams cannot understand why each of your segments is a unique audience requiring specific messages, offers and treatment, you are failing to create real segmentation.

The main restriction on segmentation now is not financial, but complexity. When you first begin to brainstorm the various possibilities for segmenting your file, it’s easy to get excited. The one-to-one marketing movement suggested a nearly unlimited number of segments for the advanced marketer.

But testing and program management is all but impossible at the micro level. If you can’t split test your segment with a degree of statistical confidence, you are not going to be able to generate enough value for it to be worth the effort.

Start simple in your segmentation and work your way up to the point of diminishing returns. Even the simplest segmentation of three to five groups can yield a big improvement in results.

The warm, the hot and the cold

The best element to use for an initial split is recency. You should be able to break your file into four primary groups: inquirers, first-time buyers, repeat buyers and lapsed buyers. Each of the four stages calls for unique efforts, with the goal of driving everyone into the repeat-buyer bucket.

Inquirers are often added to prospect contact plans, but this approach misses an opportunity. Inquiries, online or offline, can support a higher frequency of contact from point of inquiry until conversion. Traditional marketers have focused on speeding catalogs to inquirers. Online inquiries can be followed up faster via e-mail and phone.

Abandoned-cart calls and e-mails are proven winners for many companies today, but there is similar opportunity when you pursue any new added contact as quickly as possible — within 15 minutes is best.

Even after the first post-inquiry contact, b-to-b marketers should keep contact rates high with a blend of offers (including a repeat of the offer that generated the initial inquiry), testimonials and review content, and further product/service information.

Look at the conversion curve of your inquiries to determine how hard and fast to work these leads. In most cases, you will achieve half of your inquiry conversion in a matter of weeks and see the majority of conversions in the first 30 days of contact.

In the initial days of the relationship, you should be using every possible channel of contact to engage your prospect and to communicate your offers. Specific product or service offers work better than broad-based discounts at this stage.

Converting the first-time “tryer”

Your second critical segment is your first-time buyers. Some businesses have called these customers “tryers” or “testers” in recognition of the dramatic differences in retention between one-time buyers and two-time-plus buyers.

Despite this awareness, many companies are using the same contact strategy for new customers that they use for their long standing repeat buyers.

One of the secrets to creating an effective first-time buyer strategy is to maintain awareness of which offer and channel captured the initial purchase. Test a mix of what works for your core repeat audience and variations of that initial offer for the best result. One successful approach is to extend the initial prospect offer for an additional order, particularly for online search customers.

As with inquiries, you have a limited window of time with first-time buyers to increase your conversion rate in the days immediately following their orders. Consider a post-shipment thank-you call to every new buyer to encourage an instant rebuy and establish the potential value of the customer, and to gather information about the experience from offer to fulfillment.

If you don’t have the resources to call every new buyer, use an online or fax survey to gain some of the same information to feed your future contacts.

Repeat buyers aren’t created equal

The lifeblood of your file is your repeat customer base. In a basic segmentation approach, this is the group that, most likely, has driven your promotion results and your testing to date. Why mess with success here?

The answer is that you are probably missing an opportunity to differentiate within this world to yield more profit. Again, the channels that provide you with greater options to segment are e-mail and telemarketing.

Against the backdrop of a solid direct mail program, you should add in additional efforts based on anniversary of purchase and frequency of purchase.

If your customer base tends to an annualized purchase pattern, increase your contact frequency in the lead up to an anniversary of past purchase and follow a missed anniversary with aggressive marketing to prevent defection.

Watch for changes in purchase frequency within your repeat file. A decrease in frequency of purchase is an obvious early warning sign of risk and deserves an increase in contact activity to ensure you are maintaining your share of wallet.

Look for increases in purchase frequency as a signal to add a telemarketing contact. There is often an opportunity to create a tighter customer relationship through a contract or dedicated account management.

Next Page: The ones that got away

The ones that got away

When do you consider a customer inactive? Every company has a different pattern where customers become less and less responsive.

In segmenting lapsed customers from your repeat customers, don’t just apply a 12-month or 18-month line in the sand. Look at a curve of your promotional results and find where “repeat” offers start to approach break even.

This may be at nine months or 22 months for your business. Based on this information, you need to take a different approach to this audience — one that looks much more like a first order or a prospect strategy.

Within your lapsed customers, you will have two significant groups: customers who never purchased a second time, and customers who were indeed active multibuyers for a while, but have since fallen off.

The first group will likely perform better when you use a prospect strategy. They never quite became your customer and have a loose relationship with your business. Try alternating your best new prospect offers with continued variations of their first order offer.

The customers who have lapsed from an active relationship require a different approach. Consider some additional investment here in list cleaning and customer satisfaction survey work.

Have the customers found an alternative for your products or service? Are they still likely to recommend you to others? Are you no longer reaching the right contact? If you have a positive relationship with the customer, it may be a deliverability issue more than a price or service issue. Be sure of your contact info first before jumping to the same strategy of “prospect” offers and deep discounts.

If you’re pursuing an aggressive recovery strategy in lieu of some prospecting activity, be aware that recovered, lapsed buyers don’t perform at the same level as newly acquired buyers. Until they buy multiple times after recovery, they are more likely to act like mid-grade first-time buyers.

The easy verticals

Once you have had success with the basic key segments of your file, you will inevitably look for additional opportunities to divide and conquer. The two easiest to pursue are education and government. Both offer specific opportunities to improve results through changing your strategy based on season and customer needs.

Before you choose either market or both, be sure to evaluate your existing file. If you have enough critical mass, you can start by testing unique offers via e-mail or phone and a specific additional category page on your Website.

Unless you have specific products for these markets, the same core promotions will likely be successful here. If you are capturing site visits and customer phone calls on your master database, you can adjust your contact frequency further and increase your conversion.

Consider a further degree of recency: recency of customer-initiated contact. Abandoned cart, abandoned search and abandoned site programs all work on the principle that a customer-initiated conversation will yield greater results in the follow through.

As you test more sophisticated segmentations of your file, remember the rule that your entire company should understand why you are treating each customer differently. Consider tagging your customers in a visible way so that your front-line service reps will understand how you are identifying your customer groups and use that knowledge to drive better results from your file in all segments.

Terry Flynn (tflynn@marketchord.com) is president of consulting firm Market Chord Direct Group in Amherst, NH.