Divorce From Theory and Practice, Part V

Customer Segmentation – IPAK

IPAK is an acronym for Inactive, Potential, Active and Key. It is used to segment customers in order to achieve optimal resources of allocation. IPAK is further divided into 2 sub-segments 0 and 1, with 1 possesses higher value than 0.

Lost Customer (I0) – One who was once a customer but has not bought in at least one normal purchase cycle. I0 represents more than the loss of the next sale; the enterprise loses the future profit on that customer's lifetime purchases, referrals and word-of-mouth advertising.

At-Risk User (I1) – One who is considered to be at-risk due to decreased activity and high probability of defection, and is more likely to switch to competitor and discontinue the relationship.

Suspect (P0) – One who is a target for business, regardless of whether the target has a current need or is ready to act. The goal of the enterprise is to engage P0 for further qualification.

Prospect (P1) – One who has a need, pays attention to the enterprise, and has a propensity to purchase within a specific time frame. The more immediate the need, the shorter the time frame.

First-Time Purchaser (A0) – One who purchases for the first-time, and is of varying profitability. Repeat purchase is strongly related to the initial and subsequent experience at each touchpoint.

Occasional Buyer (A1) – One who purchases on an occasional basis, and can be a customer of the enterprise and a customer of competitor.

Regular Customer (K0) – One who buys regularly due to consistent touchpoint experience and high level of satisfaction, which leads to increased cross-selling and up-selling success.

Advocate (K1) – One who is loyal and immune to the pull of competition, sells on the enterprise's behalf and brings customers. The strategy is to grow customer share and enhance customer lifetime value.

IP generates no revenue for the enterprise. AK is what the enterprise values most. IPAK is also related to Customer Lifetime Value (CLV). CLV is the total value of a customer spanning the entire period of the relationship with the enterprise. It is the potential contribution of that customer to the enterprise throughout the customer's lifetime. In order to maximize CLV, enterprise should CARE about customer. Enterprise should cultivate more customers, acquire market share from competitors, retain customers by providing “under-promise over-deliver” (UPOD) services, and expand share of wallet of customer.

However, what gets measured gets managed. Qualitative definition is only a definition, and is not actionable. In order to manage the profit function, quantitative definition is necessary.

See Part VI.