Mylton
Member
Posted 07-Feb-2005 03:12 PM
What's your opinion about these "new" Relationship Marketing theories that affirm there's no market segmentation anymore, only the individual customer?
Jim Barnes, CRMGuru Panelist
Advisory Board
Member
Picture of Jim Barnes, CRMGuru Panelist
Posted 22-Feb-2005 02:34 PM
Hi Mylton
I happen to believe that customer segmentation is one of the absolutely fundamental strategies in business. Simply put, it is terribly inefficient to try to treat every customer as an individual. Most companies can never hope to contact and deal with individual customers in a unique way. There is much to be said for grouping customers into appropriate segments and then directing the marketing initiative toward reaching them eficiently with appropriate, tailored messages. Where the "new" view comes in, I suspect, is with respect to how companies should interact with customers and to how they would like to be treated. With databases now available, it should be possible for many companies to treat customers as individuals, rather than as numbers. This clearly extends to how employees should interact with customers. The notion of customization and personalization is fundamental to relationship building, but I do not see this to be at odds with the strategy of segmentation.
Regards
Jim Barnes
Jim Barnes specializes in Customer Strategy as a member of the CRMGuru Advisory Board. For more information, please visit Barnes Marketing Associates.
Graham Hill
Guru
Member
Posted 24-Feb-2005 06:21 AM
Mylton
I agree with Jim.
Let's look at a potted-history of marketing communication to see what I mean.
In the halcyon days of the 50s & 60s, post-war business responded to growing customer demand with a broad range of branded products. Manufacturers used branded communications to reach out to the eager masses. Most of this branded communication was directed at the market as a whole and it worked. There was relatively little individual communication with customers and practically no segmentation.
Lester Wundermann and others developed the art & science of direct marketing in the 1970s & 1980s. This was based upon sending catalogues and sales offers directly to individual customers, usually through the mail. Segmentation was used to decide which customers should receive which mailings. Branded communications was also still widely used to reach out to the masses, but started to be integrated with direct communications. Integrated Marketing Communications was born.
In the 1990s, sophisticated CRM systems incorporating analytics, sales, campaign and service management components were heavily sold to the eager corporate masses. Segmentation was further refined to identify ever smaller groups of similar customers to be managed in the same way. The result was an explosion of direct marketing of all sorts, particularly mail, phone calls and email. Perhaps the most sophisticated segment-driven marketer of all time is Capital One, who reputedly use some of the biggest, most sophsiticated databases in existence, to identify thousands of sometimes fleeting segments and to run tens of thousands of marketing experiments. This capability has allowed Capital One to create whole new markets of credit card users who previously could not be served profitably.
You can see where this is heading.
Today, we sometimes have the capability through highly responsive customer-facing technologies to use CRM systems to respond to customers on an individual basis. This is particularly the case in service industries like banking and telecoms where the products themselves are encoded as mix & match components within software.
We have the capability but we do not always have the information in the segments to make it work. The challenge for segmentation today is to enrich the quality of the information going into the segmentation itself, so that it can more effectively identify differences between customers that lead to differences in their management.
So Jim is right when he says that segmentation is a critical component of CRM; without it, it is hard to individualise customer management at all.
Graham Hill
Independent CRM Consultant
Mylton
Member
Posted 24-Feb-2005 08:44 AM
I also believe on that. I can't understand how a company will get customers without market segmentation and how it will measure its results on relationship tactics without grouping its customers.
I have read an article that Jim brought up in his book (Secrets of Customer Relationship Management) called "Preventing the premature death of Relationship Marketing", by Susan Fournier, Susan Dobscha and David Glen Mick, and I agree in what was discussed on that as an important issue for creation and development of a genuine relationship. Many authors disregard this kind of feature for a true relationship in theirs researches.
Actually, and unfortunately, the relationship is seen as an amount of processes, regarding only the behavioral approach and not mentioning the importance of emotional elements. The company ought to "go to the field" and learn more about the customer insight.
Because of that, too many companies are adopting CRM strategies focused on procedures and not on customers. Another consequence of this kind of thought is that these companies are looking for a professional with the same point of view about Customer Relationship, and that people that think about Customer Relationship as a strategy designed in order to treat customers according to theirs will, instead of the company's processes, are not regarded.
Graham Hill
Guru
Member
Posted 25-Feb-2005 01:32 AM
Mylton
You raise some interesting points.
In today's highly competitive business environment, organisations are driven by the need to deliver against numerical targets. If you are a credit card marketing manager, some of your targets will be the number of new customers signed-up to the credit card. So if your target is to sign up 10,000 new customers and history suggests a typical mailing response rate of 1%, then you are going to be looking at mailing 1,000,000 prospects to hit your sign-up target.
The trouble with this logic is that everybody else in the credit card industry is also following it. They are all targeting the same prospects with the same offers. The end result is increasingly dis-enchanted prospects and declining response rates, as Fournier et al talk about in the article you quoted. Economists recognise this problem as 'the tragedy of the commons'.
You can use segmentation to help identify where the best current customers came from and therefore where the best prospects probaly are. But this often requires a much broader range of information than most transaction-oriented companies have available to them. This includes individual behavioural and intentions information, as well as the usual '...ographic' information that is freely available at a price.
Segmentation as practiced is about getting more from customers in existing markets. It is difficult to do well and it is expensive. This is perhaps why it has gathered an unfairly negative press as another CRM buzzword.
Perhaps an alternative to this inside-out viewpoint is required...
Chan & Maubourgne at Insead have looked at companies who have used deep insights into what customers really value to create profitable new markets. 'Value Innovating' companies like Southwest Airlines, eBay, Amazon, Virgin Group and Starbucks provide significantly increased value to brand new markets of customers at significantly decreased costs. They have usually cannibalised customers from existing markets in the process. They do this by focussing just on what customers value and then giving it to them, rather than on what the company wants to offer and who they think will buy it.
An excellent study by Cap Gemini into Value Innovation in Mobile Telcos, showed that there was a large gap between what most mobile telcos thought customers valued and offered them, compared to what customers actually valued and would pay for. There are no prizes for guessing that most mobile telcos significantly overvalued the advanced services that they were promoting and significantly undervalued cost, convenience and simpler offers that customers wanted. Many customers were willing to accept much less functionality for a little less costs. The few telcos that have adopted value innovator business models based on this insight have significantly higher financial earnings than their normal competitors, despite having lower earnings per customer. The same pattern is repeated for other value innovators in other industries too.
Segmentation is a critical tool for everyday competition in established indutries. But there are alternative strategies that don't require segmentation, that are just as if not more successful. Value Innovation is one of those, but it is not for the faint-hearted.
At the end of the day, it all revolves around what you really know about what customers value, what you are willing to do to deliver against it and how you want to compete.
Graham Hill
Independent CRM Consultant