Business Analytics for Sales and Marketing Managers: How to Compete in the Information Age

SEGMENTATION AND DATA WAREHOUSING

This section discusses what segmentation is as well as how to implement a segmentation model. The way you can use a segmentation model is closely linked to whether it is also present in a DW or another organization-wide data repository or whether this segmentation is an abstract idea existing only on a PowerPoint level.

The basic idea behind segmentation is that customers have different needs, wants, values, behaviors, and so on. In an ideal world, we would of course like to treat every customer individually and according to his or her specific needs and values. Practically, however, very often this will not work because we simply do not have information about the individual customers’ needs and wants, and acquiring this information would be too costly, if the customer was willing to give it to us in the first place. In cases where we have this information on a customer level, customers might not be willing to pay us what it costs to deliver and produce tailor-made goods according to their individual requirements. There are, of course, many examples of customer-made production that is successful. However, there are also many where it is not—just think about the whole historical shift from carpenters to mass-produced IKEA furniture. Therefore, the optimal number of segments is a matter of balancing between the costs of individualization versus to what extent customers are willing to pay for this customization.

In this book, we categorize customers ...