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Data Mining Techniques in CRM by Antonios Chorianopoulos, Konstantinos K. Tsiptsis

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CHAPTER FIVE

Customer Segmentation

AN INTRODUCTION TO CUSTOMER SEGMENTATION

Customer segmentation is the process of dividing customers into distinct, meaningful, and homogeneous subgroups based on various attributes and characteristics. It is used as a differentiation marketing tool. It enables organizations to understand their customers and build differentiated strategies, tailored to their characteristics.

Traditionally organizations, regardless of the industry they operate in, tend to use market segmentation schemes that are based on demographics and value information. Over the past few decades organizations have been deciding their marketing activities and developing their new products and services based on these simple, business rule segments. In today’s competitive markets, this approach is not sufficient. On the contrary, organizations need to have a complete view of their customers in order to gain a competitive advantage. They also need to focus on their customers’ needs, wants, attitudes, behaviors, preferences, and perceptions, and to analyze relevant data to identify the underlying segments. The identification of groups with unique characteristics will enable the organization to manage and target them more effectively with, among other things, customized product offerings and promotions.

There are various segmentation types according to the segmentation criteria used. Specifically, customers can be segmented according to their value, socio-demographic and life-stage ...

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