Data Mining Techniques in CRM

CHAPTER EIGHT

Segmentation for Retailers

SEGMENTATION IN THE RETAIL INDUSTRY

Retail enterprises offer a large variety of products through different channels to customers with diverse needs. The lack of a formal commitment and the ease with which shoppers can prefer competitors make the process of building a loyal customer base tougher for retailers. Quality of commodities and competitive pricing are often not enough to stand out from the competition.

In such a dynamic environment a competitive enterprise should try to understand its customers by gaining insight into their needs, attitudes, and behaviors. Ideally each customer should be treated as an individual and the enterprise should operate on a one-to-one basis. Since this approach is obviously not possible, an efficient alternative is to segment the customers into groups with different characteristics and develop differentiated strategies that best address their specific features.

As mentioned in a previous chapter, different segmentation schemes can be developed according to the specific business objectives of the organization.

Needs/attitudinal segmentation is commonly employed through market research data in the retail industry to gain insight into the customer attitudes, wants, views, preferences, and opinions about the enterprise and the competition. In addition to external/market research data, transactional data can also be used for the development of effective segmentation solutions. A value-based segmentation scheme ...