Effective CRM using Predictive Analytics

3 Behavioral segmentation methodology

3.1 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 strategic marketing tool. It enables organizations to understand the customers and build differentiated strategies, tailored to their characteristics.

There are various segmentation types according to the specific segmentation criteria used. Specifically, customers can be segmented according to their value, sociodemographical and life stage information, behavioral, needs/attitudinal, and loyalty characteristics. The type of segmentation to be used depends on the specific business objective. The following types of segmentation are widely used in consumer markets (Source: Tsiptsis and Chorianopoulos (2009). Reproduced with permission from Wiley).

1. Value based: In value-based segmentation, customers are grouped according to their value. It is one of the most important segmentation types since it can be used for identifying the most valuable customers and for tracking value and value changes over time. It is also used for differentiating the service delivery strategies and for optimizing the allocation of resources in marketing initiatives.
2. Behavioral: A very efficient and useful segmentation type. It is also widely used since it presents minimum difficulties in terms of data availability. The required ...