Customer Segmentation - Data Mining Techniques in CRM: Inside Customer Segmentation - page 219

10% each. The customers in tile 1, assuming a ranking of customers in descending
order, would contain the top 10% of customers with the highest value index,
whereas tile 10 would contain the 10% of customers with the lowest value.
The derived tiles may be combined to form refined segments of the form top
n %, high n %, medium high n %, medium low n %, low n %, and so on. The number
and size of the derived segments define the refinement level of the segmentation
solution and depend on the specific needs of the organization. Customers with
zero or even negative value contribution should be identified in advance, excluded
from the binning procedure, and assigned to distinct groups.
Profiling and Evaluation of the Value Segments
The derived value measure should be cross-examined with other relevant customer
attributes, including all the available cost and revenue figures, as a means of
evaluating the validity of the calculation and the value index.
Analysts should examine the identified segments in terms of their contribution
to the total profitability/revenue of the organization in order to assess their relative
importance. Therefore the size, total number of customers, and total revenue/profit
that each segment accounts for should be calculated and presented in tables and/or
charts such as the ones shown below for a hypothetical segmentation scheme.
The contents of Table 5.6 are graphically illustrated in the profitability curve of
Figure 5.8 which depicts the cumulative size and revenue of the derived segments
of our hypothetical example. Quite often a substantial part of the organization's
profit/revenue stems from a disproportionately small part of the customer base. The
steep incline and the high ''slope'' of the curve on the left of the graph designate
the large concentration of value on a relatively small percentage of customers.
Finally, the structure of the value segments should be investigated by exam-
ining all information of interest, including behavioral and demographic attributes.
This profiling aims at identifying the defining characteristics of the value segments.
It can also include a cross-examination of the value segments with other avail-
able segmentation schemes, such as behavioral, demographic, or needs/attitudinal
segments. The organization should initially focus on an examination of high-value
customers since their profile can provide insight that can be used to identify
existing or prospective customers with high-value potential.
Deployment of the Segmentation Solution
The last step includes the design and development of a deployment procedure
for updating the value segments. The procedure should be automated to allow
customers' value to be tracked over time. It should also load the generated results
into the organization's databases as well as its operational systems for subsequent
use. The marketing usage of the value segments is presented next.