Segmentation for Retailers - Data Mining Techniques in CRM: Inside Customer Segmentation - page 333

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 under-
stand 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 effi-
cient alternative is to segment the customers into groups with different character-
istics 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 allocates customers to groups according to their spending amount. It can
be used to identify high-value customers and to prioritize their handling according
to their measured importance.