Customer Segmentation - Ocw.mit.edu
Customer Segmentation:The First Critical Task of Strategy
Reasons for Customer SegmentationzzDon’t commoditize your customer. You should nottreat every customer equally.Customers are different in many ways:- Needs- Capabilities- Business economics and strategies- Willingness to engage in business with you- Demographic characteristics: size, profitability,participation in various vertical markets, geographicalcoveragezThe most attractive customer usually is the one thathas the greatest gap between its needs and yourability to satisfy them.
The Key Mechanisms to Serve theCustomerzzzCustomer Engagement Process - How do youestablish a proper association with the customer?Customer Integration - The degree of value-addedyou provide to the customer based on theknowledge and services you transfer.Horizontal Breadth - The depth of the portfolio ofproducts and services you provide.All these mechanisms have to be tailored toeach individual customer and result in verydifferent degrees of customer bonding.
Criteria for Customer SegmentationThe most critical dimensions for customersegmentation are:zCustomer Attitudes- Castrol - How we want to treat the customerzCustomer Needs and Degree of Self-Sufficiency- Unilever de México - Segmentation by channelszDifferent Degrees of Value Added- Waste Management Co. - Different degrees of customerbondingzCustomer Behavior and Their Buying Practices- Synthes - Different customer buying patternszRedefining Customer Experience- Telefónica Móviles /Colombia - Reducing customer churn
CASTROL DECOMMODITIZING THE CUSTOMER
Castrol - LubricantsSegmentation According to Customer AttitudesCastrol considered three Tiers in each market segment(Primary Target Segment– Productivity Conscious Customers,Secondary Target Segment– Cost Conscious Customers,The Least Desirable Segment – Price Conscious Customers)Value Proposition:Customized lubricationsolution involving productsand servicesProductivity ConsciousThese customers are eagerto receive support that willenhance their productivity,reduce total costs, andpromote higher sales.Do not treat customers equallyGreaterCompanySuccessCost ConsciousThese customers are concernedabout total costs but they believenew production does not neces sarily yield higher sales oreconomies of scale.Not all customers are equallyreceptive for solutionsPrice ConsciousThese customers arebasically buying from thesupplier that offers thelowest price.
What is Castrol Logic?A customized lubricationsolution involving products andservices that results indocumented:Cost Reductions&Productivity Improvements
Transforming the OrganizationRethink the customer engagement processClient Engagement ProcessInitial SurveyDocumentationImplementationSource: CastrolProposal
Lessons from Castrol You cannot and should not treat every customerequally - Differentiate a value proposition to eachrelevant tier. Often a very insightful way to segment yourcustomer is by their willingness to do businesswith you in a chosen way. We call itsegmentation by attitudes. Once you adopt a different value proposition foreach tier you should change accordingly thecustomer engagement process. Remember“Sales are too important to be left to thesalesforce.”
Unilever de México Segmentation According toChannels
The ProcesszThe Board spent a week with Arnoldo defining the strategy,using the Delta Model.zThe Key elements included:Customer segmentation!!!Identification of key segment interactionsIdentification of services to offer each segmentIdentification of potential complementors.Integration to backend systems from UL andcomplementorszWe identified key insights that integrated the ways we soughtto serve the various customer segments.
The Customer SegmentszModern Trade:Large Local Chains (MT1)Large International Chains (MT2)Smaller Local players (MT3)zTraditional Trade:The 100,000 largest (TT1)The other 4-600,000 (TT2)zWholesale Trade:The Biggest Players (WS1)The Rest (WS2)zGovernment Stores (G)
UdM Delta ModelLock-inTT-1MT-1WS-1GMT-2Total CustomerSolutionTransactionalMT-3WS-2TT-2
Customer SegmentationStrategic OptionLock-inPreferred customers focused ongrowth when we provide transferof knowledge in categorymanagement, ECR, efficientlogistics, promotional activities,consumer understandingRelational - SupportMajor international customerswith established businessespractices whom we provideefficient support to become theirpreferred suppliers, avoidingconflict and rivalryCustomerTierMT-1WS-1MembersComex, Gigante, Soriana,Chedraui, HEB, Casa Ley,San Francisco, Calimax,OXXO, 7 elevenSahuayo, Garces, Chapa,Ibarra, Mtz TaylorTT-1Key Changarros (approx.100,000)GGovernment Stores(IMSS, ISSTE, Diconsa)MT-2Wal-Mart, Carrefour
Customer SegmentationCustomerTierMT-3MembersArm length relationship withminimal level of customizedservices to cover their specificneedsWS-2All otherwholesalersTT-2Rest of changarrosComplementors- Bank- Kimberly-Clark- Tv Azteca- ElektraStrategic OptionTransactionalSmall Size Locals
The Basis of the Key InsightszzzzWholesale Trade sales and margins are both shrinking. Theyneed a new source of growth and profits.The MT1 segment is shrinking. They do not have the scale tocompete with Wal-Mart’s distribution know how andeconomies of scale.TT segment feels ignored, as major supplier companies offerspecial deals to MT1 & 2. TT operating costs are lower thanMT, but product purchase costs are higher.Unilever Distribution costs are high.
The InsightzForm a network from existing PlayersReduce # of Unilever Distribution Centers from 9 to 1Use Existing WS1 warehouses as DC’sExpand WS1 relationship into logistics provider for MT1, MT3, & GImplement direct sales force for TT1, deliver through WS1Add Banking provider to improve CreditAdd Media provider to provide advertising servicesAdd White Goods Retailer to provide promotion fulfillmentAdd other non-competitive suppliers to spread costs
The Delta Network Business OpportunityEXPECTED BENEFITS TO CHANGARROS: Free workstation (key technnological improvement for store growth) Guaranteed competitive prices to modern trade (on UL and KC products) Access to credit line for the store (through Bank) Improvement of service received (more control over delivery times) Transfer of merchandising expertise (through sales advisor) Individual store management advice & training (through sales advisor) Direct access to promotions information (through workstation) Information about competitive landscape (through workstation) (e.g. average price ofchangarros - for Pricing Strategy) Access to Business Management tools (through workstation) (e.g. Inventory & salesstatistics) Identification of its most valuable customers (through brand loyalty programs) Relative exclusivity (1 out of 6 changarros will be in the network)
The Delta Network Business OpportunityzzzzzzzzzzEXPECTED BENEFITS TO WHOLESALERS:Territorial exclusivity (restricted number of wholesalers per city: 1 or 2)Increased sales & order flow coming from modern trade and government stores inits territoryIncreased order size coming from changarros (50% approx. Abastex experience)Free dedicated salesforce to sell UL/KC products for its benefit (additional source ofsales growth at no cost)Increased inventory turnover resulting in less working capital being tied upOperational cost savings resulting from new order entry processDirect access to competitive market information & deep knowledge of its customers(through full POS system)Category management know-how provided by UL & KC to define optimal sku mixIncreased loyalty from changarrosFree suport from UL & KC for its technological improvement process
The Delta Network Business OpportunityEXPECTED BENEFITS TO MODERN TRADE & GOVERNMENT STORES: Substantial service improvement - particularly in terms of delivery times (direct deliveryfrom wholesaler to each individual store) Guaranteed prices - UL & KC will set the prices at which the wholesaler will commit tosell their products Cost savings because of supply chain & inventory management improvements Reduced TV advertisement cost (leveraging UL & KC relationships) Identification & knowledge of its most valuable customers (through brand loyaltyprograms) Free suport from UL & KC for its technological improvement process
Lessons from Unilever de MéxicozzChallenge the conventional wisdom. Your mostimportant customers could very well be the mostneglected. Remember the Gospel “The last oneswill be the first ones”A critical element of a modern strategy is to positionyourself within the network. Information Technologyis the key to implement this principle.
Waste ManagementCompany (WMC)Segmentation According toPotentials for CustomerLock-In
WMC’s customer segmentation and its ingdom”Kingdom” Small, ream Biddingprocess Bidding process Should fromWMCtomanagetheseaccountsWMC to manage these accounts WMC ersandvendorswhotakeand vendors who dsnon-core on-site ion-Seeker Several Severalfacilitiesfacilities Negotiated Negotiatedprocessprocess Longtermrelationship Long term relationship Willing ecorebusinessbusiness Allow roductmanagementsolutionproduct management kerBP Big,Big,multiplemultiplewastewastestreamsstreams BiddingprocessBidding process HighlyHighlydemandingdemandingcustomercustomer Requireon-sitepersonnelRequire on-site personnel UsefulUsefulasasmarketingmarketingtooltool ution-Seeker Several Severalfacilitiesfacilities Negotiated Negotiatedprocessprocess Longtermrelationship Long term relationship Willingness Willingnesstotoopenopentheirtheirbooksbooks Receptivetoinnovations Receptive to disposal process Occasional 4:BiddingBiddingSolution-SeekerSolution-Seeker Several Severalfacilitiesfacilities Bidding Biddingprocessprocess Opportunity ationshiprelationship Occasional Occasionalspecialspecialprojectsprojects
We would like to structure our value proposition asof today by clearly stating what we offer and Set of value delivery rvice (environmental,(environmental,safety)safety)-- LiabilityLiabilityinsuranceinsurance-- SuppliercertificationSupplier certificationprocessprocess lingandproducts handling andbetterbettercustomercustomerserviceservice-- tterservice)processwith vendors (low prices, better service) process-- sonneltrainingtraining--ConstantreviewConstant One-stopOne-stopshopshop--OneinvoiceOne t(SPOCs)(SPOCs)--TheWMCsystemprovidesThe WMC system providesaccurateaccurateinformationinformation nyallow companytotofocusfocusononcorebusinesscore business-- ExpertiseExpertise/ ,etc.etc.--ConstantsharingofbestpracticesConstant sharing of best iescapabilities--KnowledgeofthevalueKnowledge of the valuechainchain TotalTotalfacilityfacilitymanagementmanagement-- rtnerspartners thethebestbest-- stJoint services with partners (R&D,service at the lowest costinformation,services,etc.)information, services, etc.)COMPLEXITYCOMPLEXITY sts andheadcountheadcount
Our value proposition should be tailored to efficiently andprofitably serve the different tiers of sBenefitsforforWMCWMC Compliance Lowest Compliancewithwithregulationsregulations Lowestcostcost Lowestcostinby-producthandlingavailable Lowest cost in by-product handlingavailableininthethe Keeptrackofactivitiesmarket Keep track of activitiesmarket If improvements Small sactivities One-time-events One-time-eventswithwithpotentiallyhighpotentially highmarginsmargins Handle Handlemultiplemultiplewastewastestreamsstreams Better Bettercustomercustomerserviceservice Expertise Expertise Reduce headcountheadcount Additional psdevelops “Looks “Looksgoodgoodininourourresume”resume” Opportunity sandandnewnewprocessesprocesses Step-up Step-upofofcustomercustomertierifabletotier if able NegotiatedSolutionSolutionSeekerSeeker Improve tocompany tofocusfocusononcorecorebusinessbusiness Additional eprocesseswaste processesTotalTotalSolutionSolutionSeekerSeeker1 Total Totalfacilityfacilitymanagementmanagement WMC WMCasasananon-siteon-site Customer Customerlock-inlock-inpartnerpartner Concentrate r4433BiddingBiddingSolutionSolutionSeekerSeeker221 Total facility managementKeyKeytotothethe Total facility managementKingdomKingdom One-stop One-stopsolutionsolution Long Longtermtermrelationshiprelationship Higher Highermarginsmargins System Systemlock-inlock-in
Lessons from WMCzzzzA power segmentation is based on increasing degrees ofcustomer bonding, resulting from increasing value addedprovided to the customer.The progression of increasing value added implies greaterknowledge transfer, greater margins and profitability,greater complexity in the relations, and greater bonding.System Lock-In is not necessarily a feasible option topursue for many businesses. However, the DominantExchange is often the most relevant form of System LockIn.The lesson of WMC is to segment to customer base inincreasing degrees of the Systems Lock-In culminating inthe achievement of Dominant Exchange. If you can gainthat position the potential rewards are immense.
Synthes Segmentation According to CustomerBehavior and Their Buying Practices
OR StaffSynthesService andSterilizationDepartment StaffSurgeonHospitalAdministrationBuyer GroupsPatientInsurance
SynthesDominant Exchange Role of IT in hospitalsHorizontal Breadth Coverage of alltherapeutic areasCustomer Engagement andCustomer Integration Role of Consultants Education IntimacyProprietary Standards AO FoundationLow Cost ManufacturingexcellenceDifferentiation Continuous NewProduct Development
Synthes Customer SegmentationCustomer TierDescription (1)Professors & Opinion Leaders(3)Young High Potential– Large segments of specialty within his/her influence Respected among peers Active in research & development (2)Non-User(high volume)Working at University Hospital, TeachingHigh number of proceduresActive surgeon with own core specialty– Publications– Active as scientific speakerIndependent!Loyal because he/she is convinced of superiority of productsRespected by hospital administrationKey decision maker regarding implant suppliers Bond to competition For reasons of:– Strict budget control– Clinical practice/teaching schools Using high volume of implants InnovativeAmbitious; Go beyond daily businessInterested in research & publicationLooking for recognition from: Need to have a “godfather”godfather”Preparing/Learning to be a specialistLooking for R&D support (financial, implants, etc.)–––Opinion leaders/professorsPeersIndustry (financial sponsoring)
Synthes Customer SegmentationCustomer TierDescription(4)Buyer Groups Negotiating body for a group of hospitals An organization designed to increase the purchasingpower of hospitals and to optimize purchasing andadministration costs for hospitals The one paying the bill Focus on bundling (products, logistcs, tenders)(5)“Massmarket” Surgeon(6)Low Volume & Local Hospital(7)Patient(undergoing elective surgery) High volumeStratec makes high turnover with themBroad range of proceduresMostly large public hospitals Community hospital Use commodities/standard products Buy single items from all products E.g., Education of projected end usersWho is our customer?Who makes the decisions for traumatology implants and instruments?
Tier 1 Business ScopeBusiness DimensionProductsServicesCustomersChannelsEnd usersComplementorsUnique CompetenciesTier 1: Professors/opinion leaders Full range, pioneer products Facilitate education, provide and support access to AO Support for R&D (financial,implements, documentationneering)documentation & engiengineer 250 approximatel (list requested from the countries)) Direct - Sales consultant and salsales manager relationship - Project leaders - Support CEO, Senior Mgmt (occasionally) Polytrauma and high degree of complication AO Network Power tool business Access to reference hospitals Software provider (documentation, digidigital services) ORP staff Scientific publications HighHigh-end products Development and engineering capability Technical education at all levels (from sterilization departmentsdepartments to surgeons) Logistics/loan sets HighlyHighly-trained consultants (clinical and product specific)
Customer Value PropositionCustomer Tier 1 ProfessorsValue Propositionand opinion leadersSet of experiences we willprovide to the tierSet of value delivery systemsneeded to provide theexperiencesProvide latest innovative clinicalclinical solutions in a collaborative spirit Sales force (experienced & highly qualified)qualified) Innovative products AO networking Davos course experience and AO research center Engineering development capacity and knowknow-how Value gained by the customers:- Recognition by peers patient and industry Value gained by us:Value appropriation- loyalty & input- support for development & sales/teaching Value shared by both:- productive partnership
Lessons from SyntheszzzThe customers’ behaviors and buyingpractices often provide relevant criteria forsegmentation.This allows you to detect the special needsof each customer tier, which are translatedinto specific value propositions.Your segmentation does not need to belimited to the actual customer (the one whopays). It might also include relevantimplementors.
Telefónica Móviles - ColombiaIncreasing Customer Bonding(Reducing Churn) and RedefiningCustomer Experience
Telefónica Móviles - ColombiaCUSTOMER SEGMENTATIONTierValue AddedChannelsCorporationsIncrease customer bonding bydeveloping customized valuevalue-addedbusiness applications.CorporationMultifunctional TeamHigh Value AddedMedium Value AddedBasic NeedsSmall & Medium Size FirmsImprove managerial capabilities andbusiness performanceProfessionalsProfessionalExpert PlusIndependentsTraditional Trade OP (bottom of the Pyramid)Fashion/EntertainmentEnrich the experience of use byrelating to affinity groups.IndividualsTelemarketing and e-business
Add value toincreasebonding (*)CorporationsHigh ValueCorporationsMedium ValueSmall andMedium FirmsExtend hion/Enter.Basic(Individual &Corporate)Redefine the Value PropositionDecommoditization Learning Customization Value Added(*)Restricted Access Increase barriers to entry for competitors and increasebarriers to exit for customersDominant Exchange By mining the extraordinary information access anddata bank
Strategic Agenda1.The Full Development of the Country Network2.IT Platform3.Individual-Basic Service4.Corporations5.Sales-Force Development6.Traditional Trade7.Small and Medium Size Firms8.Colombians Abroad9.Complementors10. Alignment of Firm Infrastructure11. Broad Band12. Suppliers
Lessons from Telefónica MóvileszzzzDon’t ever accept a commodity mentality.Be always ready to challenge that.Individualized information on consumerbehavior can be the key to provide acustomized offer.Fragmented consumer markets would offer awealth of potential expansion.Unattended corporate customers can beenriched with knowledge transfer.
Who is the best customer?zzzzThe one who receives the highest valueaddedThe one who has the most positive attitudetowards youThe one who you can serve most effectivelyThe one with whom you can jointly define aunique, sustainable, differentiated valueproposition.If these conditions are met, that customershould also be the most profitable.
compete with Wal-Mart's distribution know how ands distribution know how and economies of scale. z TT segment feels ignored, as major supplier companies offer TT segment feels ignored, as major supplier companies offer special deals to MT1 & 2. TT operating costs are lower thanTT operating costs are lower than
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djain@mit.edu, sra@mit.edu, jguo01@risd.edu, rvictor@mit.edu, raywu22@mit.edu, juschiu@mit.edu, geek@mit.edu ABSTRACT We present Amphibian, a simulator to experience scuba diving virtually in a terrestrial setting. While existing diving simulators mostly focus on visual and aural di
Wrecked Models of Customer Segmentation at Banks Challenges & Fixers of Your Banking Customer Segmentation Strategy 1 ARTICLE Banks have been using customer segmentation as standardized procedures since its inception to upsell, cross-sell banking products, and to better cater to the needs of specific customer groups. Traditionally, banks segmented
Internal Segmentation Firewall Segmentation is not new, but effective segmentation has not been practical. In the past, performance, price, and effort were all gating factors for implementing a good segmentation strategy. But this has not changed the desire for deeper and more prolific segmentation in the enterprise.
Internal Segmentation Firewall Segmentation is not new, but effective segmentation has not been practical. In the past, performance, price, and effort were all gating factors for implementing a good segmentation strategy. But this has not changed the desire for deeper and more prolific segmentation in the enterprise.
segmentation research. 2. Method The method of segmentation refers to when the segments are defined. There are two methods of segmentation. They are a priori and post hoc. Segmentation requires that respondents be grouped based on some set of variables that are identified before data collection. In a priori segmentation, not only are the
Fig. 1.Overview. First stage: Coarse segmentation with multi-organ segmentation withweighted-FCN, where we obtain the segmentation results and probability map for eachorgan. Second stage: Fine-scaled binary segmentation per organ. The input consists of cropped volume and a probability map from coarse segmentation.
