Measure and Evaluate Customer Market Segmentation Processes

In order to fully evaluate the impact of Customer Market Segmentation processes it is necessary to undertake where possible, a quantitative assessment of its impact, and assign calculable values. Measuring the positive impact on the business will help to determine whether the methods used to collect relevant data, evaluate, and implement segmentation:

Basic customer/market/sales performance and process measures applied to the segments and their associated processes can provide an indication of success. Below are a few examples of measures that could be used to help assess Customer Market Segmentation.

• Orders - Market Segment: e.g. Number of orders by market segment as a percent of the total number of orders, or number of shipments by market segment as a percent of total number / volume of shipments, or value of orders by market segment as a percent of total value of orders. This is a measure of the penetration of market segments, and can be used strategically if analysed along with similarly segmented sales and profitability data.

• Sales - Market Segment: e.g. Number of sales or gross sales revenue by market segment as a % of total market sales or size. This measure provides information on the penetration of market segments in terms of market share.

• Customer - Number of: e.g. Number of customers or clients at any one time or per period. This provides a measure of the number of customers or clients interacting with the organisation in a given period. This is a necessary measure for analysing marketing success and strategies relating to key customer focus. In the service industries many world class organisations follow a strategy of reducing overall numbers of clients but focus on developing large key/core client relationships.

• Customer loyalty: e.g. Quantify from aggregation of loyalty measures such as repeat purchases, the number of different products purchased, relationship duration, and loyal customers. This provides a measure of overall customer loyalty. This may be presented as an index and used in conjunction with other leading measures such as customer satisfaction to predict market trends and assess current organisational performance.

• Cost - Winning new customers: e.g. Total cost of marketing divided by (number of new customers - those gained through referral). This measure can provide an indication of the average cost of each new customer won. This information can help to clarify the need to retain existing customers.

• Sales or Market Penetration of new product or service: e.g. Turnover generated from new products/services in a given period, or % of sales turnover that is generated from new products/services in a given time period or, % of orders that is generated from new products/services in a given time period or, sales turnover generated from new products/services as a percentage of total market sales value (Market Share) This measure assesses the success of the new product/service in terms market response (orders).

• Customer's first choice supplier (competitiveness): e.g. % customers for whom the organisation is the first choice supplier or, % market sectors in which the organisation is the first choice supplier This measure reflects the competitiveness of the organisation in relation to competitors.

• Customer expectation - price: e.g. Customer perception of value of product or service. This measure provides an input to the calculation of product/service value, and is commonly collected via market research.

• Customer - price sensitivity: e.g. % growth in sales or market share, or % change in product price. This measure could be derived from competitor/market information and by analysing multiple measurements can provide a basis for setting price increases or new product launch prices.

• Customers - new: e.g. Number of new customers over the past year as a % of number of customers in total or value of new customer sales as a % of total sales. This measure can provide an input to the analysis of sales force performance or new product success or new marketing strategy or other appropriate areas.

• Marketing methods: e.g. Number of different marketing methods used. This is a measure that indicates the breadth of an organisation's marketing strategy. Using a number of different marketing methods may be useful for targeting different customer groups and/or to strengthen the marketing message.

• Customer Feedback: e.g. The number of instances of unsolicited customer feedback, good or bad, or, the % of responses to requests for feedback. This provides an indication of the strength of opinion or attitude of the customer towards the product.

• Customer Contact: e.g. Number of contacts between staff and key customers. This provides an indication of the strength of relationship being developed in the segment.

Customer Lifetime Value (CLV) e.g. the measure of long-term customer worth. CLV is a measure of customer profitability over the lifetime of the organisation/customer relationship. The value of lifetime revenue potential minus lifetime costs, essentially lifetime profitability, is the foundation for calculating CLV. Customer Lifetime Value may be calculated as the net present value of the profits expected from the average customer during a given number of years. CLV data includes:

CLV analysis is a powerful tool for evaluating marketing strategies and estimating the effect of adopting new programmes. A lifetime value chart for retail customers may contain the following elements which would be tracked over a given period of time:

• Customer Numbers

• Retention Rate %

• Visits/Week

• Average Basket $

• Total Sales $

• Cost Percent

• Direct Costs $

• Labour % + Benefits $

• Card Program $

• Advertising (%) $

• Total Costs $

• Gross Profit $

• Discount Rate

• Net Present Value (NPV) Profit $

• Cum. NPV Profit $

• Lifetime Value $

Drake Direct in New York (cited by Mummert, 2003) includes the following key measurements used to monitor direct marketing operations:

Orders

• Average number of orders;

• Average dollar value;

• Number of orders in past 30, 60 and 90 days;

• Dollar amount of orders in past 30, 60 and 90 days.

Payment

• Average paid per customer;

• Ratio of payments to order;

• Payments in past 30, 60 and 90 days;

• Proportion of payments on credit card.

Returns

Activity Status

Response

Customer Service Inquiries