How to Group Customers Using Transaction Data in Data Driven Marketing

It’s important to group customers based on a variety of types of data in data driven marketing. It’s the basic idea of finding pockets of customers with similar attitudes and needs. The similarities within these pockets, or segments, allow you to identify opportunities that are specifically relevant to customers in a particular segment. They also let you construct offers and messages that will resonate with those customers.

Your customer-level transaction summaries are useful in identifying a different type of customer segment. Transaction data can be used to develop behavior-based customer segments.

How to find and keep your loyal customers

In the movie Up in the Air, George Clooney plays a business traveler. One of the ongoing themes in the movie has to do with how he deals with his frequent air travel. Among other things, he had set a goal of reaching 10 million frequent flyer miles.

This is an extreme case. But there are customers who are extremely loyal to particular brands and companies. No matter what business you’re in, you will find that you have a core segment of loyal customers, often call high-affinity customers.

Finding these high-affinity customers is a matter of looking at purchase patterns in your transaction data. Affinity is not just a measure of how much business they throw your way. You can combine information from your transaction data with survey research about your customers’ overall spending habits.

This gives you a sense of how much of their business you’re getting and how much is going to your competitors. This share of wallet, as it’s called, is a simple measure of affinity.

High-affinity customers tend to contribute disproportionately to your bottom line. For that reason, it’s extremely important to keep them happy. By recognizing who they are and acknowledging their loyalty, you can protect and strengthen the relationship.

A customer may show high affinity for many reasons. Maybe they simply like your brand. There really are Coke people and Pepsi people. But the affinity may be born of necessity or convenience as well.

Location and availability may play a large role in driving the customer to your business. You can’t take your best customers for granted. If they’re doing business with you out of convenience, then inconveniencing them may push them elsewhere.

Grocery stores have reward cards to encourage customer loyalty. Airline frequent flyer programs are designed to do the same thing. Credit cards often offer cash or other rewards based on purchase volume. Almost every large retail business, from department stores to coffee shops, offer some sort of reward program.

You don’t need to offer discounts and financial rewards to reinforce your relationship with your loyal customers. Simply acknowledging that loyalty in your communications is a start. Several companies send birthday or Christmas cards every year.

Another way to reward loyal customers is to offer them special access to your products or stores. You can allow them to pre-order the latest model. Department stores open their doors early to loyal customers “by invitation only.” Some theme parks offer early entry to guests who stay at their hotels so the guests can avoid long lines.

An example from the credit-card industry

The credit-card industry is one that’s awash in transaction data. Marketing and customer profiling in this industry depend heavily on summarized transaction data. One simple but incredibly useful way that credit card companies segment their customers depends fundamentally on only a couple pieces of information.

Everybody knows credit card companies charge interest if you don’t pay them off every month. They also charge a variety of fees for late payments and various other offenses. But credit cards also generate revenue in another way. When you use your credit card to buy something, the merchant you bought it from pays a small percentage of the purchase to the card company.

Leaving fees aside, this two-source revenue stream leads to an important distinction between credit-card customers. Customers who carry balances and pay interest every month are profitable. Customers who pay off their balances ever month can also be quite profitable if they make a lot of purchases. But they are profitable in a very different way.

The “industry terms” for these segments are revolvers and transactors. Customers who revolve, or carry a balance forward, pay interest every month. Transactors, with a lot of purchases, generate income from merchants. If you throw in a third group comprised of inactive cards, you have a simple behavior-based segmentation.

This segmentation is really based on only a couple of pieces of information. How much interest does the customer pay each month, and how much do they spend on purchases each month? If you put yourself in the card companies’ shoes, you’ll arrive at very different marketing strategies for these segments.

In the case of the transactors, you probably won’t have a whole lot of success with balance-transfer offers. If they’re paying off your credit card every month, they’re probably paying off their other cards as well. The more effective strategy is to encourage them to keep spending. This is exactly what “cash back” offers and rewards programs are designed to do.

On the other hand, revolvers may be very good candidates for balance-transfer offers. Again, the way they do business with you is a pretty good indication of the way they do business with your competitors. You can entice some of them away by offering low rates on transferred balances.

In the case of the inactive credit cards, you would probably take a hybrid approach. For these customers, the marketing challenge is to get them to use the card. Since you don’t know how they would be likely to use the card, you might use both purchase and balance-transfer incentives.

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