Finding Your New Customers in Your Best Customers
POSTED : September 4, 2013
BY : PK

Successful customer acquisition strategies rely on deep customer understanding, including insightful customer segmentations. However, lackluster segmentation can undermine acquisition efforts and lead them astray. In practice, segmentations often draw artful conclusions that lack real-world application, have disparate implementation across organizations or, when acted upon, fail to deliver intended results. In these situations, companies can benefit by taking a different approach to segmentation and targeting of customers by using “bright spot” analysis. This approach can help:

  1. Drive higher ROI and customer lifetime value (CLV) by identifying segmentation characteristics and attributes that improve targeting.
  2. Improve positioning and messaging by uncovering unexpected brand or product attributes that resonate with customers.

Finding Bright Spots in Your Customer Base

The bright spot approach focuses on mining current customer data for pockets of success. The idea of focusing on pockets of success can seem counterintuitive for businesses. These bright spot customers may not align with the decided acquisition segmentation strategy, but ultimately they represent the most loyal and valuable customers.  A company’s goal should be to not only identify bright spot customers, but understand why they are so loyal. As Chip and Dan Heath, authors of the popular business books Switch and Made to Stick, stated, companies should ask “what’s working and how can [we] do more of it?”

The bright spot approach to mining your customer base can be accomplished with different analytical methods. RFM segmentation is an aggregate-level profiling model that is commonly used to identify bright spots. This type of model groups customers into clusters based on the Recency, Frequency, and Monetary value of purchases.  The bright spots are those customers with the highest RFM score. Once isolated, the characteristics of the bright spot customers are assessed to determine their common demographic and behavioral attributes.  These attributes are then leveraged to identify actionable profiles of the acquisition targets.  Detailed customer profiles are a critical component to creating positioning statements and targeted messaging that will resonate with your top acquisition targets and enhance the success of your campaigns.

Real-World Application of Bright Spot Analysis

A national online retailer applied this strategy when launching a new category. The retailer used RFM analysis to create six clusters and isolated the top 12% of customers as their bright spots.  Behavioral profiling of this group identified that these customers had been shopping with this online retailer for many years, had purchased in categories similar to the new category and were members of a loyalty program. These attributes were used to identify which prospects to target for acquisition.

This bright spot approach was then tested in a controlled email environment. The same promotional email was sent to both the “treatment group”, prospects that have similar attributes to the bright spots customers, and the “control group”, prospects identified by the retailers’ legacy targeting method. The results of this test showed the treatment group purchasing 35% more new category products than the control group.  If the bright spot theory is correct, this group of customers is also more likely to make purchases in the future.

Have Faith in the Bright Spots

Unlike many segmentation and targeting techniques that rely on artful hypotheses, the bright spots approach is based on existing customer data and a company’s proven successes.  As a result, this approach delivers actionable insights that can be used regardless of a company’s size, industry or audience.  The bright spots analysis takes acquisition strategies to the next level by helping businesses target and acquire new high-value customers, based on what they already know.

Tags: , , , ,