Talk to different customers differently

Don Peppers of Peppers & Rogers spoke during an awards session at the Gartner Customer 360 Conference last week, and one of the things he talked about was the concept of speaking to different customers differently.

Use RFM Analysis to talk to your customers intelligently

This man swears loudly in front of children and takes advantage of your free wi-fi

Doesn’t Everybody Do This?

At face value, it sounds like a pretty silly comment. If you owned an ice cream shop, you would be very friendly to the polite, well-behaved, ice-cream loving, 7-kid family, but you would probably be a little less pleasant to the loud, inconsiderate man that swears into his cell phone at full volume, regardless of who is in the shop, and then buys a 50-cent soft drink so that he can use your free Wi-Fi all afternoon.

The problem is that you don’t own an ice cream shop, or if you do, you own hundreds or thousands of them, and the only way you can tell your customers apart is by looking at how they behave towards you through their interactions. These interactions might include what you sell them, how you market to them, and how they interact with you when they call a support line to complain about something.

Your best bet at knowing the appropriate way to interact with your customers is by combining these interactions with any other information you can gather about them, including where they live, their age, their birthday, as well as any other factors that may influence what you should be saying to them.

This first step of getting all the data together is a big one, and if you have a data warehouse, you may be well on your way to having some or all of it.

Once you know all there is that you can know about your customers, you need to segment them, allowing you to talk to them in the right way at the right time. You probably won’t have a swearing, wifi hogging segment, but you will be able to identify undesirables and desirables if you go about things in the right way.

Behavioral Segmentation

RFM Analysis is a powerful tool that can help. RFM stands for Recency, Frequency, and Monetary value. It is sometimes referred to as RFI, where the “I” stands for intensity, which is the term Ralph Kimball prefers. (Ralph Kimball is responsible for designing and evangelizing a special database structure that allows fast, understandable access to vast amounts of data.)

Recency

You assign each of your customers a score, typically from 1 to 5, based on how recently they have purchased from you. A score of 1 indicates somebody who has never purchased, and a 5 indicates somebody who purchased very recently.

Frequency

You do the same thing here, assigning a score based on how often a given customer buys. If they buy every day, or week, or year, depending on your business, they will be a 5. If they purchase once or twice in an unpredictable way, they might be a 2.

Monetary Value

Finally, give each customer a score based on how much they spend.

This RFM segmentation, or customer behavioral segmentation, gives you 125 segments. Here are a few of the incredibly valuable things you can do with these scores:

  1. Customer Retention:
  2. Identify which of your “plum” customers are at-risk of leaving. You can feed the segments that contain your best customers into predictive models that can use patterns of good customers that have already left to identify others who are exhibiting similar behavior while there is still time to save them.

  3. Customer Acquisition:
  4. Look back in time at your good customers and identify what they used to look like. Go after prospects that fit the mold.

  5. Customer Migration:
  6. Using a similar approach to step 2, look back in time at what your best customers looked like when they weren’t all that great. Find customers who fit that mold and identify what works best to move them quickly into “plum” status.

  7. Customer Pruning:
  8. You don’t want that swearing, Wi-Fi hog. He’s taking advantage of your excellent service, damaging employee morale, while costing you money. If you know who he is, you can change the rules so that he either becomes a good customer or leaves.

All of these are examples of how you can talk differently to different customers. There are many other examples, but in all cases you have to know who they are and what makes them different before you can determine what you are going to say to each of them.

 

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