Effectively collecting and activating customer data is essential for a business to stay competitive in an expectation economy where customers’ demand for better products and services are getting higher, requiring the businesses to deliver a seamless customer experience (CX).

By utilizing 1st party customer data, businesses can uncover valuable insights that enable a greater (CX), evaluate business initiatives, and test marketing and sales activities.

On the journey towards becoming more data-driven, segmenting customers by their value has proven to be a great for showcasing the value a business can generate by investing in data & analytics.

Value-based segmentation is a powerful way of utilizing valuable insights from the customer base.

The actionable segments inform and lay the foundation for the marketing strategy, by prioritising and optimising personalisation and marketing activities.

Value-based segments uncover:

• Who are our most valuable/loyal customers?
• What is the value-gain by moving customers from one segment to another?
• Where in the value-chain is the highest potential business gain?
• Etc...

These insights describe the customers’ purchasing motivations, which in turn can be used to convert prospects to customers by orchestrating and funnelling them through a personalised CX.

Likewise, the segments may, among other things, also be used to create audiences and validate or redefine personas.

The methodology used for the value-based segmentation presented here has the advantage of not needing a large amount of data sources, only requiring customer data that most companies already collect.

Value-based segmentation framework

The segmentation model evaluates groups of customers in term of the revenue they generate and the costs of establishing and maintaining relationships with them.

The segments can be analysed using different models depending on the given business model i.e., is it B2B? Or B2C? Subscription based, online only etc.? All of which is affecting the customers’ behaviours and incentives and thereby the CX strategy.

The data foundation is also a determining factor, though the models can be fitted to accommodate the available data sources.

Here are three usual components that potentially feed into the segmentation model:

01

Business value (existing value)

The business value metric measures the direct value that a customer adds to the business. Often, this value is based on transactional data and is aligned with how the company measures revenue i.e., average purchase size, periodic product usage, requiring revenue (up-sells/cross-sells/add-ons) or potentially derived estimates such as RFM or CLV.

The methodology for measuring the business value may vary depending on the overall business objective as well as the data available, e.g., types of transactional data. If the business does not have any direct transactional data, there are other ways to reflect a customer’s business value e.g., by using CRM data or similar sources. 

02

Engagement value (in-direct value)

Marketing engagement is used to reflect and differentiate customers by their in-direct value based on the assumption that if the customer is more engaged, it increases the is potential for a purchase.

Even if customers have low transactional value, high engagement with marketing content reflects an interest in the brand and thereby an opportunity to convert them into buying more.

Data from marketing channels and the scores can be based on interactions with the content e.g., opens, clicks, reads etc.

Customers’ consent may also be incorporated in the model. The wider the range of consents a customer has given, the more engagement opportunities the marketing team has. But it also reflects an active choice (active opt-in) from the customer to be kept in-touch with the brand which also makes a customer valuable.

03

Cost to service & cost to acquire

Acquiring and nurturing customers is a costly affair. The cost to service/cost to acquire is a measure to assess the actual cost and profitability of meeting customers’ needs.

Including this component in value-based segmentation as an additional measure adds the dimension of overall customer profitability, which marketing teams may use to determine the “worth” of directing marketing efforts towards a given customer.

Utilizing the segments

The defined value-based segments may be utilised in various ways to add value to all business teams. This means that the segments can be used at the strategic level to define and evaluate the marketing strategy by analysing the relative gain and loss of customers moving up and down the funnel. And segments can also be used on an operational level where they serve as an enrichment layer in the activation strategy enhancing 1:1 personalisation.

Action variables

After the customers have been separated into value-based segments they are further enriched with actionable variables to identify customers within the segments that are more appliable for a specific action/campaign/trigger.

Such variables could be CLV (customer lifetime value), probability of being active, preferred products, demographics etc.

These variables are assigned to all customers, which means that customers with similar values can be selected across segments.

Conceptualising the segments

The segments are prioritised, reflecting the value that the customers in each segment add to the business. Customers will enter the funnel and over time flow between the segments or churn entirely. This can happen in any segment, but with varying consequences for the business. 

The value-segments and the prioritisation of them are also used to inform and evaluate the marketing strategy and especially the CX and CRM efforts.

At an operational level, the value-based segments can be used to prioritise and adjust the activation strategy accordingly.

For instance, in an OMNI-channel re-activation flow the timing is segment-dependent, reflection the differences in average tenure, general level of engagement etc., which thereby further personalises the activation.

Conclusion

Business’ have never had more focus on utilising their 1st party. Factoring data into the business approach can drive real value and further enhance the 1:1 personalised experience by presenting the customers with the best next-offer/next-action.

Using value-based segments for enriching and supplementing the existing marketing activities can support the business in achieving just that.

Including the segments as an enrichment layer in a company’s CDP, which is becoming a norm within the MarTech stack, enables OMNI channel targeting and messaging to the individual customer segments.

The methodology behind value-based segmentation offers great flexibility and is feasible for all businesses to implement in some form and can be further developed as needed.

In conclusion, there really should be nothing holding you back from leveraging the benefits of value-based segmentation today.