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Segment Marketing versus One-to-One Marketing The idea in one-to-one marketing is to store in a data warehouse enough information about each customer to enable you to develop an individual marketing program designed just for that customer. True one-to-one marketing is real time: If a customer buys something this morning, your communications to that customer this afternoon will re ect that fact, along with everything the customer has purchased since the beginning of the relationship with you, plus what you know about the customer s demographics. You don t have ve marketing programs; you have 2 million marketing programs for your 2 million customers. It is a very nice idea. So why isn t everyone doing it Because, in most cases, the lift in sales that you get from one-to-one marketing does not pay for the cost of the warehouse and the communications. There are very, very few situations in which real one-to-one marketing is economically pro table. Segment marketing, on the other hand, is relatively easy to achieve. You still need a database of customers that includes their demographics, preferences, and transactions. Your next step, however, is to divide customers into segments on the basis of pro tability: Best Customers, New Customers, Lapsed Customers, and Occasional Customers. You develop a marketing program for each segment. The actual communication with each customer can be personalized using the data on that customer that you have in your database, but the segment determines the overall approach. The cost of segment marketing is a fraction of the cost of one-to-one marketing.
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groups, members of the segment who do not receive the promotions that are sent to all the other members of the segment. Then they measure their success by comparing the purchases made by the members of the segment to whom the promotion was sent against the purchases made by the control group. To determine the return on investment,
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they have to take the incremental revenue gained from the segment to which the promotion was sent and subtract it from it the cost of the promotion and the rewards given to the members of that segment. Many times the return on investment is negative. In this chapter, we will begin with the process of creating a segment: coming up with the idea and nding the data to measure whether the segment is performing as you intend. Then we will look at some case studies involving marketing to segments. So, let s begin with getting data about segment members.
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There are two kinds of data: demographic and behavioral. Demographic data include age, income, presence of children, lifestyle, geography, type of housing, and other such things. In the case of business-to-business les, the demographic data are SIC code, number of employees, annual sales, and so on. Behavioral data usually consist of transactions responses, purchases, redemption of certi cates plus preferences and survey responses. In business-to-business marketing, transaction data are usually very easy to acquire, since most businesses have accounts with their suppliers. With consumers, the data are often dif cult to get your hands on, particularly if the product is purchased at retail stores or through dealers. There are two ways to obtain demographic data: You can have them appended to your database records by an outside source such as Experian, or you can get the information directly from the customers by asking them to ll out a survey or a pro le. The pro le method has become so important that a whole chapter, 14, has been devoted to the subject. To market to segments, you need a database that includes transaction history. The dif culty is in capturing the data. Many retail stores try to do this with a proprietary credit card. All large department stores issue cards, which they hope their customers will use. In fact, only the most determined customers use these cards. It is a nuisance to carry around 10 or 12 store cards in addition to your MasterCard, Visa, or
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