THE NEW CUSTOMER.

SEGMENTATION USING CUSTOMER

LIFETIME VALUE.
FOURTH INDUSTRIAL REVOLUTION
PEOPLE ARE CONNECTED MORE THEN EVER
The Customer Gap
Your Company Your Customers

Cloud
Social
Mobile
IoT
AI

<1 %
of customer data
77 %
of customers are not
has been analyzed engaged with companies
WHAT DO YOU THINK ARE CUSTOMER’S
EXPECTATIONS ARE NOW FROM BUSINESSES?

• Personalization • Empathy
• Mobility • Help
• Sociability • Complaints
• Self-Care • Empowerment
• Ease • Timeliness
• Consistency
CUSTOMER
HETEROGENEITY
RECAP: WHAT DO WE KNOW
ABOUT YOUR CUSTOMERS?

• Not all customers are created equal.

• Our customers are Heterogeneous.
RECAP: HOW DO YOU
BREAKDOWN CUSTOMER VALUE
OR “CUSTOMER GOODNESS”
• PREFERENCE
• PROPENSITY
• POTENTIAL
CUSTOMER-PERCEIVED VALUE

The customer buys from the firm that offers the

highest customer-perceived value.

Customer’s act on perceived value.

AMAZON PRIME EXAMPLE Amazon’s 54 million US Prime
customers now account for
more than half of its US
sales.

A prime customer spends 1.8

times more than a non-prime
customer.
EVOLUTION OF
MANAGING CUSTOMER
HETEROGENEITY
Evolution of Approaches for
Managing Customer
Heterogeneity
Target Market Size
Large Small

Niche Niche
segment segment
Potential customers
Niche Niche
segment segment

Mass marketing era, Niche marketing era, which One-to-one marketing era, which
which utilizes mass media concentrates all marketing efforts advocates tailoring of one or more
to appeal to an entire on a small but specific and well- aspects of the firm’s marketing mix to
market with a single defined segment of the population the individual customer
message

Media
Few national channels Many cable channels (narrowcasting)
Printing and Manufacturing
Large batch manufacturing Modular manufacturing/digital printing
Communication
Phone/direct mail Internet/mobile

© Palmatier, 2017, Marketing Strategy, Palgrave. ISBN:

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9781137526236.
MCDONALDS
SHIFTING VALUE
FROM MASS TO
MICRO-TARGETING
TO INDIVIDUAL
WHO IS YOUR CUSTOMER?
HOW TO MANAGE CUSTOMER HETEROGENEITY?
MARKETOONIST
Marketing Principle #1: All Customers Differ 
Managing Customer Heterogeneity

Inputs (3Cs) Managing Customer Heterogeneity Outputs (STP)

All Potential Customers Industry Segmentation

• Needs • Customer segments
• Demographics • Needs, demographics, and
• Size, growth, perceptions opportunity of each segment

Approaches & Processes Target Segment

Your Company Segmenting, targeting, and positioning
(STP) • Detailed needs, demographics,
• Strengths and weaknesses Customer-centric view and value of target segment(s)
• Opportunities and threats • Discriminant function
• Relative perceptions

Positioning Statement
Your Competitors
• Who (target segments)
• Strengths and weaknesses • What needs/benefits
• Opportunities and threats • Why (relative advantage &
support)
• Design Persona

© Palmatier, 2017, Marketing Strategy, Palgrave. ISBN:

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9781137526236.
#1 APPROACH: STP
ANALYSIS
Segmentation - position

Target Position &

Segmentation Persona
Audience
 SEGMENT, TARGET, AND POSITION
ANALYSIS (STP ANALYSIS)
• SEGMENT – Most observable customer
demographics.
• TARGET – Selecting one of those segments to
target and wrap a product/price around.
• POSITION – How to promote and connect with
audience.

*TRADITIONAL MARKETING FOCUS AND ANALYSIS*

Example of Managing Customer Heterogeneity
1) Identify Customer Segments 2) Select Target Segments 3) Position Against Competitors

Who: Members of high-end, coed

gyms
Gym Socialites Gym Socialites What: Good looking but highly
functional athletic wear
Why: Highest performance
materials and design that looks
good

Who: Fashion-conscious sporting

Potential Fashion Trend Setters Fashion Trend Setters fans
Customers What: Athletic wear as clothing
Why: Newest, coolest designs that
stand out from the crowd

Urban Athletes

Elite Athletes

Seasonal Gym
Members

© Palmatier, 2017, Marketing Strategy, Palgrave. ISBN:

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9781137526236.
 CREATE A PERSONA
Once you have identified your audience you want to create a
persona….

“Fictional characters created to represent the different buyer types

within a targeted demographic, attitude and/or behavior set that
might engage with a site, brand or product in a similar way.”

Russo, Jeffery. Hubspot (2014). The Beginner’s Guide to Segmentation and Buyer’s Persona. Retrieved Jan 2021:
https://blog.hubspot.com/customers/
PERSONA EXAMPLE

Image
Source:
Google
Persona’s help you set a strategy aimed at
attracting the most valuable customers or
prospective customers.
EXAMPLE:
KNOWING YOUR
AUDIENCE
#2 APPROACH:
CUSTOMER CENTRIC
Marketing Principle #1: All Customers Differ 
Managing Customer Heterogeneity

Inputs (3Cs) Managing Customer Heterogeneity Outputs (STP)

All Potential Customers Industry Segmentation

• Needs • Customer segments
• Demographics • Needs, demographics, and
• Size, growth, perceptions opportunity of each segment

Approaches & Processes Target Segment

Your Company Segmenting, targeting, and positioning
(STP) • Detailed needs, demographics,
• Strengths and weaknesses Customer-centric view and value of target segment(s)
• Opportunities and threats • Discriminant function
• Relative perceptions

Positioning Statement
Your Competitors
• Who (target segments)
• Strengths and weaknesses • What needs/benefits
• Opportunities and threats • Why (relative advantage &
support)
• Design Persona

© Palmatier, 2017, Marketing Strategy, Palgrave. ISBN:

26
9781137526236.
CUSTOMER FOCUS TO MANAGE CUSTOMER

The customer-centric approach to managing customer

heterogeneity is a company-wide philosophy that places
customers’ needs at the center of an organization’s
strategic process and uses the insights to make decisions.
WHAT DOES IT MEAN TO BE CUSTOMER
CENTRIC?
Places customer at center of organization's
vision/mission/strategy/structure/culture/metrics

Input: uses customers’ needs to drive decisions

Output: measures success from customer's perspective

• Customer satisfaction
• Net Promoter Score (NPS), loyalty

Processes: systems to link customer data to all aspects of firm

• Compensation (Scorecards and dashboards
Firms with customer-centric
organizations develop richer customer
knowledge and greater commitment to
each targeted customer segment.
HOW TO MANAGE CUSTOMER
DYNAMICS?
SEGMENT WITH CUSTOMER
LIFETIME VALUE (CLV)
 CUSTOMER
LIFETIME VALUE
(CLV) IS KEY TO
DEVELOPING A
CUSTOMER-
CENTRIC
STRATEGY.

Image Source: Zuora Google Images

 CLV DEFINED

Customer lifetime value is defined as the present value of

the future cash flows attributed to the customer relationship.

It is a forward-looking concept, not be confused with historic

customer profitability.
CLV is the “value” added, by an
individual customer, to the company.

Fader, P, and Toms, S (2019). The Customer Centricity Playbook: Implement a

Winning Strategy. Philadelphia, PA: Wharton School Press.
CLV CAPTURES TO EXISTING CUSTOMERS

CLV captures these difference in

your existing customers so you can
acquire, expand, and retain the
“best customers”.
CLV IS THE NET PROFIT CONTRIBUTION OF THE
CUSTOMER OVER TIME
 CLV IS FORWARD LOOKING & PREDICTIVE
MEASUREMENT THAT IS CALCULATED BY:
1. How long a customer relationship lasted or is likely to last (for
active and future customers).
2. Number of transactions
3. Value of the transactions
4. Other non-financial activities that the customer may engage in
(website visits, willingness to try other products, etc)

Fader, P, and Toms, S (2019). The Customer Centricity Playbook:

Implement a Winning Strategy. Philadelphia, PA: Wharton School Press.
 INCREASE IN MARKETING BUDGET
Those who “always measure the lifetime
value of each customer” achieved a 16%
average increase in their annual marketing
budget as compared to 0% for those who
do not measure it.

© Palmatier, 2017, Marketing Strategy, Palgrave. ISBN:

9781137526236.
 WHY CLV IS IMPORTANT TO YOUR COMPANY?
• Shows what your customer acquisition spend show be
• Helps you find the actual value of your customers beyond the stats
• Dictates allocation of marketing resources
• Helps evaluate campaign ROI
• Helps prioritize customer metrics that contribute to customer based
corporate valuation

Fader, P, and Toms, S (2019). The Customer Centricity Playbook: Implement a

Winning Strategy. Philadelphia, PA: Wharton School Press.
What is the CLV for Lexus and
Starbucks?
WHAT COMPANIES GET
WRONG ABOUT CLV
 MISTAKE #1: FAILING TO ACCOUNT FOR THE
STATUS OF THE CUSTOMER

What is the status of your customer?

Ask questions to determine the customer’s status:

• Is this customer likely to acquire in the future? Are
they active?

Fader, P, and Toms, S (2019). The Customer Centricity Playbook: Implement a

Winning Strategy. Philadelphia, PA: Wharton School Press.
 MISTAKE #2: FORGETTING TO DISTINGUISH
CONTRACTUAL OR NONCONTRACTUAL
CUSTOMERS

Contractual Where you see attrition.

Business You focus on retention of
customers.
Example: Rogers Bill

Non- You are not sure if your customers

Contractual have left and retention rates not
Business calculated.
Example: Binge buying where you
buy at certain times of the year.

Fader, P, and Toms, S (2019). The Customer Centricity Playbook: Implement a

Winning Strategy. Philadelphia, PA: Wharton School Press.
 MISTAKE #3: BELIEVING THAT CUSTOMER
RETENTION RATES REMAIN CONSTANT OVER
TIME

Celebrate the heterogeneity of your customers because

that will affect their retention rates.

Remember not all customers are created equal.

Fader, P, and Toms, S (2019). The Customer Centricity Playbook: Implement a

Winning Strategy. Philadelphia, PA: Wharton School Press.
 MISTAKE #4: YOUR CUSTOMERS ARE NOT
NORMAL

Fader, P, and Toms, S (2019). The Customer Centricity Playbook: Implement a

Winning Strategy. Philadelphia, PA: Wharton School Press.
80/20 RULE
 MISTAKE #5: BEYOND DOLLARS AND CENTS
Most CLV calculations are
purely financial BUT that is
not good for every case or
industry.

You nee to take into

consideration non-financial.

© Palmatier, 2017, Marketing Strategy, Palgrave. ISBN:

9781137526236.
QUESTIONS:

When implementing customer

relationship management, why might a
business desire fewer customers over
more customers?
QUESTION:

Describe ways marketers can increase

the life-time value of a customer?
THANK YOU.