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The data warehouse and customer segments

This is the fourth article of a five-part series on competitive advantage and the data warehouse.

This article originally appeared on the BeyeNETWORK.

In previous articles in this series, a model of customer segmentation has been developed. This article focuses on the reasons for customer movement and the importance of that movement.

In the customer segmentation model a customer may be categorized as: entry, sustaining, profitable or unprofitable. When the customer relationship terminates, the customer exits the system.

Each movement from one category to another is important. Accordingly, answering these important questions is vital: 

  • How many customers are moving? And
  • Why are the customers moving?

The answers to the above questions are at the heart of corporate strategy.

Interestingly, different factors affect each step of the movement. Figure 5 below shows that each of the movements can be identified.

This shows that the first movement [1] may be from the entry position to the sustaining position. In this case, a customer has decided to go past the introductory offer or enticement which caused it to start the relationship. There are many reasons why a customer enters the sustaining category, including:

  • The approval of service;
  • The approval of products; and
  • A pressing need for the product.

Usually, when the move from entry status to sustaining status is made, the customer purchases more services or products.

Movement [2] shows that the customer has decided to make a commitment to the corporation. The customer becomes more than a name on an account. The customer, in this example, has made a long-term strategic commitment to the corporation. Once a customer moves into this category, it no longer considers buying competing products and services.

Movement [3] depicts a customer changing its strategic commitment to the corporation and becoming merely a sustaining customer. Once a customer drops into this sustaining category, the customer considers competing products and services and makes its decision based on price and other relevant factors.

Movement [4] is also very important. If too many customers start to fall in into the unprofitable category, the corporation is in trouble. Ironically, all customers that are in this category have not necessarily stopped buying products. Some customers in this category are buying products from the company, but these customers may have unreasonable demands or requirements which consume the company’s profit margins. The cost of marketing to these customers may also far exceed the profit margins made on this customer’s volume of purchases.

Movement [5] is beneficial for the company. This movement means that a customer is returning to profitability. In many cases when a customer passes through movement [5] it quickly passes into movement [2]. This is really a benefit for the corporation.

Movement [6] is inevitable. However, it is the job of the management of the corporation to minimize customers making this move. Since no entity exists eternally, the corporation must plan for this movement.

Movement [7] can be positive or negative. For some companies the strategy is to attract as many customers as possible into the entry position. If the corporation uses this strategy, it will find many customers who will try the introductory offer but will not make further purchases. Other corporations will carefully qualify the customers. For those corporations, having a movement [7] is nearly disastrous.

These are the different movements from one category to another. Measuring the movements and understanding why the movements occur is strategically important. 

This is when the competitive value of the data warehouse becomes apparent. This segmentation of customers within the data warehouse allows the corporation to accurately assess the current position of its customers and anticipate their movements. This allows the corporation to target its advertising, strategically price its products and maintain its profitable and sustaining customer base. 

In identifying the movements and tracking the trends of the movements, the corporation realizes the competitive-edge advantages of its data warehouse investment.

Bill is universally recognized as the father of the data warehouse. He has more than 36 years of database technology management experience and data warehouse design expertise. He has published more than 40 books and 1,000 articles on data warehousing and data management, and his books have been translated into nine languages. He is known globally for his data warehouse development seminars and has been a keynote speaker for many major computing associations. Bill can be reached at 303-681-6772.

Editor's Note: More articles, resources and events are available in Bill's BeyeNETWORK Expert Channel. Be sure to visit today!

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