Marketing Analytics: Meaning

and Characteristics
 
Marketing analytics is the practice of measuring, managing and analyzing marketing
performance to maximize its effectiveness and optimize return on investment (ROI).
Understanding marketing analytics allows marketers to be more efficient at their jobs and
minimize wasted web marketing dollars.

Marketing analytics involves the technologies and processes CMOs and marketers use to
evaluate the success and value of their efforts. As such, marketing analytics uses various
metrics to measure the performance of marketing initiatives. Effective marketing analytics
gathers data from all sources and channels and combines it into a single view. Teams then use
the analytics to determine how their marketing initiatives are performing and to identify
opportunities for improvement. It is difficult to determine the effectiveness and return on
investment (ROI) of your marketing campaigns without marketing analytics.

Beyond the obvious sales and lead generation applications, marketing analytics can offer
profound insights into customer preferences and trends. Despite these compelling benefits, a
majority of organizations fail to ever realize the promises of marketing analytics. According
to a survey of senior marketing executives published in the Harvard Business Review, “more
than 80% of respondents were dissatisfied with their ability to measure marketing ROI.”

Characteristics of Marketing Analytics

1. Ensure high-quality data

Your analytics rest on your data. That means you need a tool that mines both structured and
unstructured customer data from all possible sources, including various interactions and touch
points.

2. Get real-time insights

Your marketing analytics solution also needs to deliver real-time insights to you. You can’t
be effective if your information is out-of-date; tracking the right metrics at the right time is
key.

3. Perfect your dashboard

While it may be tempting to track as many metrics as possible, your analytics will not be as
useful if you do. Rather, define your goals and measure results for the use cases most
important to you.

4. Choose the right analytics visualization

 Marketing teams and stakeholders must be able to make something of the data if you are to
gain meaningful insights from it. The key is to choose the most appropriate data
visualizations so you can find patterns and interpret the data. Thus, you must choose a
marketing analytics solution that allows you to choose or customize your visualizations
instead of using default charts for displaying data.

5. Use a tool featuring machine learning and AI to predict and prescribe

Marketing must be real-time and predictive to be effective today. You must be able to make
accurate predictions, analyze the data, and make data-driven decisions to enhance each step
of the customer journey.

Advantages and Disadvantages of

Marketing Analytics
 
Advantages of Marketing Analytics

1. Granular Segmentation

Marketing departments depend on the right segmenting to deliver impactful messaging and
relevant communications to leads and customers. After all, one email that targets males aged
20–55 probably won’t incite as much engagement compared to a message targeting a smaller
age bracket, an audience with a shared interest or audience with similar spending activity.

But there’s a reason many marketing analytics teams don’t go as granular as they’d like in
their communications. It’s because they don’t have access to marketing analytics dashboards
that instantly group customers based on different metrics.

For example, a marketing assistant could search ThoughtSpot for customers that have
purchased six or more times this year in the Southwest region to gather contacts for an
upcoming joint promotion with a business chain in the area.

2. Tailored Messaging

Effective marketing has always been about persuasion. But instead of trying to persuade the
masses, marketing today is about delivering personalized messaging and offers to both
customers and potential customers alike.

Send something irrelevant to a lead and they’ll disregard the message and probably your
business along with it. Do the same thing to an active guest and they’ll think you’re not
paying close enough attention, damaging your rapport.
 Marketing analytics tools can also play an integral role in the timing of communications and
the mode through which they’re sent. This gives businesses the best chance of reaching
customers in a good state of mind.

3. Multi-Channel Customer View

The more a marketing department interacts with leads and customers, the better
understanding they have of their audience base. This is especially helpful in our digital age
because, just like the preference of communication medium, consumers tend to spend time in
different places.

Tracking customer behavior, including engagement and buying activity across channels,
gives marketing a comprehensive understanding of how to interact with a customer. This
includes what kinds of communications they respond best and worst toward, as well as
strategies that can increase their lifetime value.

4. Marketing Analytics with ThoughtSpot

Leveraging a marketing data analytics tool offers knowledge at scale for an entire marketing
department and beyond. Platforms like ThoughtSpot allow marketing teams to better segment
audiences, deliver tailored messaging and gain a complete view of customers across channels.

Disadvantages of Marketing Analytics

1. Misidentifying Market Needs

One of the elements of your marketing analysis is identifying the needs of each market
segment. It also identifies other businesses and products that are attempting to satisfy the
needs of this segment. The disadvantage of doing this is twofold. You may overestimate how
well your competition is meeting the customers’ needs and quit before you even try to
market. You also may misidentify the need that is being met. Don’t overlook the uniqueness
of your own offering. Just because competition wants the same customer you do, that doesn’t
mean you are satisfying the same need.

2. Evaluating Market Growth without Market Share

Your marketing analysis will include a look at how the overall market is growing, which can
give you some idea of your range of opportunities. If your analysis discourages you,
however, it can be a disadvantage. You can successfully compete in a limited market if you
capture market share. An analysis of the market size alone is not enough to indicate your
opportunities. Improved market share can compensate for a slow-growth market.

3. Market Segmentation Versus Target Markets

You must identify the segments of the market that have potential customers for your products
or services. This will help you understand the varied approaches you may need to take to
reach different types of customers. The downside is that you may spread yourself too thin.
Few businesses can afford to market to every single potential customer. Identify a target
 market that you choose from among the available segments, and go after that target market in
a focused manner.

4. Improper Interpretation of Data

A marketing analysis is only as good as the analyzer. You can collect a lot of data in market
surveys, but interpreting that data correctly is vital. You will be at an extreme disadvantage if
you misinterpret facts and make decisions based on that misinterpretation. Run your analysis
past a trusted adviser or two. Make sure your analysis is not wishful thinking.

Market Data Sources (Primary

and Secondary)
 

Primary Market Research

Primary research is research that is conducted by you, or someone you pay to do original
research on your behalf.  In the case of primary research, you are generating your own data
from scratch as opposed to finding other people’s data.  You might choose to gather this data
by running a survey, interviewing people, observing behavior, or by using some other market
research method.

Secondary Market Research

Sometimes called “desk research” (because it can be done from behind a desk), this technique
involves research and analysis of existing research and data; hence the name, “secondary
research.”  Conducting secondary research may not be so glamorous, but it often makes a lot
of sense of start here.  Why?  Well, for one thing, secondary research is often free.  Second,
data is increasingly available thanks to the Internet; the US Census and the CDC (health
data), for example, are two great sources of data that has already been collected by someone
else.  Your job as a secondary researcher is to seek out these sources, organize and apply the
data to your specific project, and then summarize/visualize it in a way that makes sense to
you and your audience.  So, that’s what secondary market research is all about.  The
downside, of course, is that you may not be able to find secondary market research
information specific enough (or recent enough) for your objectives.  If that’s the case, you’ll
need to conduct your own primary research.
Sources of Secondary Data

Secondary data comes in all sorts of shapes and sizes.  There are plenty of raw data sources
like the US Census, Data.gov, the stock market, and countless others.  Internal company data
like customer details, sales figures, employee timecards, etc. can also be considered
secondary data.  Published articles, including peer-reviewed journals, newspapers,
magazines, and even blog postings like this count as secondary data sources.  Don’t forget
legal documents like patents and company annual filings.  Social media data is a new source
of secondary data.  For example, the New York Times collected Twitter traffic during the
2009 Super Bowl and produced this stunning visualization of comments throughout the
game.  Secondary data is all around us and is more accessible than even.  It is increasingly
possible to obtain behavioral data from secondary sources, which can be more powerful and
reliable than self-reported data (via surveys and focus groups).

The New Realities of Marketing

Decision Making Market Sizing:
Data Sources
 
Every business has a market. From businesses like Amazon, whose audience could be
anyone, to niche businesses selling specialized, custom products, knowing your market is
essential to establishing a successful business. Many organizations believe their product is so
novel or useful that their market is everyone, but more often than not, the customer base will
actually exclude certain demographics. If your product is extremely expensive, that means the
product is probably only going to be bought by people in a certain income bracket. If your
product can only be used in certain areas (like boats as opposed to cars), you’ll likely only
 sell that product regionally. This is why it’s important to understand your target audience and
estimate your market size and type when setting up your business and marketing plans.

Market Size

Market size can be simply defined as “the number of people likely to buy a product or
service.” Many businesses have a rough idea of who their market is or how many individuals
it might involve, but it’s important to accurately estimate market size in order to plan for
things like budgets, sales goals, marketing efforts, and staffing. Knowing how large your
market can be directly proportional to your business efforts. Using smart market size
estimation techniques is an important planning step.

How to Evaluate Market Size?

There are several kinds of market sizing techniques that businesses should consider and use
in their market size analysis. The most important step, before considering anything that will
help you estimate your market, is having good data that accurately paints the picture of the
marketplace or industry. Having good data and research is necessary to understanding how to
estimate your market size. Before working with any market size estimation techniques, make
sure you have solid information to draw from and analyze. With good data, you can:

 Look at the competition: Are you the only provider of your business or service
locally? Regionally? Nationally? This will tell you a lot about the potential size of your
market. If you have a lot of competition, you know you are competing with other businesses
for customers, effectively reducing or limiting your potential market.
 Understand your product: Be realistic about things that will affect who will buy
your product. Things like cost, usefulness, reliability, or availability will influence how many
people are truly in your market.
 Understand your customer: Similar to understanding your product, you must know
something about your customer when doing market size calculation. Are your customers
likely to be male? That tells you something about your market. Are they likely to be college-
educated? Found in cities? Make a certain salary a year? Knowing your target customer
always leads to helping you estimate your market size.

Estimating your market size is an important step in establishing and growing your business,
including planning budgets, forecasting goals, and creating marketing plans. In addition to
being something businesses should do as they launch, it should also be reevaluated regularly
as your business gains customers and recognition. Customer market size is never a static
thing and can grow, change, and shrink based on anything from the economy to available
technology, so always be mindful of market size for your business.

Data Sources

Your selected approach will dictate the necessary sources to estimate market size. Secondary
research or desk research searches for existing data and is the most commonly used form of
research in this type of exercise because it is quicker to obtain and therefore usually more
cost effective. Through general web searching, a wealth of information can be found at little
or no cost. Subscription-based or syndicated research is a great place to start, but there are
also free sources that contain valuable information. Articles about companies or products in
the target market will often quote data from these sources. You might also check whitepapers
and product announcements for similar information. Publicly held companies are required to
share information in analyst and investor reports. Quarterly and annual reports are typically
available on these company websites as well as through the SEC filings. Also, trade
associations will often conduct market research and aggregate industry data.

Primary research, also called field research, is often used in addition to secondary research.
The primary research can take on many forms and can strengthen your understanding of the
market, allowing you to make better informed assumptions. The most versatile form of
primary research is in-depth telephone interviews that can be used to capture more sensitive
information. If possible, on-site visits can be used to confirm or contradict market sizing
estimations or determine key information on market trends, such as technology, market
performance, relative competitive position or other information dealing with understanding
scope and defining the target market.

Segmentation Concept, Basis

of Segmentation
 

Segmentation means to divide the marketplace into parts, or segments, which are definable,
accessible, actionable, and profitable and have a growth potential. In other words, a company
would find it impossible to target the entire market, because of time, cost and effort
restrictions. It needs to have a ‘definable’ segment – a mass of people who can be identified
and targeted with reasonable effort, cost and time.

Once such a mass is identified, it has to be checked that this mass can actually be targeted
with the resources at hand, or the segment should be accessible to the company. Beyond this,
will the segment respond to marketing actions by the company (ads, prices, schemes, promos)
or, is it actionable by the company? After this check, even though the product and the target
are clear, is it profitable to sell to them? Is the number and value of the segment going to
grow, such that the product also grows in sales and profits?

Description: Segmentation takes on great significance in today’s cluttered marketplace, with

thousands of products, media proliferation, ad-fatigue and general economic problems around
the world markets. Rightly segmenting the market place can make the difference between
successes and shut down for a company.

Segmentation allows a seller to closely tailor his product to the needs, desires, uses and
paying ability of customers. It allows sellers to concentrate on their resources, money, time
and effort on a profitable market, which will grow in numbers, usage and value.
 Basis of Segmentation

Segmenting is dividing a group into subgroups according to some set ‘basis’. These bases
range from age, gender, etc. to psychographic factors like attitude, interest, values, etc.

Gender

Gender is one of the most simple yet important bases of market segmentation. The interests,
needs and wants of males and females differ at many levels. Thus, marketers focus on
different marketing and communication strategies for both. This type of segmentation is
usually seen in the case of cosmetics, clothing, and jewellery industry, etc.

Age group

Segmenting market according to the age group of the audience is a great strategy for
personalized marketing. Most of the products in the market are not universal to be used by all
the age groups. Hence, by segmenting the market according to the target age group,
marketers create better marketing and communication strategies and get better conversion
rates.

Income

Income decides the purchasing power of the target audience. It is also one of the key factors
to decide whether to market the product as a need, want or a luxury. Marketers usually
segment the market into three different groups considering their income. These are

 High Income Group

 Mid Income Group
 Low Income Group

Place

The place where the target audience lives affect the buying decision the most. A person living
in the mountains will have less or no demand for ice cream than the person living in a desert.

Occupation

Occupation, just like income, influences the purchase decision of the audience. A need for an
entrepreneur might be a luxury for a government sector employee. There are even many
products which cater to an audience engaged in a specific occupation.

Usage

Product usage also acts as a segmenting basis. A user can be labelled as heavy, medium or
light user of a product. The audience can also be segmented on the basis of their awareness of
the product.

Lifestyle
Other than physical factors, marketers also segment the market on the basis of lifestyle.
Lifestyle includes subsets like marital status, interests, hobbies, religion, values, and other
psychographic factors which affect the decision making of an individual.

Segmentation Targeting Positioning

(STP) Framework
 

Segmentation Targeting and Positioning (STP) is a strategic approach to modern

marketing techniques and demonstrates a link between the overall market and how any
business plans its marketing activities to compete in that market. Many times STP is referred
to as a process where segmentation is developed initially, one or more target market is
selected and then the positioning of the final product or services takes place. The overall
purpose of STP is to guide the business to the planning and implementing a marketing mix
program which is appropriate for both the company and the targeted group of people.

The STP model is very useful in the development of marketing communications plan as it
allows the marketers to prioritize their propositions and then aim in delivering relevant and
personalized messages so as to get intact with a different type of audiences.

How to Apply Segmentation Targeting Positioning “STP” to a Business?

There are basic steps in the STP model which are very useful in analyzing the products or
services being offered along with the way in which the value and benefits of the offering are
conveyed to target groups. In this marketing tutorial, we will learn how to apply
segmentation, targeting and positioning model in any business organization include the
following steps to follow:

Step 1: Segment the Market

Whatever a business is offering, it cannot be everything for everyone. This is the main
concept behind market segmentation which involves dividing various customers into different
groups that have common needs and characteristics. In this way, organizations can tailor-
make their marketing approaches so as to meet the requirements of every group cost-
effectively along with providing an edge over your competitors.

Segmenting customers can be based on different aspects like demographic, behavioral,

psychographic and geographic factors. For example, a travel agency online arranges
adventure vacations worldwide. Its customers are divided into three groups as it is very costly
to make diverse packages for additional groups.

The first segment includes people who are young and married couples and who are interested
in eco-friendly and affordable vacations at exotic places. The second segment includes
middle-income families who are willing for a family-friendly and safe vacation plan and
which also makes their trip fun and easy with children. The third segment includes wealthy
retirees who want to go for a luxurious and stylish vacation in the well-known cities.

Step 2: Target your Customers

At this step, companies need to determine which segment they have to target. Here,
companies to analyze different factors such as the profitability and effectiveness of every
segment, analyzing the potential growth and size of every segment and understand how well
the company can serve to the needs of particular segments. This step can be explained from
the previous example where the online adventure company examines the market size,
revenues and profits of every segment.

The first segment reported profits of $9,520,000, the Segment B generates profits of
$5,460,000, whereas, Segment C profits are expected to $4,360,000. Analyzing this, the
company decides to give attention more to the first segment because of the size of this
segment.

Step 3: Position the Offering

The final step is positioning strategy that requires companies to determine how they want to
place their offerings to the targeted and most important customer group. After this, the most
appropriate marketing mix can be selected. Business should initially determine why the
customers will avail the offering rather than from its competitors. This can be done by
identifying the unique selling proposition (USP) and then depict a positioning plan for
understanding how the different segments will perceive the products or services. In this way,
companies can find the best marketing model to position its offerings.

In addition to this, companies should also understand the needs and wants of every segment
or understand the problem which the offering will solve. This can be done by creating value
proposition which explains how the product or service will meet the expectations of the group
better than other products.

For example, the travelling company presents itself as the ‘finest service for eco-vacation
trips for newly young married couples’. The company tends to hold a contest on social media
platforms for reaching its audience as this medium is preferred by this segment. The
competition asks participants to send pictures of previous eco-vacations; the best picture will
win a trip. This marketing campaign was a big hit and helped the company create its mailing
list for the e-newsletter on monthly basis including profiles of different destinations.

A very important concept of segmentation targeting and positioning model is that all the three
steps should be in alignment with one another so as to develop a fluid plan. Segmentation
allows reaching the right target market which paves way for an appropriate positioning
strategy. If any step within the STP model changes, it is important that the whole work from
segmentation should be done and the strategy needs to be re-worked or else the market
strategy will be destined to fail.
 Managing the Segmentation Process
 

1. Determine the need of the segment

What are the needs of the customers and how can you group customers based on their needs?
You have to think of this in terms of consumption by customers or what would each of your
customer like to have.

For example – In a region, there are many normal restaurants but there is no Italian restaurant
or there is no fast food chain. So, you came to know the NEED of consumers in that specific
region.

2. Identifying the segment

Once you know the need of the customers, you need to identify that “who” will be the
customers to choose your product over other offerings. Quite simply, you have to decide
which type of segmentation you are going to use in this case. Is it going to be geographic,
demographic, psychographic or what? The 1st step gives you a mass of crowd, and in the 2nd
step, you have to differentiate the people from within that crowd.

Taking the same above example of Italian restaurant – The target will be children, youngsters
and middle aged people. Italian food is generally not preferred by old age people who prefer
food which can be easily chewed (that’s what I feel at least. Lets see if I have teeth by the
time I am 60). So you know the segment now.

3. Which segment is most attractive?

Now, we approach the targeting phase in the steps of market segmentation. Out of the various
segments you have identified via demography, geography or psychography, you have to
choose which is the most attractive segment for you. This is a tough question to answer
because one of them will be left out.

If you are using psychographic segmentation, then you need to target the psychology of
consumers which takes time. So you will not be able to expand faster. But if your product is
basic, then you can use demographic segmentation as the base, and expand much faster in
surrounding regions. So this step involves deciding on ALL the different types of
segmentation that you can use.

Attractiveness of the firm also depends on the competition available in the segment. If the
competition is too much in a given segment, then it does not make sense to take that segment
into consideration. In fact, that segment is not attractive at all.

Taking the above example of an Italian restaurant, the restaurant owner realizes that he has
more middle aged people and youngsters in his vicinity. So it is better to market his store on
weekends and malls where this target group is likely to go. The middle aged people can bring
children and elders as per their convenience. So the 1st target is the middle aged group, and
 the 2nd target is youngsters. He is using a combination of demographic and geographic
segmentation to target middle aged people in his region.

4. Is the segment giving profit

So, now you have different types of segmentation being analysed for their attractiveness.
Which segment do you think will give you the maximum crowd has been decided in the 3rd
step. But which of those segments is most profitable is a decision to be taken in the 4th step.
This is also one more targeting step in the process of segmentation.

Example – The Italian restaurant owner above decides that he is getting fantastic profitability
from the middle aged group, but he is getting poor profitability from youngsters. Youngsters
like fast food and they like socializing. So they order very less, and spend a lot of time at the
table, thereby reducing the profitability. So what does the owner do? How does he change
this mindset when one of the segments he has identified is less profitable? Lets find out in the
5th step.

5. Positioning for the segment

Once you have identified the most profitable segments via the steps of market segmentation,
then you need to position your product in the mind of the consumers. I would not dive deep
into positioning here as you can read this quick guide to positioning. The basic concept is that
the firm needs to place a value on its products.

If the firm wants a customer to buy their product, what is the value being provided to the
customer, and in his mindset, where does the customer place the brand after purchasing the
product? What was the value of the product to the customer and how valuable does he think
the brand is – that is the work of positioning. And to complete the process of segmentation,
you need to position your product in the mind of your segments.

Example – In the above case we saw that the Italian restaurant owner was finding youngsters
unprofitable. So what does he do? How does he target that segment as well? Simple. He starts
a fast food chain right next to the Italian restaurant. What happens is, although the area has
other fast food restaurants, his restaurant is the only one which offers good Italian cuisine and
a good fast food restaurant next door itself. So both, the middle aged target group and the
youngsters can enjoy. He has converted the profit earned from the middle aged group, into
more profit, and has achieved top of the mind positioning for all people in his region.

6. Expanding the segment

All segments need to be scalable. So, if you have found a segment, that segment should be
such that the business is able to expand with the type of segmentation chosen. If the segment
is very niche, then the business will run out of its course in due time. Hence the expansion of
the segment is the second last step of market segmentation.

In the above example, the Italian restaurant owner has the best process in his hand – an Italian
restaurant combined with a fast food chain. He was using both Demographic and geographic
segmentation. Now he starts looking at other geographic segments in other regions where he
 can establish the same concept and expand his business. Naturally, with more expansion he
will earn more profits.

7. Incorporating the segmentation into your marketing strategy

Once you have found a segment which is profitable and expandable, you need to incorporate
that segment in your marketing strategy. How do you think McDonalds or KFC became such
big chains of fast food? They had a very clear process of segmentation because of which it
became easier to find regions to target.

With the steps of market segmentation, your segments become clear and then you can adapt
other variables of marketing strategy as per the segment being targeted. You can modify the
products, keep the optimum price, enhance the distribution and the place and finally promote
clearly and crisply to your target audience. Business becomes simpler due to the process of
market segmentation.

Deriving Market Segments and

Describing the Segments
 

A market segment is a group of people who share one or more common characteristics,
lumped together for marketing purposes. Each market segment is unique, and marketers use
various criteria to create a target market for their product or service. Marketing professionals
approach each segment differently, after fully understanding the needs, lifestyles,
demographics, and personality of the target consumer.

A market segment is a category of customers who have similar likes and dislikes in an
otherwise homogeneous market. These customers can be individuals, families, businesses,
organizations, or a blend of multiple types. Market segments are known to respond somewhat
predictably to a marketing strategy, plan, or promotion. This is why marketers use
segmentation when deciding a target market. As its name suggests, market segmentation is
the process of separating a market into sub-groups, in which its members share common
characteristics.

To meet the most basic criteria of a market segment, three characteristics must be present.
First, there must be homogeneity among the common needs of the segment. Second, there
needs to be a distinction that makes the segment unique from other groups. Lastly, the
presence of a common reaction, or a similar and somewhat predictable response to marketing,
is required. For example, common characteristics of a market segment include interests,
lifestyle, age, gender, etc. Common examples of market segmentation include geographic,
demographic, psychographic, and behavioral.

Examples of Market Segments and Market Segmentation

A good example of market segments and how a company markets to those groups is in the
banking industry. All commercial banks service a wide range of people, many of whom have
relatable life situations and monetary goals. If, for example, a bank wants to market to Baby
Boomers, it conducts research and finds that retirement planning is the most important aspect
of their financial needs. The bank, therefore, markets tax-deferred accounts to this consumer
segment.

Taking it a step further, if the same bank wants to effectively market products and services to
millennials, Roth IRAs and 401(k)s may not be the best option. Instead, the bank conducts in-
depth market research and discovers most millennials are planning to have a family. The
bank uses that data to market college-friendly savings and investment accounts to this
consumer segment.

Conversely, sometimes a company already has a product but does not yet know its target
consumer segment. In this scenario, it is up to the business to define its market and cater its
offering to its target group. Restaurants are a good example. If a restaurant is near a college, it
can market its food in such a way to entice college students to enjoy happy hours rather than
trying to attract high-value business customers.

Points to Remember

A market segment is a group of people in a homogeneous market who share common

marketable characteristics.

The criteria for a market segment are that there is homogeneity among the segment’s main
needs, the segment must be unique, and the segment’s members must produce a common
reaction to marketing tactics.

Common market segment traits include interests, lifestyle, age, and gender.

Cluster Analysis
Market Segmentation
 

Cluster analysis is the use of a mathematical model to discover groups of similar customers
based on finding the smallest variations among customers within each group. These
homogeneous groups are known as “customer archetypes” or “personas”.

The goal of cluster analysis in marketing is to accurately segment customers in order to

achieve more effective customer marketing via personalization. A common cluster analysis
method is a mathematical algorithm known as k-means cluster analysis, sometimes referred
to as scientific segmentation. The clusters that result assist in better customer modeling and
predictive analytics, and are also are used to target customers with offers and incentives
personalized to their wants, needs and preferences.
The process is not based on any predetermined thresholds or rules. Rather, the data itself
reveals the customer prototypes that inherently exist within the population of customers.

The Advantages of Cluster Analysis

As compared with threshold/rule-based segmentation, the three main advantages of the

analytical segmentation approach represented by cluster analysis are:

(i) Practicality

It would be practically impossible to use predetermined rules to accurately segment

customers over many dimensions

(ii) Homogeneity

Variances within each resulting group are very small in cluster analysis, whereas rule-based
segmentation typically groups customers who are actually very different from one another.

(iii) Dynamic clustering

The clusters definitions change every time the clustering algorithm runs, ensuring that the
groups always accurately reflect the current state of the data.

Closing the Cluster Analysis Marketing Loop

Because customer behavior changes frequently, performing cluster-based segmentation only

once in a while is not sufficient. Ideally, it should be performed daily, taking advantage of all
the latest customer behavioral and transactional data. For most online businesses, this means
identifying dozens or hundreds of different personas that can be independently targeted by
marketers. This, of course, is not something that can be easily done manually; rather, an
automated system should be employed to ensure that the entire customer base is accurately
segmented into relevant personas every day.

The next ingredient is connecting the discovered customer personas with the most relevant
marketing interactions for each one. These interactions should cater to the specific wants,
needs and preferences of each small, homogeneous group of customers represented by each
persona. Marketing creativity must be mated with an automated multi-channel marketing
execution system that will allow marketers to address any number of different personas with
any number of different marketing campaigns, every single day.

Finally, there needs to be a measurement and optimization cycle in place. By scientifically

measuring the results of each campaign in terms of monetary uplift, marketers can know
which campaigns are working well and which ones need improvement. The end result will be
highly relevant marketing communications – leaving no customer behind – that generate
long-term customer loyalty, improved brand perception and maximum customer value.
Discriminant Analysis
 

Discriminant Analysis is a statistical tool with an objective to assess the adequacy of a

classification, given the group memberships; or to assign objects to one group among a
number of groups. For any kind of Discriminant Analysis, some group assignments should be
known beforehand.

Discriminant Analysis is quite close to being a graphical version of MANOVA and often
used to complement the findings of Cluster Analysis and Principal Components Analysis.

When Discriminant Analysis is used to separate two groups, it is called Discriminant

Function Analysis (DFA); while when there are more than two groups – the Canonical
Varieties Analysis (CVA) method is used.

In the 1930’s, 3 different people – R.A. Fisher in UK, Hoteling in US and Mahalanob is in
India were trying to solve the same problem via three different approaches. Later their
methods of Fisher linear discriminant function, Hoteling’s T2 test and Mahalanobis D2
distance were combined to devise what is today called Discriminant Analysis.

Benefits and Practical Applications of Discriminant Analysis

Discriminant Analysis has various benefits as a statistical tool and is quite similar to
regression analysis. It can be used to determine which predictor variables are related to the
dependant variable and to predict the value of the dependant variable given certain values of
the predictor variables. Discriminant Analysis is also widely used to create Perceptual
Mapping by marketers and has some benefits over other methods that use perceived
distances; like the option of using tests of significance to check for dissimilarities among
products and that the distances between two products would not be impacted by other
products included in the study.

Discriminant Analysis has various other practical applications and is often used in
combination with cluster analysis. Say, the loans department of a bank wants to find out the
creditworthiness of applicants before disbursing loans. It may use Discriminant Analysis to
find out whether an applicant is a good credit risk or not. This would serve as method of
screening applicants and preventing later bad debts. In another scenario, say a retail chain
wants to conduct market segmentation. It might use a survey to get respondents to rate
various desirable service attributes and then use a combination of cluster analysis and
Discriminant Analysis to segment its market and assign customers to different segments. This
will help the retailer get an idea of customer’s preferences in each segment and also target
them better in their marketing campaigns.
 Targeting Concepts, Types
and Importance
 

Target marketing involves breaking a market into segments and then concentrating your
marketing efforts on one or a few key segments consisting of the customers whose needs and
desires most closely match your product or service offerings. It can be the key to attracting
new business, increasing sales, and making your business a success.

Targeting in marketing is a strategy that breaks a large market into smaller segments to
concentrate on a specific group of customers within that audience. It defines a segment of
customers based on their unique characteristics and focuses solely on serving them.

Instead of trying to reach an entire market, a brand uses target marketing to put their energy
into connecting with a specific, defined group within that market.

Five Different Types of Targeting

1. Behavioral Targeting (aka audience targeting)

Behavioral targeting is the practice of segmenting customers based on web browsing

behavior, including things like pages visited, searches performed, links clicked, and products
purchased. If you add mobile and physical store data into the mix, that can also include things
like location, and in-store purchases. Visitors with similar behaviors are then grouped into
defined audience segments, allowing advertisers to target them with specific, relevant ads and
content based on their browsing and purchase history. An oft cited example of behavioral
targeting is retargeting ads.

2. Contextual Targeting

Contextual targeting involves displaying ads based on a website’s content. Think: placing an
ad for dishware on a recipe site, or an ad for running shoes on a running forum. It’s kind of
like the digital version of placing a print ad in a niche magazine. It works based on the
assumption that someone reading a page about running is likely to also be interested in your
ad for sneakers.

3. Search Retargeting

Search retargeting is when you serve display ads to users as they browse the web based on
their keyword search behavior. Campaigns are set up with keywords that you choose and that
are relevant to your business or products. For example, if you are a furniture retailer, you
might want to serve display ads to users who have searched for “leather couch”, or “leather
sectional”. This kind of advertising is successful because it uses intent to connect with
shoppers. The shopper may or may not know about you, but they are showing interest in a
product or solution that you offer. Think of this as an upper funnel, prospecting strategy.
4. Site Retargeting

Site retargeting, also known as just “retargeting”, involves showing display ads to users who
visited your site and then left without completing a purchase to browse elsewhere. It differs
from search retargeting in two important ways: it is not keyword based, and it is targeting
people who are already familiar with your brand, or who at least have visited your site once
and showed interest in your offerings. Because of this brand recognition, the ROI of site
retargeting is often extremely high. Think of this as a lower funnel, conversion focused
strategy.

5. Predictive Targeting

Predictive targeting uses all of the web browsing data from behavioral targeting, layers in 3rd
party data (if available), and applies powerful AI and machine learning to analyze the data
and predict future buying patterns based on past behaviors. The AI that powers predictive
targeting can make connections between behaviors, identify similar and related products for
upselling and cross-selling, and zero in on the shoppers most likely to convert at any given
time—all in an instant. And the more data it analyzes, the more it learns and the better its
models become.

Importance of Targeting

Targeting in marketing is important because it’s a part of a holistic marketing strategy. It

impacts advertising, as well as customer experience, branding, and business operations.
When your company focuses on target market segmentation, you can do the following:

1. Speak directly to a defined audience

Marketing messages resonate more deeply with audiences when readers can relate directly to
the information. Brands that have a large, varied market of customers often struggle with
creating marketing campaigns that speak directly to their audience. Because their viewers are
very different, few slogans or stories can resonate with each person on a personal level.
Through target marketing, you can alleviate this problem and focus on crafting messages for
one specific audience.

2. Attract and convert high-quality leads

When you speak directly to the people you want to target, you are more likely to attract the
right people. Your marketing will more effectively reach the people most likely to want to do
business with you. When you connect with the right people, you are then more likely to get
high-quality, qualified leads that will turn into paying customers.

3. Differentiate your brand from competitors

When you stop trying to speak to every customer in your market and start focusing on a
smaller segment of that audience, you also start to stand out from competitors in your
industry. When customers can clearly identify with your brand and your unique selling
propositions, they will choose you over a competitor that isn’t specifically speaking to or
 targeting them. You can use your positioning in marketing to make your brand more well-
known and unique.

4. Build deeper customer loyalty

The ability to stand out from competitors by reaching your customers on a more personal,
human level also creates longer-lasting relationships. When customers identify with your
brand and feel like you are an advocate for their specific perspectives and needs, they will
likely be more loyal to your brand and continue to do business with you over a longer period
of time.

5. Improve products and services

Knowing your customers more intimately also helps you look at your products and services
in a new way. When you have a deep understanding of your target audience, you can put
yourself in their shoes and see how you can improve your offerings. You can see what
features you can add to better serve your customers.

6. Stay focused

Finally, the benefit of using targeting in marketing is that it also serves to help your brand and
team. Target marketing allows you to get more specific about your marketing strategies,
initiatives, and direction of your brand. It helps you clarify your vision and get everyone in
the organization on the same page. You have more direction when it comes to shaping
upcoming plans for both marketing and the business as a whole. A focused approach helps
you fully optimize your resources, time, and budget.

The Concept of Product Positioning

 

Product positioning is the process of identifying the needs of different groups of customers
and the extent to which competing products are perceived to meet customers needs. In other
words, relating a product to the market is termed as ‘product positioning’.

It also includes activities like determining the market segments towards which major
marketing effort will be directed on behalf of a product and suggesting methods to
differentiate products from competing ones. Thus, the whole process is meant to bring
together the market segments and products. The process can be used to retain existing
products and services as well as to introduce new ones.

Thus, product positioning refers to targeting the product at specific class of customers or for
specific needs. It determines the image of the product in relation to the rival products. The
strategies used for this purpose are product differentiation and segmentation.
These strategies are often employed by the firms who want to engage in non-price
competition in markets characterised by imperfect or monopolistic competition. Both the
strategies involve financial investment in promotional programmes.

Product differentiation means making the product different in some manner from the
competitive products. It is an important product strategy in a competitive market. A marketer
cannot control the price of his product which is identical in all respects to the products of
competitors.

Product differentiation can offer the following advantages:

(i) It helps in facing competition.

(ii) It facilitates some control over the price of the product.

(iii) It enables the marketer to create brand loyalty.

(iv) Awareness of differences in the product helps to boost the firm’s goodwill.

(v) It provides ideas for advertising.

However, product differentiation tends to increase the problem and costs of advertising and
sales promotion. Firms with limited product line find product differentiation particularly
useful.

Customer Lifetime Value: Concept,

Basic Customer Value
 

Customer Lifetime Value or CLTV is the present value of the future cash flows or the
value of business attributed to the customer during his or her entire relationship with the
company.

Description: CLTV is the value a customer contributes to your business over the entire
lifetime at your company. It is a very important metric and is used while making important
decisions about sales, marketing, product development, and customer support.

By applying Customer Lifetime Value marketing managers can easily arrive at the rupee
value associated with the long-term relationship with any customer. It is difficult to predict
how long each relationship will last, but marketing managers can make a good estimate and
state CLTV as a periodic value.
It is useful metric used by marketing managers especially at a time of acquiring a customer.
Ideally, lifetime value should be greater than the cost of acquiring a customer. Some also call
it a break-even point.

The basic formula for calculating CLTV is the following:

(Average Order Value) x (Number of Repeat Sales) x (Average Retention Time)

For example, let’s say you run a Health Club where customers pay Rs 1000 per month and
the average time that a person remains a customer in your club is 3 years. Then the lifetime
value of each customer is (according to the formula above):

Rs 1,000 per month x 12 months x 3 years = Rs 36,000. This means each customer is worth a
lifetime value of Rs 36,000.

Once we calculate CLTV we know how much the company can spend on paid advertising
such as Facebook ads, YouTube ads, Google Adwords etc. in order to acquire a new
customer.

Basic Customer Value

In marketing, customer lifetime value (CLV) is a metric that represents the total net profit a
company makes from any given customer. CLV is a projection to estimate a customer’s
monetary worth to a business after factoring in the value of the relationship with a customer
over time. CLV is an important metric for determining how much money a company wants to
spend on acquiring new customers and how much repeat business a company can expect from
certain consumers.

CLV is different from customer profitability (CP), which measures the customer’s worth over
a specific period of time, in that the metric predicts the future whereas CP measures the past.

CLV is calculated by subtracting the cost of acquiring and serving a customer from the
revenue gained from the customer and takes into account statistics such as customer
expenditures per visit, the total number of visits and then can be broken down to figure out
the average customer value by week, year, etc.

But the process is more nuanced than that. By concentrating on what a customer has
previously spent, companies neglect how their marketing or advertising practices have
changed over time, resulting in new customers who behave differently than old ones. CLV
should never be determined by dividing the total revenue by the number of total customers,
since this is too simple a calculation and does not factor into how long some customers have
had a relationship with the company. Changes to any of these strategies, as well as any shifts
in a company’s customer base as a whole, in the future will prevent companies from
depending on past CLVs to predict upcoming ones.
 Customer life time
Value Calculations
 

The goal of the CLV is to take into account your customers’ loyalty and retention to calculate
the turnover (or profit) that a customer will generate during his or her “life” on your site.

The customer lifetime value is essential since it allows us to predict our turnover over the
long term and to adjust our marketing or acquisition budget in consequence.

If you thought that the cost of acquisition was calculated based on a single hypothetical
purchase, here is some data that will surely make you change your mind.

How do you calculate your customer lifetime value?

There are several formulas for calculating the LTV. However, many of them are complicated
and time consuming to put in place.

There is a simpler way to calculate your LTV.

For this, you will need some bits of data from your business:

1. The average cart

2. Purchase frequency
3. The customer value
4. The average customer lifespan

To make your calculations easier, use the above indicators over the same period of time: 1
year, preferably.

(1) Average cart

The average cart is just turnover divided by the number of orders. It’s the average value of a
purchase on your site.

Average cart = Turnover / Number of orders

(2) Purchase frequency

Purchase frequency is a piece of data that allows you to understand how many purchases are
made by the same customer during a given period. This is essential since it tells you how
many purchases your unique customers make over a given period of time and whether your
customers tend to make new purchases on your e-commerce site.

Use the following formula:

 Purchase frequency = Number of orders / Unique customers

(3) Customer value

Customer value is the average value of your shopping cart multiplied by the average purchase
frequency of your customers over a given period. It’s the multiplication of the two pieces of
data that we have just explained:

Average cart X Purchase frequency

(4) Customer average lifespan

The customer average lifespan is the last piece of the puzzle. However, it is also the most
complicated to understand because it depends on the type of activities you occupy.

Generally speaking, the customer average lifespan is considered to be between 1 and 3 years.
However, this piece of data will change depending on your business model: do you offer a
subscription service or a one-time purchase?

If your business is a very occasional niche, consider a lifetime of between 1 and 2 years. If
you are working on a clothing or decoration brand and your designs are renewed regularly,
you can take 3 years as a basis for your calculations.

Calculating the Customer Lifetime Value

Now that we have prepared all the data we need, it’s time to finally discover how much our
customers are bringing in during their lives on our site! Here is the formula:

Customer Lifetime Value = Client Value X Average Lifetime

By multiplying the value of a customer over a year (average cart x number of purchases) by
the average lifetime of your customers (1-3 years), you obtain the turnover that a customer
brings in during his or her period of activity (1-3 years) on your e-commerce site.

Some calculation variants

Before going on to the 5 concrete methods to increase your Customer Lifetime Value, here
are some variants of calculating the CLV for those who would like to push the analysis a little
further:

(I) CLV expressed in profits: on the same basis as the calculation that we have just made,
you can reason in terms of profits rather than in terms of turnover. For this, simply replace
the monetary data (previously expressed in turnover) by the profit generated by purchase.

(II) CLV expressed in segments: to further analyze your customers’ behavior, you can
analyze the CLV for each segment. For example, you can calculate the LTV for each of your
acquisition channels, each demographic or geographic profile, etc. The possibilities are
endless, and we can only advise you to push the analysis further.
5 practical methods to increase customer lifetime value

You now have a reliable method to calculate your CLV.

The goal is to increase this customer lifetime value to make each customer more profitable.

While a customer can be expensive to acquire, there are several ways to increase the
“customer value” and thus increase the profits from each customer.

Focusing too much on acquiring new customers, and we forget that, according to
BusinessInsider, regular visitors are twice as likely to put an item in their cart as new visitors.

Similarly, it is important to know that regular visitors have a lower bounce rate and a better
conversion rate compared to new visitors.

Improving your LTV means working on the purchase experience and tunnel, customer
service, and brand loyalty.

In short, working on the entire customer lifecycle to maintain a connection with your brand
for as long as possible.

Using Customer Value to Value

a Business
 

Customer lifetime value (CLV) is a term in English that translates the value of a customer’s
life. It is an indicator that represents the profits made by a company through its relationship
with certain customers.
 It is used to know the value of a customer, that is to say, how much this customer can
generate, but also identify other strategies to attract new customers. It is also by calculating
the CLV that the marketer can predict the lifetime of a customer.

The mechanism of the “Customer lifetime value”

The principle of the value of a customer’s life is essential when it comes to customer value
and sound if customers are rather satisfied with the services offered. It validates the relevance
and profitability of marketing campaigns, in particular by comparing the lifetime value and
the cost of customer acquisition. The CLV involves all the monetary transactions a customer
generates and all that he could bring back in the future.

Customer lifetime value is mostly used to determine the intersection between marketing and
customer relationship management. When measures are calculated to improve the customer
relationship, we get the value of each transaction or marketing action.

The value of a customer’s life is based on the average life of a customer and the price of
consumption. It will also make it possible to calculate the acquisition cost of a customer, to
value a company from the client portfolio.

As the concept of customer loyalty is essential for most B2B companies, it is essential to use
modeling to begin its calculation.

Indeed, it is not uncommon for companies wishing to calculate the value of their client’s life
face difficulties related to uncertainties caused by the lack of information and the instability
of market conditions. Especially since some companies tend to overestimate the value of their
customers by developing overly optimistic assumptions about consumption.

Several models also make it possible to obtain the CLV during the customer journey, in
particular during the specific requests made by the customers. It is then necessary to take the
duration of the customers into consideration according to the stages of the purchase. (First
contact, relationship building, cross-selling, etc.)

It can, therefore, be said that the value of a customer is significant for a customer in terms of
investment, and constitutes a calculation element of the CLV.

The main vocations of the “Customer lifetime experience”

In practice, the CLV focuses on three kinds of variables, namely:

 The cost of acquiring a target that can be authorized, given the profitability of the latter over
a given time.
 The retention by a segment that will be obtained from a survey of the customer base
 Customer capital valued at the time of an assignment within the company

Companies are interested in customer segmentation to develop clear and precise plans of
action. They will observe their promotional campaigns from the attitude and behavior of
customers. Thus, marketers and salespeople can characterize segments as advantageous or
not for the company and determine the quality of their customers.

Calculation of “Customer lifetime value”

To calculate the value of a customer’s life, we apply the following formula:

Life Value = Total Customer Revenues – Total Costs for Customers

Let’s take an example where your customer has an income of 2,000$ in lifetime value or
contribution. Knowingly, you would obviously not spend 2000$ for the acquisition of a new
customer. However, you should expect about 10%, that is, 200$ for the cost of acquiring a
new customer.

There are other ways to calculate the CLV from other variables such as termination rate,
discount rate, profit margins, loyalty costs. The formula must be adapted to the various offers.
But we also remember this formula:

Life value = (Average order value) x (Number of sales) x (Average duration of the
relationship)
Also, remember that not all customers have the same economic situation. It is to this belief
that the shoe pinches. It is possible that passive customers are more profitable, and that those
who are active do not consume much and do not improve the products.

You will also meet customers who will give you more opportunities because they really
appreciate what you do and what you offer them. For all these reasons, the segments all have
different values. Hence the interest in having different strategies for each of them.

The important thing is to say that by improving the value of a customer’s life, you also
improve his career.