Microsegmentation

Computerworld - The more you know about a customer - age, gender, what he owns, what he spends and what his preferences are - the more likely it is that you can create and pitch a product or service that will hit a bull's-eye. Identifying and interacting with your customers in ever-smaller groups is a tantalizing prospect - and now easier and more cost effective than ever, thanks to the Web and other technological advances that gather, store and sort customer data.

"In the earlier days of market segmentation, some sociodemographic information was known, but it wasn't actionable. Now, it's radically refined into thousands of segments, and it tells you things about class culture, how they behave with their wallets and how to reach them," says Mike Riley, a vice president at Mercer Management Consulting Inc. in New York.

For example, among credit card issuers, Capital One Financial Corp. is a leader in applying information-based marketing that is based on hundreds of variables to identify thousands of customer segments and devise offers tailored to these segments in terms of interest rates, credit limits and interest-free periods, says Riley.

The Falls Church, Va.-based company then tests and evaluates the results, a strategy that has paid off in helping Capital One grab market share from bigger credit card issuers, says Mercer Vice President Nick Winter. While many firms gather data, most don't take time to study the results in detail and make cross-comparisons, he says.

By contrast, Citibank in New York uses traditional "push" segmentation (separating customers by demographic criteria, such as high income), while MBNA Corp. in Wilmington, Del., uses affinity segmentation (segmenting by common interest groups like professional associations and sports teams), a Mercer case study notes. NextCard Inc. in San Francisco uses self-segmentation, allowing customers to configure their own credit cards' terms.

'Data Nazis'

One of the challenges organizations face in fine-tuning marketing campaigns is that the relationship between a company's IT staffers, who mine the raw data, and the marketing folks, who need it to make informed decisions, is often contentious, experts say.

In some instances where there's a particularly deep rift between these two groups, IT staffers are even regarded by their business counterparts as "data Nazis," says Riley.

"Business unit [staffers] say IT tries to control the process in a way that is unproductive," says Riley. "Instead of 'thou shalt do,' business units want IT to provide a set of standards and analytic tools as a foundation to rely on."

Tom Connellan, a partner at Performance Research Associates Inc., an Orlando-based marketing consultant and co-author of e-Service: 24 Ways to Keep Your Customers When the Competition Is a Click Away (Amacom Books, 2001), says, "The key role for IT staff is looking all the way down the value stream to see who the end customer is out there and how can I work with my internal partners to create value for that customer at the end of the value stream? For some, this is a real mind-shift, because IT is technology-centric, not customer-centric."