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ude: Applications (2 of 2) 10 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS Customer segmentation is useful for both customer retention and customer acquisition. Segment customers Choose target segments Create value proposition for each target segment Retain target customers Acquire target customers Retention and Acquisition 8 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS Customer segmentation is valuable because all customers are not created equal. ?Each customer segment has a unique set of needs and requires its own value proposition ?The profit potential differs by customer segment Customer segmentation helps panies focus scarce resources where they can be most leveraged Why Do Customer Segmentation? 6 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS Competitors ?Customer Segmentation ?Purchase Criteria Rating (Importance Analysis) ?Company Positioning (Effectiveness Analysis) ?Attractiveness Analysis ?Value Proposition Development ?Customer Retention and Loyalty ?Customer Acquisition Customers ?To identify cost reduction opportunities Customer segmentation is an important tool for customer analysis. Cost Capabilities Strategic Purpose: Tools: ?To identify revenue and profit maximizing strategies ?To achieve differentiation and to preempt petitors’ moves ?To determine the strategies that fit best with a pany’s core petencies Context 4 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS ?The customer segmentation concept ?Applications ?Customer segmentation steps –segment customers –choose target segments –create value propositions for target segments –determine profit potential of serving target segments with value propositions ?Examples –needsbased –behavioral ?Key takeaways Agenda 2 bc Copyright169。 Author: Laird Reed Contributors: Barbara Bilodeau, Dorie Krawiec bc Segmentation Customer March 1998 Copyright169。 1998 Bain Company, Inc. 1 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS ?The customer segmentation concept ?Applications ?Customer segmentation steps –segment customers –choose target segments –create value propositions for target segments –determine profit potential of serving target segments with value propositions ?Examples –needsbased –behavioral ?Key takeaways Agenda 3 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS *In some cases, there will be only one target segment Customer segmentation is a process of identifying homogeneous groups of customers. Once customers have been segmented, a pany chooses target segments and approaches each segment with a value proposition that meets the segment’s needs. ?Each customer segment describes a homogeneous group of customers Segment customers (existing and potential) Choose target segments* Create value proposition for each target segment Determine profit potential ?Target segments are the most attractive customer segments for a given pany to focus on ?A value proposition is the bination of product, service, and delivery offered to the customer ?The potential profit from serving the target segments with proposed value propositions must be determined The Process 5 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS ?The customer segmentation concept ?Applications ?Customer segmentation steps –segment customers –choose target segments –create value propositions for target segments –determine profit potential of serving target segments with value propositions ?Examples –needsbased –behavioral ?Key takeaways Agenda 7 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS Bain caseteams have used customer segmentation to: ?Identify gaps or redundancies in the product portfolio ?Screen out unacceptable new products ?Choose product features ?Determine product pricing ?Establish appropriate service options ?Determine optimal distribution strategy ?Advise on advertising strategy Applications (1 of 2) 9 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS ?The customer segmentation concept ?Applications ?Customer segmentation steps –segment customers –choose target segments –create value propositions for target segments –determine profit potential of serving target segments with value propositions ?Examples –needsbased –behavioral ?Key takeaways Agenda 11 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS ?The customer segmentation concept ?Applications ?Customer segmentation steps –segment customers –choose target segments –create value propositions for target segments –determine profit potential of serving target segments with value propositions ?Examples –needsbased –behavioral ?Key takeaways Agenda 13 bc Copyright169。 1998 Bain Company, Inc. Customer Segmentation BOS ?Primary research necessary Needsbased Behavioral Demographic Segmentation process: Usefulness in creating value propositions: ?High (shows causation) ?Descriptive and actionable (describes customers and drivers of purchase) ?Primary research necessary only if behavioral data not available from client database ?Moderate (shows correlation, not causation) ?Descriptive, not actionable (describes purchasing behavior, but does not address drivers or purchase) ?No primary research necessary ?Demographic data sometimes readily available from client ?Low (occasionally shows correlation, n