Institute of Management

Nirma University

Course: Customer Relationship Management

Individual Assignment-1
Customer Segmentation in CRM

Submitted to:
Tripurasundari Joshi
CRM (B)

Submitted by:
Avishek Mukherjee (161212)

Date of Submission: 19th February, 2018

 Customer Segmentation in CRM
Customer segmentation is the practice of dividing a customer base into groups of individuals
that are similar in specific ways relevant to marketing, such as age, gender, interests and
spending habits. Customer segmentation is a powerful marketing technique. Once we have
segmented our target market into smaller chunks, we can target these relatively smaller groups
with marketing material that is focused towards them. This generates a much better return on
marketing investment. Customer Relationship Management (CRM) aids this process of
segmentation so that we can reach the customers that are most receptive to our products and
services. Combining customer segmentation with CRM software benefits a company in a
variety of ways. In this assignment I have reviewed 5 articles on customer segmentation that
are written by CRM practitioners. Through this review I plan to gain insights on the relationship
between market segmentation and CRM and also an idea about how to integrate both to yield
better return on marketing investment.

The first article that I’ve reviewed is “4 Ways to Use CRM and Customer Segmentation to
Benefit Your Brand”. This article throws light on the way CRM software can be combined
with customer segmentation to benefit a company’s brand. The four ways that are proposed are
the following:

i. Analyze patterns and trends: CRM effectively collects a lot of data about customers and
stores them in a place that can be easily accessed. CRM provides customer data, such as a
prospect's location, interests and hobbies, purchasing behavior and age group, for the
marketing staff. CRM software can then be used to analyze patterns and trends in this data
for effective customer segmentation.
ii. Determine the Lifetime Value of Your Customers: CRM helps create predictive models that
can be used to determine profitable customers based on their lifetime value (CLV). This is
an important metric that calculates the net value of a future relationship with a customer.
Using this software, we can see which segments of the market have the highest CLV and
deliver marketing material that resonates with these customers.
iii. Increase Sales: CRM boosts sales by 30 percent, according to Salesforce. Combining CRM
software with a customer segmentation strategy can produce even more effective results.
That's because we can reach the right customer with the right message at the right time,
something we can't do with traditional "one size fits all" marketing.
iv. Increase Engagement: Engaged customers are more profitable customers. Eighty-six percent
of buyers will pay more for a better customer experience. Customers who are fully engaged
 represent an average 23 percent "premium" when it comes to revenue, profitability and
relationship growth compared to the average buyer. Using CRM for customer segmentation
can help us separate our demographic based on common collective characteristics so we can
engage with them on a deeper, personal level.

The second article I reviewed was “Customer segmentation in customer relationship

management based on data mining”. One of the most important aspects of marketing is to
identify segments with the potential of creating the greatest value to firms. These segments
should then be targeted with focused marketing strategies to reduce the risk of them defecting
to competitors. Traditional segmentation methods generally segment customers according to
simple behaviour or attribute characters such as product category purchased and the region
customers reside in. These segmentation methods can’t be used to perform more complex
analysis of customers to arrive at segments that have high potential value. Because customer
behaviour is uncertain and inconsistent, managers should construct dynamic customer
segmentation models to be able to objectively reflect the characteristics. Data mining uses
neural networks, decision trees, link analysis, and association analysis to discover useful
trends and patterns from the extracted data. Data mining can yield important insights
including prediction models and associations that can help companies understand their
customers better. Some of the advantages of using data mining to build customer
segmentation models are improving promotion effect, analysing customer value and customer
loyalty, analysing credit risk, analysing credit risk, instructing new products R&D and
confirming target market.

The third article I reviewed was “5 Ways to Automate Customer Segmentation”. The article
suggests five ways that can be used to target customer segmentation.

i. Tract Lead Behaviour: Lead scoring is an important way to automatically quantify the
probability of lead conversion by closely tracking lead behaviour. Knowing how the lead
responds to our communication, we can figure out the level of interest or any specific
queries that the lead may have. For example, if a lead clicks on the pricing page of our
website, it is highly likely that he is considering our product for purchase. It will be highly
effective to be able to deliver a pop up in real time, with a discount offer to this lead. That
is what a powerful CRM system can do.
ii. Segment by Sales Funnel stage: In B2B scenarios, the sales process is closely aligned to a
customer’s buying process. For example, consider a business software firm pitching to a
 prospect company. Typically, the sales funnel would have the following stages;
introductory presentation, free trial, formal proposal, negotiation and contract signing.
Since CRM systems can segment all contacts based on the stage of the sales funnel they
are in, we can then send targeted marketing communication and collateral to respective
segments.
iii. Segment by Product Preferences: In case a company offers multiple product lines, it is
extremely important to segment customers based on their choice of products. Agile CRM
enables us to tag products against leads and customers to easily create product wise
marketing communication lists.
iv. Monitor Customer Satisfaction Scores: If we are able to identify signs of decreasing
customer satisfaction among few customer segments, we may be able to engage with them
better to resolve issues. With Agile CRM, we can create custom web survey forms to
record customer satisfaction scores.
v. Calculate Customer Lifetime Value: Categorize customers based on their expected
revenue, relationship size and longevity. We can better nurture our valuable customers by
making this segmentation visible across the enterprise so that the service levels are uniform
across the customer’s life cycle and across touch points.

The fourth article I reviewed was “Getting more out of your business with customer
segmentation”. In order to make customer segmentation work, we need accurate, high-quality
data. That data, after all, is the basis for how we will segment our customers. Once we have
segmented our customers into relevant categories, we will be better prepared to craft personal
experiences for each customer. The better experiences our customers have, the more likely they
will be to return to our store and spend money.

Customers provide us with a wealth of data every time they make contact with us, whether that
is via our website, contacting customer support, or making a purchase at your store. By
segmenting customers into groups that share common behaviour patterns, we can learn even
more from them, and use that data to evolve our marketing practices and refine our targeting
processes.

The fifth article I reviewed was “Role of Market Segmentation on CRM”. CRM goes farther
than traditional segmentation and target marketing because the marketer has a lot more
information on the segment’s characteristics. This extra knowledge comes from a consumer
database full of information on customer preferences and purchasing habits. This information
is collected as part of a company’s consumer transactions and sales activities. CRM marketers
take the information in databases and create promotions designed to meet specific customer
wants and needs. This further segmentation helps retain customers, and customer retention is
vital to product profitability.

References:

Customer Segmentation Strategy Tools & Approach - Salesforce.com. (n.d.). Retrieved from
https://www.salesforce.com/products/marketing-cloud/best-practices/customer-segmentation/

4 Ways to Use CRM and Customer Segmentation to Benefit Your Brand. (n.d.). Retrieved
from https://it.toolbox.com/blogs/johndoe/4-ways-to-use-crm-and-customer-segmentation-to-
benefit-your-brand-060916

Chen, Y., Zhang, G., Hu, D., & Wang, S. (n.d.). Customer Segmentation in Customer
Relationship Management Based on Data Mining. IFIP International Federation for
Information Processing, 288-293. doi:10.1007/0-387-34403-9_40

5 Ways to Automate Customer Segmentation - Agile CRM Blog. (2016, November 25).
Retrieved from https://www.agilecrm.com/blog/5-ways-automate-customer-segmentation/

Role of Market Segmentation in CRM (2011, August 29). Retrieved from

http://smallbusiness.chron.com/role-market-segmentation-crm-20780.html