Segmentation Identifies a Business’s Most Valuable Clients
and Their Defining Characteristics

Context

A business offers a specific and unique home improvement service that is not offered by any other business in an extended geographical area.  The business has extensive customer records and wants to use the information in those records to find more customers to whom to sell their unique service.

Question

Among the customers who purchased the unique home improvement service, who are the most valuable customers and how can we find more of them?

Results

The customers who bought the unique service were segmented by using Recency-Frequency-Monetary (RFM) segmentation.  Seventeen percent of the unique service customers were most valuable (upper right quadrant) in that they bought the unique service recently and, within a given period of time, also bought the service frequently and made high value purchases.  Another 11% of customers were valuable (upper left quadrant) in that, while they hadn’t bought recently, when they did buy, they bought frequently and made high value purchases. Twenty-three percent of customers (“Needs Attention” and “Potentially Loyal”) were borderline most valuable or valuable.  The unique service appears to be picking up in popularity because 22% of customers were new customers who had made their first purchase in the last month.

Insights

Nearly 20% of the business’s customers for the unique service are most valuable customers.  By using these customers’ buying behavior data and augmenting these data with psychographic data available from secondary sources, sophisticated analyses can isolate important identifying characteristics that predict whether a prospective customer will also be a most valuable customer.  These characteristics can be used to mine leads for prospective most valuable customers.

Recommendations

In addition to using this analysis to identify prospective most valuable customers, the business should work with their marketing team to direct marketing campaigns to convert valuable customers (“Can’t Lose”, “At Risk” and “Needs Attention”) to most valuable customers by encouraging these customers who make high value purchases frequently to become more recent customers.  In addition, marketing campaigns directed to the possibly valuable customers (lower right quadrant) could convert these recent-buying customers into more frequent and high value buying customers.