Customer Segmentation Issue

Customer Segmentation Issue 

There are always customers that do not want to have a relationship with the company. Therefore, they are easily moving to other company for a lower price, for example. But there are also another type of customers, that “care enough about quality and value and service and time saved and recognition to rank price low on their priority scale and in some cases they are even willing to pay a bit more to avoid the hassle of shopping around” (Newell 2000, p.38). As a result, it is wise not to manage CRM with every customer. 

The information technology that is available to distinguish the customers is the data warehouse. Using the data mining activities, company can track the customer’s contribution record to the company. In short, data mining is a process of knowledge discovery from the data warehouse (Newell 2000, pp.138-144). 

From the recent studies, there is a tendency that 1% or less of total customers, actually contribute 10% of total profit (Newell 2000, p.72). Therefore, the objective of CRM is likely to cover those customer segments. Fortunately, those kinds of companies could also implement the CRM to make one-to-one relationship. The keyword is being specific, not being unique. By being specific, the company can distinguish “the customer file to separate transaction customers from relationship customers and high profit customers from underperforming customers” (Newell 2000, p.44). Finally, Newell (2000, p.45) suggested: 

Not every one of your customers wants to have a relationship with your company, and there are many who will never develop any degree of loyalty. It is simply not worth the time and effort to try to manage relationships with these folks. Don’t waste the money. Take the time to find the customers who have given some indication that they are looking for more than price (a company they can trust, a friendly company with reliable products, people who recognized them, remember them, and do special things for them). This will be your winners who will deliver the biggest return on your CRM investment. 

Regarding the customer type, at least there are four basic situations in a customer relationship (Anderson & Jacobsen 2000, p. 64): 

· The customer is loyal and profitable – the company focuses on deepening the relationship, strengthening loyalty and optimizing profitability through cross and up selling. 

· The customer is loyal but unprofitable – the company should maintain the relationship and secure loyalty because the customer may still become profitable through cross and up selling. 

· The customer is profitable but not loyal – in this case the company should focus completely on strengthening the relationship and building loyalty. 

· The customer is not loyal and unprofitable – it is probably worth considering giving the customer to the competitor.

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