Our approach to segmentation is based on the principle of Means End Theory1. The premise of Means End is based on the theory that there is an associative link between means (products/brands) and end (personal values) that drives our human decision making. Means End has been successfully leveraged in the advertising space for brand campaigns and Merkle has expanded that process by applying the principles of Means End to customer centric strategy. Our premise is based on the idea that our end objective is to positively influence customer decisions to change behaviors, and in order to do that, we need to first fully understand the decision-making process.
By applying Means End to segmentation, we can create motivational-based segmentation, which we refer to as Connected Segmentation. Connected Segmentation differs from traditional research-based segmentation in three critical ways:
- It is motivational based: Segments are separated on motivations as opposed to attitudes.
- It is addressable: We always connect our segments to a database to execute our strategies at scale.
- It is adopted: We include a deliberate adoption plan with our solutions to align various parts of the organization around a common understanding of the customer.
At Merkle, we believe that a universally accepted definition of customer value is a primary currency required in the customer-centric transformation. Customer value has several applications, but at its core, we believe the primary objective of customer value is as an investment gauge. Investment in customers can come in many forms: routing faster service times for higher-value customers, a rewards and thank you program, and marketing investment considerations to acquire higher value customers. Customer value is not always the best application for pure targeting as there are other potential analytic tools for each particular situation. However, when understanding where to place bets strategically based on the customer portfolio, customer value is always the right tool for the job.
Customer value should always be defined with a future-predicted value using advanced analytics. Our approach to determining value is multi-faceted and considers tenure, attrition, risk, marketing and service costs, transaction history, and expected future profitability and revenue. Our solutions not only effectively predict lifetime value, but provide the relevant metrics for planning and support campaign-level selection. Lastly, our value solutions are not limited only to financial value; they also include tangible measures such as engagement, social, and referral value.
The lifecycle of acquisition, development, and reactivation is the foundation for understanding the health of an organization’s most strategic asset – its customer base. The flows of new, active, and lost customers can describe the financial health of an organization. For any given customer, by understanding lifecycle and value, we know the current and potential state of each relationship to the brand. The compilation of these individual relationships represents the current size of key lifecycle state as well as the flow through of each state.
- Understanding Consumer Decision Making: The Means-end Approach To Marketing and Advertising Strategy, Thomas J. Reynolds and Jerry C. Olsen, published by Psychology Press, May 3, 2001.