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Strategic Customer Segmentation to drive Customer Profit in Mobile Communication

Thomas Ruck SAS Praxis Update, April 2010


Copyright 2010 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

In cooperation with our GTIN* and CIC*, Accenture Management Consulting conducted a customer base segmentation for a European mobile operator
Credential

Business Challenge

Results Delivered

The Customer Base Segmentation project is part of an initiative resulting from a former CRM capability assessment which Accenture performed at a European mobile operator. The key finding of the analysis was that the segmentation approaches across the different subsidiaries were inconsistent and not standardized, which led to the fact that no segment based customer strategy nor dedicated customer segment accountability was in place and that no CRM related decisions could be taken by proposition owners or business line managers. Therefore, with the Customer Base Segmentation project Accenture developed a standardized strategic customer base segmentation that can be applied across all subsidiaries in Europe to gain strategic insights that help to increase up- and cross-sell potential and to reduce customer churn, by delivering a consistent multi-dimensional segmentation framework with clearly defined customer attributes about value and behavior.

Customer base segmentation for one country affiliate and derivation of strategic segments. Consistent multi-dimensional segmentation framework with clearly defined customer attributes on value and behavior. Migration of segments to client DWH (data ware house) and corresponding documentation. Gap analysis for another client subsidiary. Management summary with strategic recommendations on future segment development. Roadmap on implementation across all European subsidiaries.

How Accenture Helped


Accenture developed a standardized segmentation of the customer base: a consistent, multidimensional segmentation framework with clearly defined customer value and behavior attributes. Working with Accenture's CIC in Milan and a GTIN team in India, this project used a field-tested approach which enabled fast implementation of this segmentation framework and accelerated time to market.

*GTIN = Accenture Global Talent and Innovation Network; CIC = Accenture Customer Insight Center

Copyright 2010 Accenture. All Rights Reserved.

Mobile operators generate most of their revenues with just a small part of their existing customers and leave a big growth potential on the table
Effect of Leveraging unused Potential in existing Customer Base

As-Is Situation
4bn

Cumulative Revenue Distribution Mid Sized Telecom Company

Optimized Situation Based on an analysis of leading European mobile operators this can be improved to 70/50 - i.e. 70% of the customers generate 50% of the revenues The increase could generate over USD 100m of additional revenue p.a. for a medium sized telecom company (4-5 million subscribers) This leaves a big growth potential on the table

70% of the customers generate only 30% of the mobile operators revenues High percentage of non-profitable prepaid customers Low penetration of modern online and data services e.g. internet, e-mail, etc.

Total Revenue USD

3bn
NEW: 70% OF CUSTOMERS GENERATE 50% OF REVENUES

2bn

70% Cust. 30% Rev.

1bn

*m

1m 2m 3m 4m # of Customer (ordered by ARPU)

5m

Source: Accenture Study Copyright 2010 Accenture All Rights Reserved. 3

Applying a multi-dimensional customer analysis provides marketers with sound and actionable insights to target customers more effectively
Shift to an Actionable Multi-Dimensional Customer Analysis

CLV Calculation

Two-Dimensional Analysis

Multi-Dimensional Analysis

Total CLV
=

Total CLV

Needs

Historic
+

Demography

Cross-Sell
+

Behaviour

Referral Value

Behavior

Value

The customer lifetime value calculation provides one dimension of the multi-dimensional customer analysis.

The two-dimensional analysis adds an additional layer to the customer base analysis by considering the customer behavior

The multi-dimensional analysis leverages factbased insights into value, behavior, profitability, status and needs of the customer base.

Source: Accenture Copyright 2010 Accenture All Rights Reserved. 4

Based on a comprehensive customer profitability analysis targeted strategic actions can be defined to leverage the customer potential
High Level Customer Analytics Approach
Customer Profitability Analysis Strategic Actions

1
Customer Analytical Record (CAR)

2
Customer Analytics for Profit

3
Customer Profiling

4
Customer Strategies

5
Campaigns

Client data is captured in CAR according to specific data dimensions (values, behavior, demographics, needs)

Based on the CAR the customer value is calculated. Subsequently a multidimensional segmentation is created based on customer value and behavior

Based on the segmentation customer profiles are defined taking into account specific customer needs

Based on the customer profiles segment strategies are derived and specific campaigns are defined

Campaign
Needs

Product

Demography

Behaviour Value

Service

Price

Source: Accenture Copyright 2010 Accenture All Rights Reserved. 5

To enable a profound customer analysis the necessary customer data is stored in the customer analytic record (CAR) based on best practice data dimensions
Customer Analytical Record Split into three Data Dimensions
Customer Customer
Identification Individual Demographics 1 Customer Analytical Record

Behavior Product
Services Price Plan

Value Interaction
Number of contacts Time since last contact

Demographics
Person Home

Usage
Service Usage Service Volume

Value
Customer value Satisfaction Customer revenue Customer cost Customer value scores Top Ups

Geography Status
Customer scores Account details

Address sector
Micro Market

Contract
Handset

Usage pattern
Payment history

Contact history
Campaign history

Community
Price development

Mobility
Calling Circles

Loyalty programs

Identify unique customers to remove duplicates and aggregate customer base Understand account structure and status changes in customer base

Provide demographic background information for customers Understand customer profiles throughout industries

Identify impact of contract & price plan on customer involvement Quantify impact of handset on usage per service Understand handset needs per segment

Understand segment specific usage pattern and customer needs Identify payment issues per segment Understand roaming pattern of customers Quantify impact of calling circles

Identify preferred interaction channels & topics per segment Understand customer contacts as a driver of customer behavior Identify value of loyalty program

Treat customers based on their value Identify cost & revenue drivers Manage low & negative value customers

Source: Accenture Copyright 2010 Accenture All Rights Reserved. 6

The variables categorized as value and behavior are used for the segmentation whereas the customer dimension supports the profiling
CAR variables used for Value and Behavior Segmentation
Customer Customer
Identification Individual Demographics 2 Analytics for Profit

Behavior Product
Services Price Plan

Value Interaction
Number of contacts Time since last contact

Demographics
Person Home

Usage
Service Usage Service Volume

Value
Customer value Satisfaction Customer revenue Customer cost Customer value scores Top Ups

Geography Status
Customer scores Account details

Address sector
Micro Market

Contract
Handset

Usage pattern
Payment history

Contact history
Campaign history

Community
Price development

Mobility
Calling Circles

Loyalty programs

For Profiling only

For Behavior Segmentation

For Value Segmentation

Source: Accenture Copyright 2010 Accenture All Rights Reserved. 7

Value and behavior segmentations follow a common process


General Methodology for Segmentation
2 Analytics for Profit

Select CAR variables

Define clustering targets

Run clustering

Select best result

Profile segmentation

Select the variable that are used as input variables for the segmentation The CAR is designed along the main categories for value and behavior variables used for segmentation purposes Sometimes individual vars are excluded, to improve the formation of a meaningful segmentation

Cluster targets are determined to guide the formation of a segmentation Cluster targets are chosen according to the main purpose of the segmentation (e.g. value related targets for value segmentation)

Run clustering for all chosen target functions and a group of possible number of segments (e.g. 4 to 10) All clusters are created in batch mode and the main statistical measures are taken and documented Modifications to the target and exclusion of additional vars can be done during this phase

Deeper statistical analysis selects a short list of the most promising segmentations Business reviews are executed on this short list to determine the best result Business reviews can lead to additional modifications to the target and vars list, that in turn requires to run additional clustering

After the selection of the best segmentation this will be profiled with the available data in the CAR Profile focus is usually on the segmentation vars (determining vars) and the customer demographics (descriptive vars) Profiles are stored in Excel and aggregated in PPT format

Usually several variations of the target functions are appended to the CAR to explore the best result

Selection of CAR vars


Source: Accenture

Cluster targets in CAR selection

Broad range of possible segmentations

Best segmentation

Segment profiles

Copyright 2010 Accenture All Rights Reserved.

For postpaid customers, four distinct value segments were derived


Overview of identified Value Segments - Postpaid Customers
VSPO 1High Value 26% VSPO 2High Value Inbound 22% VSPO 3Medium Value 37% VSPO 4Low Value 15%
Source: Accenture Copyright 2010 Accenture All Rights Reserved. 9 2 Analytics for Profit

High Value Postpaid customers with balanced use of services (ARPU $ 194 / avg. $ 104) - Highest value customers with tenure slightly above average (49 months/ avg. 46 months) - Highest MRC ($ 72) but also very high additional outbound revenue ($ 60) - Slightly younger customers as the average (61% between 18 and 39 / in average only 56%)

High Potential Postpaid customers with comparably high inbound revenue (ARPU $ 98 / avg. $ 104) - Medium value customers with tenure below average (41 months / avg. 46 months) - Lowest Outbound Revenue Quota (15% / avg. 20%) and High Inbound Revenue Quota (29% / avg. 25%) - Youngest customer group (36 years / avg. 38 years)

Medium to Low Value Postpaid customers with comparably low MRC (ARPU $ 60 / avg. $ 104) - Low end price plans, MRC is below average ($ 36 / avg. $ 48) - Customers are spread across all age groups

Purely low Value Postpaid customers with strong focus on Outbound Voice Revenue (ARPU $ 32 / avg. $ 104) - Lowest MRC of all groups ($ 20 / avg. $ 48) - The oldest customer group (30% are above 50 years; in avg. only 19% above 50)

*VSPO = Value Segment Postpaid

The behavior of postpaid customers distinguishes seven segments by airtime use and contact frequency
Overview of identified Behavior Segments - Postpaid
10
12%

Analytics for Profit

BS2: Spare time Users


Typically two contracts - Call, text, use data and entertainment - Medium CS contacts but susceptible to inbound offers (48% vs. avg. 41%)
-

BS5: Technology Lovers


Very loyal (2nd highest tenure:50 m vs. avg. 41 m) - Low income with highest use of services (avg. 12 p.m.) - Highest number of CC contacts, but low susceptibility towards inbound offers
-

Contact frequency

5
3% 19% 5%

14% 9% 21%

0 0 400 Airtime BS1: Different SIM Cards Users Very convenient & loyal (53 m tenure / avg. 46 m), well off, older age - Mainly calls, lowest data /entertainment/mobility usage w high percentage of calls from abroad - Very low CS contacts, but high acceptance to inbound offers (61%/avg. 41%)
-

800

1.200

BS3: Advanced Services Users Slightly older, mainly male - Very high data usage (463MB/avg. 43MB), very little calls - Often use high end handsets, some laptops - Medium contacts to CS often for equipment
-

BS7: Good Basic Services Users Younger, mainly female Strong Text focus, with little calls and data - Medium CS contacts and not very susceptible to inbound offers
-

BS4: Only when on the road Cheap and many nonmatching price plans (82% vs.. avg. 77%) - 77% of customers overuse their allowance - Low CS contacts, but with high acceptance rate to inbound offers (50% vs.. avg. 41%)
-

BS6: Call Always all Friends Voice focused off-peak callers - 2nd highest number of calls to CS, but not very susceptible to offers - Mainly acquired by independent partners - Tenure above avg. (48 m vs.. avg. 41 m)

Source: Accenture Copyright 2010 Accenture All Rights Reserved. 10

Example Profile Postpaid Behavior Segment 6 Call Always all Friends


Profile Description
BS6: Call Always all Friends
14% of postpaid customer base XXX thousand customers 8% of <Telco> total revenues 2 Analytics for Profit

What they do - Usage


Airtime and number of calls is slightly above average (607 minutes / avg. 567) and 291 calls (avg. 287 calls) with a call duration above average (2.18 min / avg. 2.07) More Off-Peak calls (695 min / avg. 558) and also on-net calls above average (23% / avg. 18%) Highest Voice-Text Ratio: 68% Voice and 32% Text (avg: 55% Voice / 45% Text) Data usage below average (12 MB per month / avg. 43 MB), but used by 76% of customers (avg. 81%) with a growing trend

How they contact us - Interaction


2nd highest number of CS calls (0.7 calls per month / avg. 0.5); 100% called within last 3 months Main contact reason next to <SERVICE> and <LOYALTY & RETENTION> is <FINANCIAL> 28% (avg. 22%) received an offer within last year with acceptance rate below average (33% / avg. 41%) Main original sales channel is independent partners

Who they are - Demographics


Price-Sensitive Off-Peak focused, with a slight tendency to late payments (29% / avg. 19%) Avg. age distribution (38 years) Tenure above average (48 months / avg. 46 months) ARPU ($ 90 / avg. $ 104)and MRC ($ 40 / avg. $ 50) is below average Slightly more male (52% / avg. 50%)

Their Products
Preferred price plans are flexible (61%) and fixed (13%) 42% of customers have changed their price plan during their lifetime (avg. 37%) Highest representation of free time (10% / avg. 6%) and everyone Off-Peak (3% / avg. 2%) across segments, which are Off-Peak focused contracts

What they need


Stay in touch with their large social network Community-oriented products Special data package for friends-circle

Source: Accenture Copyright 2010 Accenture All Rights Reserved.

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Two main data dimensions value and behavior already enable a multi-dimensional and profound customer analysis and segmentation
Strategic Segments in Value-Behavior Matrix for Postpaid Customers
2 Analytics for Profit

High
High Value

Value Generators I love entertainment and technology


Advanced

Talk-a-lot

Value Analytics

High Potential

Value Generators

mobile communicator and power user Handset as status symbol Shops for latest technology and entertainment

Happy Customers I manage my modern life


Highly

Medium Value

Low Value

Regular Users
Use different SIM Cards

Happy Customers

engaged with higher value with friends and family Likes all mobile channels and services
Connects

Talk-a-lot I like to talk with my friends


Has
Sparetime Users Good Basic Services Users

Low

Only when on the road

Call always all Friends

Advanced Services Users

Technology Lovers

High

low engagement but high value Has a big network and likes to talk Shops for convenience, not for price

Behavior Analytics

In a first step customer value and behavior are analyzed and clustered separately In the second step the customer segments are clustered based on both dimensions to define the above value-behavior matrix

Regular Users I only want to call


Low

engagement and low value needs basic calling services Shops for simplicity and price
Only

Source: Accenture Copyright 2010 Accenture All Rights Reserved. 12

Postpaid Strategic Segment 1 Regular Users


Strategy Suggestions
High

3
Basic Strategy

Customer Profiling

High Value

Identify Potential and Serve Profitably


Regular Users
Different SIM Cards Users Only when on the road Call Always all Friends Spare time Users Good Basic Services Users Advanced Services Users Technology Lovers High Behavior Segments / Engagement Level

Total CLV Segments

High Potential

Medium Value

Strategy Ideas Marketing


Focus on inbound offers and only explore the highest values in this segment with low cost outbound activities Place emphasis on convenience and simplicity in communications

Treatment Ideas
Target Different SIM Cards Users with basic price plans and promote additional services like home zone, and simple handsets Target Call Always all Friends with entertainment cross-sell offers Explore higher value customers with offers for boosters and contract renewal with simple handsets using low cost channels (e.g. text)

Low Value

Low

Description
The Regular Users segment consists of low to medium value customers paired with the behavior of Different SIM Cards Users and Only when on the road as well as Call Always all Friends Regular Users are clustered due to their convenience orientation combined with their relatively low overall usage They like to stay connected with their family and friends when on the go They usually dont use email or internet on the phone and they dont text very often Their low usage also suggest a certain level of price sensitivity

Customer Service
Use standard IVR* routing to keep low cost service Drive customers towards self-service in the internet, e.g. by announcement in IVR, but keep it simple

Products
Simple price plans with basic services Boosters (e.g. holiday or seasonal) for affordable usage flexibility Convenient and simple handsets with low subsidy

Quick Win Campaigns


Offer contract renewal with a modern yet simple handset to Different SIM Cards Users to educate them to use mobile email

*IVR = Interactive Voice Response Copyright 2010 Accenture All Rights Reserved. 13

Postpaid Strategic Segment 2 Talk-a-lots


Strategy Suggestions
High

3
Basic Strategy

Customer Profiling

High Value

Talk-a-lot

Retain and Educate


Strategy Ideas Marketing
Actively retain highest value customers with optimal price plan offers Educate them about the simplicity and convenience of mobile internet

Total CLV Segments

High Potential

Medium Value

Treatment Ideas
Offer discounts for calls to own or other mobile network for High Value users on a special occasion (e.g. reaching a certain airtime) Offer free text messages for on time payment Target young users (Call Always all Friends) with entertainment and new communication service cross-sell offers with low cost marketing (e.g. email/text campaigns) Link new communication device trials and communication package trials (e.g. booster) to Inbound calls to raise commitment

Low Value

Low

Different SIM Cards Users

Only when on the road

Call Always all Friends

Spare time Users

Good Ba-sic Servi-ces Users

Advanced Services Users

Technology Lovers

High

Behavior Segments / Engagement Level

Description
Talk-a-lots are also convenience oriented, but have a significant higher talk time than Regular Users and belong to the higher value customer segments Talk-a-lots are much more intense users of the basic mobile services than the Regular Users as they like to talk a lot with their social network However they have only little knowledge of innovative technologies and mobile services They also do not use the mobile internet or email very often yet but have already basic experience in using these services

Customer Service
Faster routing and simple and friendly communication in the CS center No high tech talk, but intentional education on simple email / internet usage Offer self service (e.g. internet), but do not push

Products
Flexible price plans with a lower commitment Easy to use handsets but capable of basic internet services Advanced convenience services e.g. battery replacement, phone book transfer

Quick Win Campaigns


Retain customers with trial offers of new simple technology devices Cash willingness to pay for convenience by offering handset maintenance/upgrade services

Copyright 2010 Accenture All Rights Reserved.

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Customer segmentation drives increased marketing & sales effectiveness resulting in higher revenues and lower costs
Achievable Benefits
Insights from Segmentation
Identification of most valuable customers (past & future)

Resulting Value Drivers


Smaller target groups Higher uplift potential Personalized product offer

Achievable Benefits 1)
Higher performance of marketing activities

Campaign costs reduced by 25-35% (e.g. fewer mailings achieve same marketing lift)
Increased direct marketing acquisition rate of up to 400% Customer contacts increased by 200-450% Campaign cycle times reduced by 50-70% Increased volume & revenue per customer Increased cross- and upselling rate Consistent customer experience across all channels Reduced customer churn by 10-15%

Clear understanding of customer needs

Personalized messages Brand value positioning

Analysis of customers current sales/basket

Identification of cross-selling potentials Optimized service levels per segments (e.g. high service levels for most valuable customers)

Clustering of customers in strategic segments

Consistent service levels across all channels Coordinated and focused resource allocation
Targeted pricing strategy per segment

Increased aver. customer lifetime by 5-25%


Optimized ROI by segment due to alignment of sales and channel resources Reduced service costs
1) Source: Accenture Research and Project Experience

Copyright 2010 Accenture All Rights Reserved.

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As less as 12 weeks can be sufficient to analyze the customer base, define segment specific strategies and get new campaigns up and running
High Level Timeline
Segmentation & Data Design Segmentation Objectives CAR Design Data Management Infrastructure Set-up Data extraction Build CAR

Customer Analytical Record (CAR) Analytics for Profit

Cluster Analysis & Segmentation Profile Definition Definition of Strategic Segments Definition of Strategy per Segment Marketing Customer Service Products

Customer Profiling

Customer Strategies Definition of Treatment Ideas Quick Win Campaigns Planning of Long Term Campaigns

Campaigns

Execution of Campaigns

weeks 0 4 6 7 12
16

Source: Accenture Copyright 2010 Accenture All Rights Reserved.

A good customer segmentation integrates several dimensions, leaves creative freedom for the marketer and is achievable within weeks
Conclusion and Take-Aways

1.

Use value and behavior for segmentation, demographics for profiling

2.

Leave creative freedom for marketers and integrate them as early and often as possible

3.

You can have segmentation based campaigns running in 3 months

Copyright 2010 Accenture All Rights Reserved.

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We look forward to discussing how we can work together


Accenture Switzerland Contact for CRM and Segmentation

Thomas Ruck

Accenture AG Fraumnsterstrasse 16 8001 Zrich +41 44 219 56 51 thomas.ruck@accenture.com

Copyright 2010 Accenture All Rights Reserved.

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