‘Occasional’ Customer Segmentation - Uncovering Hidden Truths About Customers

As traditional customer segmentation has become blasé, with occasion segmen- tation the hot trend, it’s a hybrid model of the two - ‘occasional’ customer seg- mentation – that companies seeking to “be there” for their customers need to examine building...

What?

A recent survey conducted with 120 leading compa- nies on the topic of customer segmentation and its uses highlighted that:

97% of companies rely on segmentation in stra- tegy development
77% use demographics, 66% use needs and 63% use value as their segmentation dimensions

All these facts demonstrate that, by today’s standar- ds, customer segmentation using traditional dimen- sions has moved beyond being a tool for competitive advantage and has become a must-have, recognized and already utilized by many. Companies looking to get ahead of the competition need more innovative and effective ways of using their customer data.

Occasion-based segmentation, which is used by only 21% of the same companies surveyed, is a potential step towards this, but is not complete, unless mar- ried with the customer-based segmentation models. Occasion segmentation focuses on analyzing occasi- ons, independent of the customers, such as conside- ring Coke for occasions of being thirsty, having dinner or going out, without taking into consideration the differences an affluent and middle-class customer would have during these occasions.

‘Occasional customer segmentation’ merges custo- mer-level and occasion-level segmentation models and provides an understanding of the individual cus- tomers’ needs, behavior and value under different occasions of usage and time. Unlike traditional seg- mentation models, this approach assigns more than one segment to each unique customer, depending on the current circumstances they are under.

Why?

First came mass marketing, with companies develo- ping and promoting products to all. Next came one- to-one marketing, with companies developing and promoting the right products for the right customers. Occasional customer segmentation takes it one step further in the same direction and brings in the con- cept of many-to-one marketing, by developing and promoting more than one value proposition for the same customer, based on its relevance for the ‘cur- rent’ needs of the customer.

Companies need to realize that their customers are not only different from each other, but are also diffe- rent from themselves at different times. People have different needs when they are at work vs. when they are at home or socializing. They act differently du- ring holiday seasons vs. regular days. They even have different expectations momentarily, based on their feelings and mood swings.

A customer, who would be willing to spend a fortu- ne when buying a gift, could be the most tight-fisted person on earth when it comes to shopping for his or her own self. A mobile phone service customer who is spending hours on the phone after work could be the same person keeping it to only short conversati- ons during work-hours.

Without understanding the occasion, and averaging out all of the customer’s activities and transactions into a model that puts one label on that customer needs and behavior, companies can never achieve 100% relevance for their customers. Looking only at the occasion without the customer, on the other hand, neglects the background of the individual cus- tomer, destroying consistency. This is why occasional customer segmentation is a must-have for compa- nies looking into maximizing their customer value, merging these two concepts into a powerful tool.

Let’s analyze what this means for a leading producer of sun care products, which offers a range of items with varying levels of sun protection. If the company looked only at the customer-level segments, based on their needs and behavior, it would end up promo- ting an SPF 4 product to John Doe, who is identified to be in the ‘careless tanner’ customer segment.

If, on the other hand, the company focuses only on one given occasion for which John Doe will be using the protection (i.e. a desert safari where he needs extreme protection), the offer would be an SPF 50 product. In the first case, John would not buy the pro- duct since it will not be relevant to his circumstanti- al needs. In the second case, he would not buy the product either, because it is not a consistent offer for his general attitude towards sun protection. It would require the producer to put the customer and occasi- on facts together to come up with the right offer for the specific circumstances and the specific customer. 

How?

We recommend three main steps towards building occasional customer segmentation models:

Define Occasion Types and Identification Means:

There exist three main types of occasions, which can affect the needs and behavior of customers, creating different circumstances. The first step in occasional customer segmentation is to define what occasions are relevant for the specific industry and product of- ferings, and how they can be identified for each cus- tomer:

Universal Occasions: These are highly identi- fiable occasions, which are applicable to almost all customers with similar demographics. Holiday sea- sons, weekends, working hours and special days are such times which can affect customers’ occasional segment. For example, a businessman’s weekend grocery shopping can be much different than his ti- me-squeezed weekday shopping behavior, and thus, need to be analyzed separately when deciding which segment a customer belongs to.

Regular Personal Occasions: These are personal occasions, which are related to the customer as an in- dividual, yet, keep repeating over time. Some examp- les would be the birthday of a customer, his or her wedding anniversary, or simply the specific habits of the customer such as driving to work between 8:00 and 9:00 AM. These occasions can be identified th- rough analyzing patterns in the customer’s behavior or gathering more detailed information about each customer. The ability to customize offerings based on these occasions for individual customers provides the most relevance, in as such as they are designed around the customer’s personal life. For example, a customer would be using his credit card with a sig- nificantly different pattern before his wife’s birthday, compared to rest of the year, and similar to the abo- ve scenario, such occasion-based behaviors need to be analyzed separately.

Rare Personal Occasions: These are personal oc- casions, which are generally non-repetitive in natu- re and usually unforeseeable by companies. Events such as a trip abroad, a car accident, or a night-out on town (which can affect the customer’s behavior and needs suddenly, and are effective usually for a short period of time) are in this category. Although these events are not highly predictable, companies

can identify them to a certain extent by analyzing the irregular activities in customer’s behavior over time. Identifying such irregularities and keeping them asi- de from customer’s regular behavior provides a more accurate overall understanding. More importantly, researching the reasons behind such irregularities can reveal untapped niche areas. If a customer sud- denly spends twice the amount his regular behavior suggests, understanding the trigger (e.g. honeymo- on, celebration) can facilitate promoting relevance of offerings for such triggers over time.

Analyze Customers Under Different Occasions: After the occasions are defined and identified for each cus- tomer, the second step is to isolate them from each other and analyze customers under each occasion separately. This step resembles a traditional custo- mer segmentation modeling work in terms of tech- nical steps, the main difference being the fact that analyses are done at the customer-occasion level, having more than one set of data for each customer and as many segmentation models as there are oc- casions. The outcome would be the set of rules, defi- ning which customer is assigned to which occasional segment, during what time of day, day of week, or course of events.

Continuously Score Customers: Similar to traditional customer segmentation, occasional customer seg- mentation requires scoring and re-scoring of custo- mers, to understand their current needs and behavior. Yet, since occasional segments are time-dependent, its scoring requires the ability to assign segments to individual customers almost in real-time, especially if the occasions are identified to follow short cycles, such as hours of day.

Occasional segmentation follows a different mind-set than the traditional ‘one-segment-per-customer’ ap- proach, which can make it relatively difficult for tra- ditionalists to develop and implement. However, the benefits are great, as this moves companies closer to their customers than ever, as if they are sitting next to them and observing changing needs and behavior through day and night.

What Next?

Once a company implements occasional customer segmentation, it will provide endless insight, uncovering hidden gems in their customer base. The next obvious step would be digging in, customizing cam- paigns for different occasions of customers, develo- ping new value propositions for promising occasions, and offering bundles of products that would appe- al to the same customer under different occasions.

Additionally, companies can benefit from identifying the mismatches between customer behavior under different occasions – such as a customer having high spending during one and low in another – to come up with activities that would stimulate their behavior under certain conditions. 

About Utku Sarioz

Partner at Forte Consultancy Group
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