February 6, 2006

Slicing and Dicing to Maximize Profitability

There's been a lot of interesting writing about segmentation recently. ProfitBrand is a book that explores the subject in depth, and there's a good article called "Rediscovering Market Segmentation" in the latest Harvard Business Review.

The data-driven world in which we live enables us to know much more about our customers. The challenge is to slice and dice your customer base so that you understand the characteristics of those customers who are most profitable to you...and devise ways of attracting more of them.

The HBR article talks about a bank that analyzed its "wealth management" customers, only to discover that the least profitable ones were being managed by the bank's most senior relationship executives. Not a wise use of resources.

Segmentation analyses also enable you to test product or service enhancements with focus groups of your most profitable customers. Ask them what they'd like that they don't presently get from you (or test your own innovation ideas against them) and even ask them what they'd be willing to pay for these enhancements.

How often we spend our time and resources where they may be least effective. Smart segmentation minimizes the likelihood of falling into that trap.

But...Beware of Generalizations

Just as I'm fascinated by segmentation, I'm equally intrigued by the pitfalls of generalization. That is, saying "Our best [or worst] customers are like this. Therefore, all individuals who share those characteristics should be good customers for us."

Malcolm Gladwell's latest article in The New Yorker gives you great pause for generalizations, especially in terms of profiling. As usual, he uses great examples to show how we ascribe certain behavior to certain types of individuals (or animals) and misguidedly extrapolate that across all people who share similar characteristics.

His classic example is the pit bull, which - it turns out - is not only several breeds of dog (not just one) but is also not generally a destructive dog. And yet, some communities have literally banned pit bulls. We have endowed pit bulls with an unearned and unjustified reputation. We have generalized.

And, what kind of dog bit the French woman so badly that she had to have the world's first face transplant?

A black lab.

Go figure.

The First 'Century'

This is my 100th blog. I enjoy writing a few words about things I read and think about. It's called "Notes on Marketing &Communications," and that's all it is. Just some notes. I love the work we do, the challenges we face, and the great people we work with. I especially like the constant changes and evolutions that make this work so stimulating.

Comments are welcome and encouraged.