Towards a Blueprint for Sustainable Retail Growth Using Behavioural Segmentation

Towards a Blueprint for Sustainable Retail Growth Using Behavioural Segmentation

My previous post was on retail customer value segmentation. Today we will discuss the concept of behavioural segmentation and how we can begin using some of its concepts to create a blueprint for driving retail growth in a customer-centric manner. It also begins us on the journey of taking customer relevance more seriously. We can think about the difference between value segments and behavioural segments as: value segments reflect the customers importance to us while behavioural segments reflect our importance to the customer, or more specifically what about us is presently important to the customer.

To briefly recap from the previous post, value segmentation is an extremely important part of customer-centric retailing as it clearly identifies which of our retail customers are valuable and important to us, and which are less so. It also enables us to consider and develop various strategies for these segments.

You will recall when we built the value segmentation model we assigned all customers to one of four segments which were labelled broadly based upon what a prudent strategy should be for each of them: ‘Take Good Care of Me’ (high visit frequency, high spend per visit); Give Me More Reasons to Visit (low visit frequency, high spend per visit); Get More of Me When I Visit (high visit frequency, low spend per visit); Help Me Take You Seriously (low visit frequency, low spend per visit).

Now we will turn our attention to the answer to the inevitable question ‘what next?’.

What is next is developing a better understanding of what is important to each of our customer segments (from a product perspective) so that we can intelligently retain and grow them. Put simply we know what is important to us as a retailer (the value of each customer to us – customer value), now we want to know what is important to them (what categories and products the customers engage with – customer behaviour).

There are several methodologies we can use for this, all of them relatively maths intensive. As with everything, what is more useful than almost developing the world’s most sophisticated model, is building and completing a model which is understandable and actionable. Our experience is it is important that it can be built rapidly, as otherwise it tends not to happen and any benefits associated with it are hypothetical.

In the case of 11Ants RAP the way we to attack this is by utilizing the Customer Behavioural Segment Module. Whether or not you are a user of 11Ants RAP, you will still find this post and the principals outlined useful.

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We then select the time period we are interested in – let’s say the last one year. Then we click on ANALYSE DATA.

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The first thing that we will see returned to us is a Value Segmentation Model (somewhat as in the last blog post) with the four value segments identified (Take Good Care of Me, Give Me More Reasons to Visit, Get More of Me, Help Me Take You Seriously).

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Next we have the opportunity to drill into the behaviour of each of these segments. You will see there is a tab for each of the four categories – in the first instance we will drill into the Take Good Care of Me segment, which is the segment shown by default. To look at others simply click on the other tabs.

What happens now is where it gets interesting for retailers interested in better understanding their customers. We can see that our TAKE GOOD CARE OF ME customers fall into several sub-segments. The largest is a group of 3,622 who are FANS OF PROVISIONS, this means their largest spend in our store is on provisions. While there is another group called FANS OF FRESH FRUIT/VEG/SALAD this group of 365 customers spend more with us on fruit and veges than anything else. If we kept scrolling along to the right we see additional segments, diminishing in size FANS OF TABLE WINES and FANS OF HEALTH & BEAUTY, etc.

The top panel provides information on what this behavioural segment spends in total, how many of them there are, and what percentage of the top level value segment they represent. The second panel down tells us a little about two demographics of these customers – their gender and their age, this helps us better understand who we are talking to, life stage, etc. (assuming the gender and age information is available of course, if not it is no problem, this panel just disappears).

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So now we know a little about what these behavioural segments look like from a demographic stand point, but there is so much more we know about them which we can easily surface. The next panel is titled ‘What else do they buy?’ and the information yielded here provides us as the retailer with massive amounts of low hanging fruit (if you will excuse the pun) on ways to intelligently and sustainably grow our business.

For example, it emerges that the FANS OF FRESH FRUIT/VEG/SALAD spend $2,300 per annum with us on FRESH FRUIT/VEGES but only $1,270 per annum on PROVISIONS. We can see however that there is a group (FANS OF PROVISIONS) who are quite easily spending $2,510 per annum on PROVISIONS. Keep in mind both of these segments come from only our best customers (TAKE GOOD CARE OF MEs). We can assume from this is that these customers are in the habit of buying a good part of their PROVISIONS elsewhere.

So what is the intelligent retail growth strategy for this group? Well one obvious one is to try to wean our FANS OF FRESH/FRUIT/VEGES onto purchasing more PROVISIONS from us – provide this behavioural segment (and only this segment) with targeted offers to drive more of their spend in this category. Does this seem like a more sustainable growth strategy, with true long term value than indiscriminately advertising offers to our entire customer base to try to hit our numbers this week? We say yes. These are the sort of information points we can use to build out a retail growth blueprint based upon customer-centric principles.

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Then we can develop some even greater understanding in terms of the customers behaviour including Total Spend, Number of Visits, Average Basket Spend and Days Since Last Visit. We are continuing to build out a more rounded understanding of our customers in each segment.

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Next thing we can do is to get a better understanding of what sub-categories and products are most important to this segment. We can drill down in this from any level starting at the highest level in the category down to the product level. Below we are just showing the lowest product level. Showing that our FANS OF PROVISIONS spend the most on HOUSE BRAND SEMI-SKIMMED MILK a useful thing to know when considering which offers to look at targeting to other groups.

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We may want to update our CRM system with the new value segments and behavioural segments we’ve just built, so they persist and so we can isolate this segment easily, as well as track their progress over time. We do this by clicking on the DOWNLOAD CUSTOMER LABELS TO A TEXT FILE BUTTON.

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In conclusion we’ve very rapidly transformed raw transactional data into a behavioural segmentation model which provides us with a lot of actionable information that we can use to grow our retail business. This all done in a matter of minutes and without a reliance on understanding any sophisticated mathematical modelling techniques.

If you are interested to learn more you are welcome to get in touch with any questions – I can be contacted by email at tom@11AntsAnalytics.com