Segment Your Customers to Deliver a Branded Experience

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Figuring out who your own business’s target customers are is the first—and probably the most important— decision in you’ll have in managing the customer experience.

Harrah’s casino discovered that its high-value customers are not the high rollers but, instead, those people who spent between $100 and $500 per visit. They amounted to 30 percent of the gamblers but 80 percent of revenue and almost 100 percent of profits. (Joe Ashbrook Nickell, Welcome to Harrah’s, Fast Company, April 2002).

The top 20 percent of Best Buy’s customers (angels) accounted for the bulk of profits, while the bottom 20 percent of customers (devils) generated losses. (Anita Elberse, John Gourville and Das Narayandas, Angels and Devils: Best Buy’s New Customer Approach, Harvard Business Review, September 2005)

These two successful firms found out that before they could deliver a branded customer experience, they had to first segment their customers and identify each segment’s value to the business. The value directs your resources allocation, and their needs align your brand values to deliver the target branded experience.

You have to justify resources allocation among those various touch-points.

Harrah’s breaks up high-value customers into 90 segments based on their gender, their age, where they live and what they play. Best Buy subdivides angels into five prototypes: the busy suburban mom, the active young male, family men, small employers and affluent professionals. This helps Best Buy address different critical needs and understand what makes its best customers as profitable (and loyal) as they are. By understanding all these elements, Harrah’s and Best Buy can acquire, retain and grow target customers who share those characteristics. The customer strategies of acquisition, retention and growth have to be converted into quantifiable targets in profitability and loyalty; your target customers could be managed and monitored by different customer segments.

Real voice of the customer

This type of analysis is different from the traditional Voice of the Customer program, based on a survey. If Southwest Airlines asked customers what they need, it might wind up with a long list of services it needs to implement. If Starbucks executives listen to their customers, they might see the need to significantly reduce prices. But neither action is warranted. To listen to the voice of customer more effectively, reasons Anthony W. Ulwick in the Harvard Business Review (Turn Customer Input Into Innovation, January 2002), you must stop asking customers what they want and start asking them what they want your products to do for them.

Another experience-centric approach that I write about in Are Starbucks’ Prices Too High? involves deriving the implied importance of various attributes that a customer would experience. If you hadn’t seen the results of my survey with CustomerThink, you would be surprised to know that price was least important among all the 26 attributes in affecting the overall customer satisfaction at a Starbucks in-store experience.

Customer value, loyalty metrics and customer needs are all very important measures for customer segmentation. Once you get your segments defined, you could design your own branded experience. Here, your brand values come into play. Always remember that brand values are meaningful only when they fulfill your brand promise, which means satisfying the critical needs of your target customers. To differentiate from competition, you must stop satisfying all customer needs, but excel at the critical few that can reflect your brand values.

With the critical needs set and defined, touch-points are for actions. They allow a company to interact with customers, build relationship and brand loyalty because they are the places where customers experience you.

All companies have numerous touch-points but limited resources. Not only do you have to decide which touch-points (customer contact through your online site or by email, through your call center, in person at your store or through one of your partners) are more important and critical, but also you have to justify resources allocation among those various touch-points. As I noted in Ice Cream, Airlines and x-VOC: Don’t Settle for So-So Customer Experiences at Touch-Points, this is why Dragonair does not provide the same level of quality service at the sales office as it does in flight and why Häagen-Dazs provided a poorly decorated redemption center and inadequate instructions for serving its moon-cake treats in China.

Alignment

To deliver results requires a dedicated effort to align the capabilities of your people, product(s) and technology. Sandra Jeanquart Miles and W. Glynn Mangold, researchers at Indiana University’s Kelley School of Business, found that Southwest Airlines motivates and trains employees to internalize its brand image and develop mutual understanding using a psychological contract (Positioning Southwest Airlines Through Employee Branding, 2005). Southwest’s friendly service is no accident; it is perceived as the pleasure peak during the in-flight experience process—one of the core values to non-frequent flyers. As Joshua Freed notes in his Associated Press article, Best Buy To Tailor Different Stores to Types of Customers (May 19, 2004), the electronics chain uses its store layout and merchandise mix to match five prototype customers, creating a different in-store experience for its most profitable customer segments.

Harrah’s invested more than $65 million and acquired three patents in the course of developing its Total Rewards Program, allowing executives to learn about, interact with and reward slot machine players in real time. In this way, the casino is delivering a unique Harrah’s casino experience process to its high-value customers (Harrah’s Entertainment Inc.: Real-Time CRM in a Service Supply Chain, Stanford Graduate School of Business, October 27, 2003).

Customer experience management is a journey, not a destination. It starts from the time you segment your target customers and continues through the formulation of an effective experience strategy. You choose your own brand values out of all your customers’ critical needs. It culminates in the focusing of your resources to deliver an effective experience to those different targeted customer segments at multiple touch-points. Then it loops as you take what you learn from feedback to constantly improve the experience.



Figure 1 Effective Experience Framework

Figure 1 shows how an effective experience framework is developed based on the essence and skeleton of the U.S. patent-pending Branded CEM Method, with four modules in 12 components to form a closed-loop management system.

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