Marketing by objectives: Using segmentation based on purchase timing to enhance customer equity

Abstract

Enhancing customer equity is the primary challenge for all companies, but this responsibility is particularly critical for the Marketing department. Starting with a relatively simple three-dimensional value-based customer segmentation, we describe a goals-based approach to enhancing the value of the customer base. This requires setting marketing objectives for customers in each segment, namely the migration of customers from lower-value segments to higher-value segments. Several analytical tools for implementing our approach are discussed, including a purchase-timing model for the segmentation and clustering approaches, so marketers can develop greater insights into micro-segments characteristics and needs, as well as product propensity models for targeting the right products to different customers. We also discuss related applications of the segment transition matrix used to develop the marketing objectives. These include the development of pro forma income statements to justify possibly new marketing expenditures, the estimation of the lifetime value of a new customer and the value of the enterprise based on customer cash flows. © 2009 Palgrave Macmillan.