Marketers committed to customer relationship management (CRM) have to maintain data on each of their clients, particularly those most profitable to the enterprise. These best customers need and deserve to get the very best attention. In return, the expectation is that the business will be able to retain these customers' patronage. Emerging markets in which there is no data to determine best customers present marketers with a daunting challenge.

One such example is the emerging and newly deregulated gas and electric utility market. Of course, utilities have considerable data about customers' energy consumption. In some cases, they know what appliances customers own or, in the case of businesses, particular energy needs. However, in a competitive environment, this data does not answer critical customer relationship questions.

For example, will customers buy broadband services from their electric utilities? What kinds of reliability guarantees are expected? Which customers will be loyal to the local utilities? Do some customers expect rebates if they agree to particular conservation practices? Local gas and electric utilities must understand which customers have certain priorities. If they don't, their most valuable customers will very likely go up in smoke.

Using a Survey to Determine Segments

To prepare for deregulation, utilities should survey their customers to determine their needs and expectations in a deregulated environment. The data evaluating these needs can be cluster analyzed to determine segments of customers grouped according to services and products they desire. It's quite possible that some of these segments will have needs suggesting new businesses. The survey should also contain a rich battery of demographic, behavioral and media questions. Ultimately these questions will provide the linkage between the small number of customers surveyed and a database of perhaps millions of customers.

Survey data should be linked to data from customer files showing energy usage and other services purchased by the customer. To classify customers in the CRM database by the needs-based segments, some data must be common to both the survey data and the CRM database. Buying demographic, activity and media usage data from data providers and appending it to the customer files is a typical practice. If the data provides sufficient discrimination between the needs-based segments, the CRM database can be classified by using these variables as inputs to the classification models (see Figure 1).

Using the Segmented CRM Database

Let's assume one of the needs- based segments desires new telephone or cable television services and considers their electric utility to be a viable source for these services. If the number of customers in this segment is large enough and the utility considers this venture to be reasonable, knowing which customers would be interested in the new service or product would be highly valuable.

The telephone or cable television service can be tailored to meet the needs of the particular segment, advertising and promotional materials can be crafted specifically to this segment and campaigns can directly target this specific group. By being able to identify interested customers, their size, needs, and likely profitability, the utility maximizes potential return and minimizes marketing costs.

In the past, we have encountered segments in a utility's database that are driven by an immense need for service, a high interest in energy conservation programs and very little willingness to pay for the services they want. These segments represent low profitability and are usually a high source of complaints. By minimizing campaign contacts with unprofitable segments, a company can reduce marketing costs.

Innovative Use of Segmentation

In emerging markets, companies are faced with numerous possible strategies and executions. Most often, managers intuit what the market wants and, in doing so, miss critical insights that cause their strategies to fail. They may assume, for example, that their current customers will be good prospects for new services or products. Or they may overestimate the numbers of their current customers who would pay for the new products.

By determining customers' needs, estimating the profit potential of each needs-based segment and targeting most profitable and most receptive segments efficiently, strategies for new products and services will have the best chance of succeeding.

Coupling segmentation into a CRM database provides mechanisms for campaigns, call-center operations and real-time recommendations. For example, in call centers, the operator is informed of the customer's segment and, having this information, is better able to solve problems, inform the caller about new offerings and produce a satisfying experience for the customer. In real-time recommendation, the CRM engine is able to use the segment identification to generate appropriate messages and enhance the possibility of making a sale.

Serving Best Customers

We began this column by discussing the need to retain the enterprise's best customers. In a new, emerging market, these best customers may not be readily apparent. After all, because the market is undeveloped, there are no best customers. However, management must be able to determine and evaluate who will be the likely best customers.

In introducing a new product or service, a CRM-focused company should begin by asking current customers how they would react to new offerings, determining groups with differing needs and profit potential, and targeting them appropriately. To make the fullest use of these insights, this information should be mapped into a carefully constructed CRM database using statistical modeling that allows for very finely targeted campaigns. Companies that perform each of these critical steps will be rewarded with the highest degree of success.

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