Statistical Consulting Blog

Effectively Linking Customer Segmentation to Profitability

Posted February 8, 2013

Bulgari Hotel

Bulgari Hotel in Bali, Marriott International

Effective customer segmentation is about knowing your customers and their profiles, and tying that knowledge to profitability.  One of the best examples of a company profiting from segmentation is Marriott International.   Do you know how many hotel segments Marriott pursues?  Six hotel segments consisting of eighteen different brands!  They have the Ritz Carlton and Renaissance for luxury accommodations and inspiration, Bulgari for “Iconic” luxury, Marriott hotels for full-service hotels, the Courtyard for the traveler who needs convenient locations, Fairfield Inn and Suites that provides affordable business hotel experience, and the Residence Inn and ExecuStay for extended stay travelers and temporary housing.  Those 18 brands span 73 countries, 3,700 hotels, and generated over $12.3 billion in revenue in 2011—that corporation is segmentation in action!

Why 18 unique brands?  Why not name them all Marriott?  Because they know the power of segmentation.  We don’t work for Marriott, but we can surmise that Marriott first understood the varying motivations of their customers, what their unique needs were, developed marketing campaigns for each of the segments, and learned how to increase their profitability in each segment by giving customers what they wanted.  In doing so, they are effectively linking segmentation to profitability.  Additionally, as a friend once said, “they are not leaving any hotel money on the table for any of their competitors”—name a hotel segment and Marriott has identified it and is profiting from that segment.

You don’t have to be a billion dollar company to get the benefits of segmentation and the profits that go with that customer understanding.  Basic descriptive statistics and visualization tools can show you who the top 10% of revenue customers are, and you can look for other prospects that match that profile.  Similarly, you can determine who is leaving your company and their profile or patterns of churn and create interventions to halt it. You can segment your customers into high, moderate, fair, and poor profitability, then provide service that fits that segment.  For example, those highly profitable customers may be moved up on the phone queue or given better service.

There are other actions you can take such as warehousing your data, appending 3rd party data, conducting data analytics, then applying propensity to purchase scoring models to see who is likely to buy.  Companies that take these simple actions can experience double digit revenue growth and up to 50% greater retention.  Segmentation is that set of tools that can help you identify profitable customers, predict who’s likely to purchase, and improve your ROI.  Your clients are waiting to be segmented—what are you waiting for?

To learn more about segmentation and other data analytic solutions, contact us@ 877-437-8622

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