What Every Business Should Know About Their Customers

1.   Who are our Customers?

a.  Who are our best Customers (Pareto Principle: 80/20 rule)

b.  Segmentation: Demographic, Geographic, Psychographic

c.  “RFM”: “Recency, Frequency, and Monetary value.” RFM analysis is a technique for segmenting Customers into groups based on their behavioral responses

d.  Personas: a vivid description of a single archetypical Customer

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What’s the difference between Segmentation and Personas? Here are a few highlights of the differences thanks to Frank Capek in his post "Customer Innovations: Driving Profitable Growth":

What is the Difference Between Personae and Segmentation?

•  Personas are used for designing experiences that get the Customers’ attention, fit with the way they think about what they’re trying to accomplish, and map easily onto their natural set of behaviors; 
Segments are used for making strategic focus and prospect targeting decisions based on the attractiveness and accessibility of different types of Customers.

•   A persona is a vivid description of a single archetypical Customer;
A segment is an abstract group of Customers that share certain characteristics.

•   A persona includes a rich description of how that specific Customer thinks, acts, and experiences the world; 
a segment typically includes descriptive or situational information about the group of Customers.

•   A small set of personas can be used to illustrate the fundamentally different types of Customers that exist in the marketplace;  segmentation is used to create a comprehensive mutually exclusive, collectively exhaustive (MECE) representation of an entire marketplace.

•   Personas are qualitatively derived based on observation and in-depth elicitation interviews;
Segments are quantitatively derived from large samples including demographics, situations, behaviors, and attitudes.

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2.  How much are they worth to us?

     Customer Lifetime Value   See:

•  Harvard Business School Publishing “Customer Lifetime Value Calculator” 

•  Integrated Management Resources Inc. “Lifetime Value of a Customer Calculator”

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3.  How do they feel about us?

Net Promoter Score:  See “The Ultimate Question” 

(1) “How likely is it that you would recommend our company to a friend or colleague?” 

  (2) Follow-on question: “Why did you give us the score you did?”

//Richard Randolph