The Five Types of Customers: New Lessons in Shopper Segmentation

Kevin Hillstrom writes about direct marketing and data mining; he has developed a segmentation framework to identify customers who will keep purchasing even when advertising is reduced. These aren’t necessarily the most valuable customers. Kevin’s framework was developed within the context of database marketing – typically the purview of e-commerce merchants, retailers and direct marketeers but it could be useful even to those who go to market through channels and intermediaries.

Customers who respond to begging (discounts, promotions, free-shipping)  are at the bottom of the ladder. We’ll need to market to them, and we’ll need to give them a reason to purchase. These may be profitable customers, but we’ll have to work hard at creating gimmicks to encourage them to purchase.

Customers who respond to advertising. These customers are unlikely to buy in the future unless they are marketed to.

Customers who use algorithms to purchase.  (Note: This behaviour may only be possible online).  These are the customers who use tools like paid search to purchase merchandise.  They don’t always respond to  advertising, and when they do respond, they combine advertising and algorithms to make decisions.

Social customers. Customers who write reviews, and customers who are referred from blogs to your site.

Organic customers. These are customers who do not need to be advertised to. Amazon.com gets a lot of organic business. Now it is true that maybe Amazon sent an e-mail at one time, and you bought because customers like you purchased certain texts. But that doesn’t explain the fact that you se”Outliers” discussed on a blog, so you go and buy the book on Amazon (that makes you a social customer!). Or maybe you read about the book in New York Magazine, then buy it on Amazon (that makes you an organic customer). Organic demand is the most important kind of demand to generate, because it comes without advertising cost. Retailers have thrived for centuries via organic demand. E-commerce is a hybrid of retailing (organic demand) and cataloging (advertising demand).

I think these segments are particularly useful for shopper marketing  or trade marketing as it’s sometimes known, although some thought is needed to translate the segments into the offline retail world.  A great deal of shopper marketing activity and budget is focused on the margins, at customers who respond to begging. Using this framework with actual data could re-focus resources on more profitable segments.

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2 Comments »

  1. Thanks for the reference, I appreciate it! Good comments.

  2. Reynold said

    @Kevin – Thanks for an insightful and useful framework!
    A quick update: I thought algorithm-based shopping was unlikely to occur offline. But I just came across this post on shoppers using mobile internet devices to compare prices while shopping at Target. This is a technologically enhanced versiion of comparing brochures from different retailers and seems to fit your definition of customers who use algorithms to purchase. ie this behaviour can be found among offline shoppers also.

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