My question is about segmentation of customers in the telecom sector : how do the operators (fixed or mobile telecom) size, segment and measure their customer profiles, in order to seeing which of them are likely to be interested in other services?

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A comparable point, in other industries is, in banking, the "scoring", which segment the customers in this way of proposing new and profitable services to them.

What are the tools, what are the major segmentation, how clients are segmented ?

I address this question to you, thinking that customer loyalty is one of the purposes of such a management tool.
Customer segmentation is really a continuation of understanding lifetime value. Once customer lifetime value has been established, companies can determine how much service and support to provide each customer, and differ communication and promotional programs, based on how customers are then segment. This is also where advanced churn and CRM program modeling come into play, where companies can select the most appropriate programs based on the customer's value to the company, likelihood to defect, and probability of positive response to the program.

So, how is customer lifetime value, or contribution calculated? Determining both the lifetime value of each customer - their revenue minus their costs - and the 'second lifetime' value of a recovered customer, are perhaps the most important considerations in decisions regarding what resources to invest, and where. Irrespective of industry, we believe that a company will want to determine:

- Cost to acquire a customer
- Average amount each customer spends per period (month, quarter, year)
- Products and services purchased
- Average time with supplier
- Time remaining in the customer's life cycle
- Costs to retain each customer, i.e. ongoing relationship expenses, such as customer service
- Profit from average customer (sales, minus fixed and variable costs)
- Referral and information value attributed to each customer.

Now, armed with this information, the company can identify value concentration, the overall portfolio value of their most contributory customer relationships. The company will then have to determine which customers are solid and which are at risk for defection, and meld that information with projected lifetime value.on a segmented basis. Segments often include dollar volume, length as customer, array of products and services purchased, etc., and they may be set up on such platforms as a decile (ten segments) or pentile (five segments) basis to represent their contribution.

One of the lesser explored areas of segmentation are those customers at the bottom, those who just cannot be grown to a point of profitability, complain excessively, consume company resources (such as customer service), or demand credits beyond what is reasonable. These customers drain resources beyond their value and should be cut loose.

In addition to traditional segmentation elements, some companies, particularly banks, have looked at behavioral issues as opportunities to optimize customer lifetime value. For example, one bank has determined that, when customers open an account with another financial institution, this was correlated very highly with a deteriorating relationship. Another has found that, if there was a decline in the amount of checking account activity, if account balances declined or stopped, or if debit card usage declined, they could apply a model to establish the impact of each on possible defection.

This was first published in March 2001

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