ANALYZING CUSTOMER DATA AND

IDENTIFYING TARGET CUSTOMER

The next step in the CRM process is to analyze the customer

database and convert the data into information that will help
retailers develop programs for increasing the value they offer to
their best customers.
Two objectives for analyzing the customer database are :
(1) identifying patterns in the data that can improve the
effectiveness of retailing decisions such as forecasting sales and
allocating merchandise to stores and
(2) deciding where to place merchandise categories in a store.
 Retail Analytics
Retail analytics are the application of statistical
techniques and models to find patterns in
customer purchase data and make
recommendations for improving the
effectiveness of retailers.
 MARKET BASKET ANALYSIS
Market basket analysis is a specific type of retail
analytics that focuses on examining the
composition of the basket, or bundle, of
products purchased by a household during a
single shopping occasion. This analysis is often
useful for suggesting where to place
merchandise in a store.
 Examples of market basket analysis used in determining
product locations are:
• Because bananas are the most common item in Americans’
grocery carts, supermarkets often place bananas in the cereal aisle,
as well as in the Produce section.
• Tissues are in the paper goods aisle and also mixed in with cold
medicine.
• Measuring spoons appear in the housewares section and also
hang next to baking supplies such as flour and shortening.
• Flashlights are placed in the hardware aisle and with a seasonal
display of Halloween costumes.
• Snack cakes are found in the bread aisle and also next to the
coffee.
• Bug spray is merchandised with hunting gear and household
cleaning supplies.
 IDENTIFYING BEST CUSTOMER

One of the objectives of CRM is to identify and cater

to the best, most profitable customers.
Example
For instance, Home Depot realized that 70 to 80
percent of its kitchen renovation sales were coming
from 20 to 30 percent of the department’s customers.
It speculated that these heavy spenders might spend
even more if it organized the department around
meeting their needs. It knew that heavy spenders
want lots of choices and information.
 CUSTOMER PYRAMID

For most retailers, a relatively small number of customers

account for the majority of their profits. This condition is often
called the
80-20 rule —80 percent of the sales or profits come from 20
percent of the customers. Thus, retailers could group their
customers into two categories on the basis of their CLV scores.
One group would be the 20 percent of the customers with the
highest CLV scores, and the other group would be the rest.
 THE CUTOMER PYRAMID

Most Profitable

Platinu
m

Gold

Iron

Lead

Least Profitable Customer Pyramid

 Customer Pyramid
Platinum segment-
This segment is composed of the customers with
the top 25 percent CLVs. Typically
these are the most profitable and loyal customers
who, because of their loyalty, are typically not
overly concerned about merchandise prices.
Customers in this quartile buy a lot of the
merchandise sold by the retailer and often place
more value on customer service.
Gold segment.
-The next quartile of customers, in terms of their CLVs,
make up the gold segment.
-Even though they buy a significant amount of
merchandise from the retailer, they are not as loyal as
platinum customers and probably patronize some of the
retailer’s competitors.
Iron Segment
-The customers in this quartile purchase a modest
amount of merchandise
-their spending levels, loyalty, and profitability are not
substantial enough for special treatment.
Lead segment.
-Customers with the lowest CLVs can make a
negative contribution to the firm’s income.
-They often demand a lot of attention but do not
buy much from the retailer
- they buy a lot of merchandise on sale and
abuse return privileges