Framing Success

Customer segmentation tools provide a flexible framework for decision-making—and allow retailers to flex and bend while still maintaining consistency across markets. Jeff Milgroom, a VP and retail industry expert at San Diego-based Claritas, which specializes in demographics and market segmentation, spoke with senior editor Katherine Field about tools and trends in retail target marketing.

Chain Store Age: Do retailers have significantly more customer and demographic information at their disposal now than they did even a few years ago?

Jeff Milgroom: Retailers have for years leveraged external information, demographics being a key part of that. There has been some evolution in demographics, as information has matured. But, on the customer-information side, a real revolution has occurred in retail. Today’s retailers are leveraging their own internal information, whereas five years ago they weren’t really at that point. Some of the big retailers were, certainly, but the industry itself hadn’t yet moved into collecting customer information, analyzing that information and marrying the two—customer and demographic—to exploit it in the marketplace.

CSA: What is on the horizon in terms of customer segmentation systems and analytical technology?

Milgroom: Segmentation by gender will be a major focus, certainly as more men shop. Marketing segmentation tools uncover patterns of consumer behavior, allowing retailers to target a specific segment—e.g. male shoppers—and understand what drives that segment. Another focus will be on the Hispanic segment and its subsequent impact on the industry.

In terms of technology, I think you’ll see further expansion and mainstreaming of business intelligence (BI). You’ll see BI interact with the internal information that retailers, both large and small, have. These BI tools will ensure that all the information becomes operationalized, in that current software integrates with existing retailer data in a real-time fashion so that decisions can be made more quickly.

CSA: Will more customer information and the ability to increasingly segment customers impact retail performance?

Milgroom: It’s all about execution. We know that just having the knowledge doesn’t necessarily mean that it will be successfully leveraged. But you can look in the market and you’ll see that understanding customer information is starting to manifest in many ways. For years, customer information has been used to make sure that real estate decisions are appropriate and that, from a merchandising perspective, buyers are buying for the right types of customers.

Where you can see it really coming together is that retailers—even big boxes—are recognizing that their customers are different within varying locations, and that retailers need to make adjustments based on the differences between markets—adjusting everything from the customer experience in that market to what they are stocking their shelves with. These changes are all driven by understanding, by increasing a retailer’s knowledge of the marketplace and the customer.

Although it is somewhat of a new phenomenon, you’ve seen some of the retail big boxes post good success rates, and much of that success is due to an increase in customer information, which allows a retailer to more strategically select sites as opposed to just dropping something down.

CSA: If you could zero in on the most important pieces of information a retailer could have about its customer, what would they be?

Milgroom: From my perspective, it starts inward and flows outward. The old RFM formula has got to be at the top of the list of information a retailer must know about its existing customer base. (RFM=how Recently the customer has shopped, how Frequently the customer shops, how much Money the customer spends.) Industrywide and beyond, RFM drives a lot of behavior, and that’s why you see this growth in customer information. Beyond that, a retailer should understand where customers are in their life stages including age, income and family status. This creates a segmentation approach to understand new customers, and it marries well with RFM for existing customers.