Wednesday, December 2, 2009

Market Segmentation in Telecom Industry

Written by Quantix Marketing Consulting
The consumer / residential perspective

Market segmentation is a concept and a process well known and largely used worldwide, in most business environments.

It is basically a process of grouping customers into homogenous groups in order to optimize the use of resources and increase efficiency, be it in terms of product adoption, communication and branding, distribution or pricing. In this article, we will not go deeper into the theory of segmentation.

The purpose is to reflect some aspects telecom industry is facing regarding market segmentation.

From the start, it should be emphasized that telecom owns huge amounts of data about customers, from various sources. Like banking, insurance, online shops…Unlike many industries in FMCG.

This is a potential favorable situation, provided you don’t go into the typical state of paralysis by analysis.

Sources of data telecom providers may have and use:
Internal data:
- Contract data
- Traffic data
- Contact centers data (customer complaints, contact center interactions logs and stats, etc)
- Billing data

External data:
- Market research
- Secondary data (geographic information, demographics)
- Partnerships (data merges with potential business partners)

The internal data tends to be exhaustive, describing each customer. It also tends to be accurate, despite the fact that often it must be interpreted and the analyst should expect various types of errors to be found as well.

Internal data should be organized in data warehouses (or data marts) in order to facilitate recurrent analyses performed by data miners.

The external data may be based on samples or could reflect populations, at different stages of aggregation, but with limited possibility to describe the entire customer base in a 1-to-1 approach.

Merging databases with partners, in co-marketing initiatives, may lead to additional characteristics to be analyzed at individual level. This type of mergers is difficult to be done, as it implies several legal aspects as well as potential technical limitations.

Segmenting residentials
Telecom providers have two types of customers: business and residential (also known as consumers). Definitions may vary from country to country, but the concept seems quite understandable.

When dealing with residentials, the telecom provider is interested in the individual, in the person using the service and paying from his/her own wallet; or from mom’s or dad’s, but not from a company budget.

There are several approaches a provider may use to segment its customer base. They may all work fine in different business environments.

Same provider may have two or more segmentation platforms at the same time (often one is considered more strategic and the other one more operational/tactical).

There could be segmentations used at company level and approaches used at departmental level.

For instance, Collection may have its own customer segmentation in which they treat bad debt; call centers may have their segmentation based on which different service levels are given to customers, while marketing may use one main strategic segmentation for its long term plans and a more tactical one for direct marketing purposes and new product development.

Of course, having one segmentation that is well known, shared and believed in companywide is desirable, but it often is the case that multiple approaches co-exist.

Segmentation platforms
- Demographic segmentation – often perceived as obsolete, it still exists and, to some extent, it brings value. Companies should know how they are perceived by different age groups.

Age does discriminate in many areas and is a good link to profiles received from different partners (media, for instance).

Gender may work.

Occupation as well…Income for sure, especially for some particular offers in the market (products or services).

Some demographics may exist in the internal databases, some may only be obtained through research.

- Geographic segmentation: from a basic urban/rural split, to more detailed regional divisions, geographical perspective on the market brings value in many areas. Some markets are strongly discriminated by population layout in the territory.

In this area, advanced geographic systems work very well together with telecom. Telecom providers can also locate pretty accurate their customers and can produce amazing analyses based on location

- Research segmentations: we have included here multiple approaches, like attitudinal, motivational, need-based, life-style, etc.
Fundamentally, they are different at the core, but they all derive from research, from samples of consumers being asked questions.

- Behavioral segmentations; based on existing internal data, mixing traffic and value information (such as number or duration of calls, service usage, value spent per service, etc).

Segmentation may start from simple layers of usage to complex grouping of customers based on multiple dimensional analyses (i.e. product portfolio adoption and usage, social network analyses)

The solution
It is quite clear, segmentation is necessary. It is not similarly clear which way to go to have it. Often, it is complicated to align a large organization to one segmentation approach.

Even harder to reach the perfect one. Still, a segmentation should exist and should be known across the organization. Wisely used, it will surely deliver.

It will increase efficiency of resource spending, it will bring the company / the brand closer to the customers; targeting each segment in the right way, with the proper products and messages, using the right channels and price points.

Material provided by Quantix Marketing Consulting ( )
Executive director Cosmin Nae