FEATURE 

Segmentation strategies

UK newspaper publishers are increasingly looking at data-driven marketing processes and “subscriptions models” for newspaper sales. In the US these are already commonplace. Here, in the light of increasing restrictions on the use of telemarketing in the states, Tom Ratkovich of ASTECH Intermedia looks at the fundamentals of segmentation marketing.

By Tom Ratkovich

The certainty of more restrictive telemarketing legislation is only the most recent challenge to subscriber marketing…and it’s not all bad. Whether or not the FTC’s planned Do Not Call Registry is being updated and enforced as of your reading this publication, rest assured that one is coming. The looming legislation has caused immense anxiety among newspaper circulators across the USA. How are publishers to cope with diminished productivity from their primary source of new orders?

Actually, we think they’ll do just fine. Absolutely critical, however, is the implementation of data-driven marketing processes that:

1. Contribute to the cost-effective diversification of subscriber acquisition;
2. Allow marketers to optimize telemarketing performance from callable numbers; and
3. Improve subscriber retention to reduce dependence on new starts.

Whether trying to acquire a new subscriber or retain an existing one, relevance and value are crucial. The more we know about individual customers and prospects, the more capable we are of positioning our product to convey value. At the core of our ability to do so must be a market segmentation strategy that drives the subscriber marketing process.

Building a Segmentation Framework

A market segmentation strategy should be designed to identify and quantify targetable consumer segments, establish segment priorities and improve tactical execution within specific segments.

The segmentation scheme can be created using virtually any combination of transactional, demographic and response data accessible by the organization. Consequently, such schemes can be quite complex. For example, one segment might be defined as follows:

* Former subscribers; stopped 60-90 days ago
* Tenure: 180-270 days
* Subscription frequency: Daily
* Stop reason: Poor service
* Rate Code at stop: Full
* ZIP priority: High
* Do-Not-Call
* Date of last contact: none

Translation: These are former full-rate daily subscribers that stopped subscriptions 2-3 months ago for service reasons. These consumers’ telephone numbers are on a do-not-call list and the households are located in neighborhoods highly desirable to key advertisers. Lastly, they have not been contacted since their stop date.

Clearly, there is a unique communication strategy associated with this segment. The elements of this strategy include:

* Offer (product, pricing, term, incentives)
* Channel (telephone, mail, email, other)
* Creative (positioning, scripting, etc.)

Similarly, there are unique communication strategies associated with potentially dozens of customer and prospect segments, each defined in terms of behavioral data and related characteristics.

Subscribers a la Mode

A useful metaphor for consumer segmentation is that of a pie, where the pie represents all potential customers in the newspaper’s defined market. In turn, every slice of the pie represents a unique, targetable segment – each with its own communication strategy.

For example, you might start with three "mega-slices:"

1. Current Subscribers (hopefully the largest!)
2. Lapsed Subscribers
3. Never Subscribed

Within the Current Subscribers segment, you might create two or more smaller slices based on Frequency of Delivery – such as 7-day, Weekday and Sunday Only. And while Weekday and Sunday Only subscribers offer opportunities for increased frequency, the 7-day segment must also be further "sliced" so as to maximize the long-term potential of these customers.

For example, one data element that should certainly play a role in the segmentation strategy is Tenure. Clearly, the more recent the start date, the higher the risk of attrition. Moreover, those on automatic payment programs represent less risk than subscribers that are periodically invoiced. Highly discounted subscriptions also create risk and the communication strategy must address this. So within the 7-day subscriber segment alone, the pie can be further sliced to reflect unique characteristics of each subscriber relative to Tenure, Payment Plan and Rate.

Obviously, the complexity of a thoughtful segmentation scheme can grow rapidly. Considering only the 7-day sub-segment of the Current Subscriber mega-slice, we can easily create 24 unique "slices" based on very simple payment and rate code structures:

Segment Code7-Day SubsTenure < 30 Days
Payment = "Automated monthly debit"
D000E50Rate Code = D50
D000E75Rate Code = D75
D000E00Rate Code = Full
Payment = "Paid in advance"
D000P50Rate Code = D50
D000P75Rate Code = D75
D000P00Rate Code = Full
Tenure 30-90 Days
Payment = "Automated monthly debit"
D030E50Rate Code = D50
D030E75Rate Code = D75
D030E00Rate Code = Full
Payment = "Paid in advance"
D030P50Rate Code = D50
D030P75Rate Code = D75
D030P00Rate Code = Full
Tenure 90-180 Days
Payment = "Automated monthly debit"
D090E50Rate Code = D50
D090E75Rate Code = D75
D090E00Rate Code = Full
Payment = "Paid in advance"
D090P50Rate Code = D50
D090P75Rate Code = D75
D090P00Rate Code = Full
Tenure > 180 Days
Payment = "Automated monthly debit"
D180E50Rate Code = D50
D180E75Rate Code = D75
D180E00Rate Code = Full
Payment = "Paid in advance"
D180P50Rate Code = D50
D180P75Rate Code = D75
D180P00Rate Code = Full


In this example, segment "D090P50" is a 7-day paid-in-advance subscriber whose start date is between 90 and 180 days ago and is paying 50 percent of the full rate.

Because each segment or "slice" implies a unique communication strategy, it is important that the segmentation scheme not be frivolous. In other words, there is no need to differentiate between "Weekday Only" and "Sunday Only" subscribers if the offer and creative will be identical. If, however, in the backend campaign analysis it is clear that the response behavior of the WO and SO subscribers is meaningfully different, it will prove useful to modify the segmentation scheme accordingly.

Ultimately, the quality and relevance of the segmentation strategy will be dependent upon two primary factors:

1. The quality and relevance of the data that drives it; and
2. The features and functionality of the marketing systems that facilitate the segmentation scheme and its subsequent implementation.

Data Driven

Those data elements that will be most useful in developing the segmentation and communication strategies include the following:

* Subscriber status
* Start date – stop date
* Frequency of delivery
* Rate code
* Stop reason
* Do-Not-Call status
* Private party advertiser status
* New mover status
* Date of last contact
* Channel preference
* Household demographics

Much of this information is maintained within an organization’s transactional systems. Other elements, however, such as new movers and household-level demographic data, can be leased or purchased.

The Essential Toolkit

Creating, implementing and assessing a complex segmentation framework require analytical capabilities that are uniquely powerful and flexible. Such capabilities are not easy to find within the current investment parameters of most newspaper companies. Nonetheless, the current acquisition dilemma mandates that the industry modify its focus on short-term financial performance and invest in the core marketing processes that will ensure long-term viability and prosperity.

Those processes require marketing automation solutions that include:

* The effective integration of multiple sources of relevant data that drive strategic segmentation;
* Potent segmentation capabilities that allow for the creation and management of highly complex schemes involving hundreds of unique "slices";
* Robust campaign management functionality to manage communications with dozens of consumer segments across multiple channels; and
* Flexible reporting to enhance data analysis and decision-making.

Once the appropriate data has been made accessible and the proper marketing technology has been deployed, the organization will be well-prepared to optimize subscriber marketing activities through an integrated, data-driven marketing process, at the heart of which is the consumer segmentation strategy.

Project to Process

There are immense productivity gains to be generated through the introduction of marketing processes that integrate subscriber acquisition and retention initiatives. It is important to recognize that retention begins with the acquisition – that customer relationships based on relevance and value and initiated through appropriate channels – will be far more enduring and profitable than high-pressure or discount-inspired orders.

The ultimate objective is a customized, data-driven subscriber acquisition and retention process based on customer behavior and value that is measurable and repeatable.

Conclusion

Market segmentation is a concept that has garnered a great deal of attention over the years – and deservedly so. The need to diversify subscriber acquisition activities while simultaneously improving customer value through increased retention clearly makes the adoption of a data-driven segmentation framework a strategic priority. To do so effectively, the newspaper industry must move beyond its short-term profit focus and make the marketing infrastructure investments that will ensure those profits will be there in the long-term as well.



This article first appeared in the December 2003 issue of INMA’s Ideas.