278 The Marketing Book
nearly all of the company’s best customers. The
company was then able to purchase a list of
every citizen who belonged to these groups and
who also lived in those geographic areas in
which the company wanted to acquire new
customers. This is the ‘identikit’ or ‘cloning’
approach. It is the process of replicating cus-
tomer characteristics in non-customers in order
to select the best prospects for a marketing
programme.
Lifetime value analysis
Another metric of data-driven segmentation is
the LTV (lifetime value analysis). Lifetime is
perhaps something of an overstatement – it
doesn’t mean the lifetime of the customer, but
rather a designated period of time during
which they are a customer of your organiza-
tion. Depending on the type of products or
services on offer, lifetime might be as little as 6
months (as in purchases for baby products) or
as long as 10 years (as in the automotive
market). Essentially, different sectors have
worked out the probable lifetime value of the
‘average’ customer and calculated accordingly.
Whatever period is relevant, however, the
concept of what that customer is worth to the
organization in sales and profit terms over a
period of time is a useful concept that can
inform target segment selection.
To take an extreme example, if a car
company is only concerned with acquiring
customers and does nothing to retain them,
there is a fair chance that each customer who
buys one of their cars this year will go on to buy
another make next time – and the time after
that and so on. The value of the sale might be
£10 000, but subtracting acquisition costs, pro-
duction and other costs could mean a net profit
of just a few pounds.
With a more dedicated retention pro-
gramme the company could expect that cus-
tomer to buy one of their cars every third year
for, perhaps, 12 years – not just at £10 000 but as
they progress through their life stages they may
be able to buy more expensive models. So, with
lower costs of retaining a customer than acquir-
ing him/her in the first instance, together with
repeat buying and the prospect of up-selling
over a period of time, the sales value could be
as high as, say, £70 000 (£10k + £12k + £14k +
£16k +£18) plus cross-sales of related access-
ories and servicing. Those segments (analysed
as individuals according to their transactional
and profile data) would be selected for target-
ing – and for particular forms of targeting such
as loyalty schemes or other retention devices.Allowable cost for targeting
Furthermore, for those selected target seg-
ments, it is then possible to calculate a ‘mini’
profit and loss account for the ‘average’ sale.
Consider a simple example in which the selling
price of a directly distributed computer is
£1000, its cost of production is £600, order
handling is £40, ‘p&p’ is £20 and the desired
profit is £250. Costs would total £660, so the
‘contribution’ is £340 (£1000 – £660). The selling
price is £1000 and the sum of costs and desired
profit for the average sale is £910 (£660 costs +
£250 desired profit), so the allowable cost for
targeting is £90 (£1000 – £910).
This analysis can be done for different
selling prices and different promotional cam-
paigns, and shows how selected segments can
be further analysed in order to set allowable
costs for targeting them.
Having determined which segments to
target – and indeed which customers and/or
potential customers to target within these – the
next stage is to consider how to position the
product or service in the market.Positioning
The third strand of what is referred to as STP
(segmentation, targeting and positioning)
involves deciding on the position within the