Michael Mancini, Vice President of Data Product Management, Nielsen Claritas

SUMMARY: All customers are not created equal. Now, market segmentation models are enabling business-to-business marketers to develop more efficient strategies for identifying and reaching high-potential clients. From prospecting to sales territory mapping, from advertising channels to collateral messaging, segmentation models help analysts pinpoint high-value customers and marshal resources where they’ll be most effective.

For business-to-business (B2B) marketers under increasing pressure to better target customers and prospects, segmentation can be a powerful tool for strategic and tactical applications. Although marketing segmentation systems have enjoyed widespread acceptance in the consumer world for decades, B2B segmentation systems have languished due to the limited availability of accurate data, marginal technical expertise, an inability to develop high quality leads and poorly differentiated advertising.

Enhanced datasets and segmentation techniques developed by Nielsen are helping companies create informed strategies for prospecting new customers, re-aligning sales territories, cross-selling existing customers and predicting future opportunities.

Segmentation solutions
The challenge for marketers has always been the same: know your customer. But with limited information on most companies—especially small- and mid-sized firms—marketers traditionally have concentrated their efforts in the consumer world where ample data exists to craft effective target marketing solutions.

But for B2B marketers, getting to know their end-buyers is not so simple. Unlike demographic data, accurate information about businesses—so-called firmographic data such as addresses, financials or staff titles—have been harder to come by due to the number of business start-ups, closures and unpublished information for private firms.

Fortunately, B2B marketers are now getting their due. Comprehensive databases give marketers access to accurate and current data within a consistent framework on 13 million business establishments—critical information such as a company’s total headcount and industry classification. By appending these data to its business customer file, a company can create a robust business segmentation approach to guide prospecting, sales territory mapping, advertising and target marketing.

Classifying info
In a typical segmentation analysis, business customers are sorted into categories based on company size and industry, though other defining characteristics could also be added. Using figures from a proprietary database and their own information, analysts calculate sales per employee within each business, estimate its market potential value, and rank it against all other customers and prospects.

Business segmentation can also drive changes to marketing communications and advertising. Instead of relying on intuition and tradition—using the same channels and messages that have been around for decades—marketers can develop initiatives based on hard data that address the needs of their business customers and reach them in the way they will be most receptive.

Valuing prospects
Acquiring new customers is a perennial challenge for most companies, but it is vital for growing the business. Windstream Communications, a telecommunications company serving three million customers, didn’t have a systematic way to prioritize prospects, a strategy for packaging its services, or even a protocol for initiating contact with companies.

This catch-as-catch-can approach didn’t allow Windstream to develop an understanding of the prospect’s profit potential or its potential wallet share.

Divide to conquer
To improve that understanding, Windstream worked with Nielsen to create a segmentation system that classified business customers into segments and determined the opportunity of each segment. Windstream’s existing customer records were first matched against the Business-Facts database to identify each company’s Standard Industrial Classification (SIC) code and employee count. Analysts then divided the companies into three buckets based on size and further segmented into seven industry segments using SIC codes. Finally, analysts looked at the preferred products and revenue associated with each business to determine the potential demand for each segment—and the sales potential per employee in that segment.

Setting priorities
Comparing Windstream’s customer base to a universe file of all businesses within its service area, marketers prioritized all the prospects for every business segment, taking into account the estimated value and prior success at landing a similar account. The segmentation analysis then drove Windstream’s marketing strategy, determining the number and type of sales contacts from direct mail to in-person visits. Windstream also differentiated its marketing messages, product offerings and delivery method by industry segment.

In the year since Windstream adopted segmentation analysis, direct mail response rates have risen 50% to 70% and telemarketing sales have jumped nearly 500%. The direct marketing group even hired a campaign manager and began devoting more resources to B2B marketing.

Bright prospects
New segmentation applications are being developed all the time for B2B marketing. Nielsen recently unveiled a “business density model” that allows users to map the number of businesses and their employees in one-, two- and three-mile rings anywhere in the country. Developed for site selection support, the model can help a company determine whether a commercial area offers enough of the right kinds of customers—with few competitors—to support a business expansion. In the past, that kind of information was known only by local commercial real estate agents. The business density maps can be linked to any business segmentation analysis so companies can score site locations based on the surrounding business segment density—and their establishment and employee counts—for any U.S. trade area.

Achieving success
The growing list of successful business segmentation projects suggests principles that any company can adopt for B2B marketing success:

• Leverage the value of two pieces of basic company information: size and industry classification.
• Make sure your segmentation model classifies customers into segments of similar businesses—so the science drives the strategy. A business database can help compare customer files to a known universe to calculate market penetration by size and industry segment.
• Use data on existing business customers to score profit potential, prioritize acquisition, retention and cross-selling initiatives.
• Measure the effectiveness of segmentation-based sales and marketing programs using metrics like quarter-over-quarter sales, cost to convert prospects into customers and direct mail response rates. Then fine-tune marketing based on these metrics.

Just as innovative applications drove the acceptance of segmentation systems in consumer marketing, successful B2B programs will lead more marketers to explore how information products can help them gain an edge in an increasingly competitive world. The data is out there, and your business customers are waiting.

Read the full white paper report B2B Segmentation Solutions on Nielsen.com.

Jane Crossan,Vice President, Practice Leader, Financial Services, The Nielsen Company

For the past six months we’ve seen and heard about the recovery of the U.S. market: the DOW has ticked up and the Fed chair has said the recession is “likely over.” But ultimately, the consumer will determine when our economy is back on track when you consider that consumer spending accounts for roughly 70 percent of U.S. economic activity. Until the consumer starts spending again, the recovery is likely to be slow and it may feel like we’re in a weak economy for some time. To get a closer look at the consumer’s financial outlook and their going-forward intent,  Nielsen Claritas surveyed more than 2,500 consumers, including 500 households that saw their personal financial institution impacted by a takeover or acquisition. What we found was that while the intensity of the economic panic had subsided since 2008, concerns persist and new habits in spending and saving are solidifying.

The new frugality
Similar to what we’re seeing with the outlook to the upcoming holiday season, the majority of consumers are saying this is just not the time to buy. When posed with a very simple fill-in-the-blank prompt: “At this moment, the time to buy the things you want and need is…” the panel responded heavily with “not so good.” Combine that with those who said the timing was downright “bad,” and you’re looking at 71% of respondents telling us they are no position to buy right now.

These responses underscore the consumer confidence index which began to drop in May and continued to drop through much of the summer. Even back-to-school shopping was lackluster despite a slight rise in that sector in August. The prevailing mood could likely be summed up by one respondent who noted bluntly: “I will not be making any large-item purchases for a long while.”

Spending and saving less
Between pulling back on spending and working to consolidate debt, the average consumer is getting squeezed.

In the past six months…

• One third say they have used credit less while…
• Only 13% say they have used credit more
• Consumers indicate they have controlled spending by using cash, debit and check as methods of payment
• 27% say they have saved less vs…
• 22% who say they have been able to save more
• 16% say they contributed less to retirement over the last 6 months

Even when conditions improve in the future, consumers are viewing the use of credit cautiously, with 30% saying they’ll use credit less. Savings will also continue to be a struggle as only 19% say they will be able to save more even when the economic storm clears.

The middle still feeling the pressure
In October 2008, concern about the economy was felt equally across the board, regardless of household net worth. Now, however, the higher net worth households seem to be faring better with their extreme concern almost cut in half. The two highest net worth brackets showed a noticeable drop in extreme concern compared to the lower three brackets, perhaps because homeowners with higher equity are less affected by recent drops in home values.

What’s interesting is the comparable concern in the middle and lower two brackets.  In fact, the middle bracket (those with a $100-249K net worth) expressed the highest amount of concern in 2008  and 2009, evidence that this is not a “poor man’s recession.” If anything, those in the middle are feeling the most pressure. These mid-net worth households  are likely comprised of  recent first home buyers who traded up at the peak of the market, or took equity out of their homes to fund other lifestyle choices.

Adding to that middle-class worry are growing concerns about personal finance matters at the heart of the American dream.

More than one third of consumers continue to be concerned about their mortgage or home value – not surprising given that recent data shows that one in eight mortgages is delinquent or in foreclosure – and the median sales price of existing home sales is down 16.8% over this time last year according to an Economic Snapshot at the time the survey was fielded. But the greatest concerns are around investments – specifically retirement portfolios as total family wealth has decreased since its peak in June 2007.

So while there may be less panic about the economy in general, these personal factors underscore what we’re hearing: the recovery for the consumer will be a longer, and more personal road back.

“Nielsen’s online data shows that about half of the U.S. population visited a social networking website in the last year and that number grows every quarter,” said Wils Corrigan, AVP, Research & Development, Nielsen Claritas. “The rising popularity of these sites and the deep engagement consumers have with them has advertisers and marketers asking for more and more detail as to which lifestyles should be targeted for their online advertising and promotions.”

Facebook vs Myspace

Through Claritas, Nielsen defines U.S. households in terms of 66 demographically and behaviorally distinct segments like “Young Digerati” or “Beltway Boomers.” When those segments are overlaid with the activity of Nielsen’s online panel of more than 200K, we see a marked difference in the demographic makeup of the two largest social networks, Facebook and MySpace.

• Facebook users have a largely upscale profile. The top third of lifestyle segments relative to affluence were 25% more likely to use Facebook than those in the lower third.
• The bottom third segments related to affluence are 37% more likely to use MySpace than those in the top third.
• Users of Facebook were also much more likely to use LinkedIn, a network geared towards business and professional networking, than those who use MySpace.

Bloggers more urban as well

According to Nielsen Claritas, the blogging and tweeting community at large isn’t necessarily more affluent, but bloggers and tweeters do live in more urban areas such as New York, Los Angeles, San Francisco, and Chicago. The penetration rates of the top two most visited blogging platforms (Blogger, Wordpress) and the most popular micro-blogging platform (Twitter) show that Nielsen’s 12 Urban lifestyle segments are more likely to blog and tweet than Nielsen’s 22 Town & Rural segments.

Not surprisingly those lifestyle segments most likely to blog and tweet also tend to use Facebook and LinkedIn more often than those segments that typically don’t blog or tweet. Case in point, the Urban lifestyle segments for Blogger are 18% more likely to be Facebook users and 140% more likely to be LinkedIn users than the below average segments.

About the methodology

Nielsen examined the seven most-visited social networking websites and platforms: Facebook, MySpace, Blogger, Twitter, WordPress, ClassmatesOnline, and LinkedIn. Website penetration by segment was calculated by dividing the number of unique visitors to the website per segment by the total number of households in each segment.

This demographic—those aged 25-34 who are making over $100,000 annually—is also prevalent in the high-density areas of San Francisco, New York City and Chicago.

The study reflects the subtle but significant shift of the demographic to the larger metropolitan areas as well as a slight shift to the East.

“In 1990 you had a lot more concentration of this demographic in the heartland and in Texas, likely driven by the oil economy, and some of the agribusiness,” said Michael Mancini, vice president of data product management for The Nielsen Company. “But now, there’s a densification of young money into the major metros.”

Over the last two decades, the D.C. area has surged in popularity with the young and moneyed. Back in 1990, top-ranked Loudon County was in 24th position. By 2000, it had moved up to fourth place. Arlington, now second, was eighth in 1990 and third in 2000.

Arlington’s reputation as a place for rich young professionals has even inspired a recent mock-rap video on YouTube.

While D.C.’s rise has pushed San Francisco County from the top position it held in 2000, the percentage of young and wealthy households in San Francisco has increased, from 7 percent of the total in 2000 to 7.83 percent in 2009. In 1990, the young and wealthy accounted for only 1.29 percent of San Francisco’s total households.

In fact, there has been a significant increase in the concentration of the young and wealthy across the board in the top counties. While in 2009 Loudon County boasts 10.06 percent of its households are in the young and wealthy demographic, back in 1990, the top county only had 3.22 percent of its population in that bracket, which would not have even landed them in the top-50 this year).

Quick Facts

• Young and wealthy households make up only 2.15 percent of the total U.S. population.
• Only 15.9 percent of households are headed by persons aged 25-34, and only 13.48 percent of those in that age group make over $100K.
• The median household income of that age group is $49,750.

“These estimates help manufacturers and marketers better understand the markets that have ‘green’ potential, and help them focus their resources,” said Bruce Wilkinson, Vice President of Media and Communications for Nielsen Claritas. “Additionally, it helps them to plan media campaigns and determine inventory levels for each model, market-by-market.”

The research looked at the national ownership rates of high-mileage vehicles including the Honda Fit, Toyota Prius, Toyota Yaris and Mini Cooper. Using auto registration data from RL Polk and Nielsen’s PRIZM segmentation, the percentage of each segment owning these vehicles was calculated. Individual market potential then was calculated based upon the segment composition of each market.

The top ten was made up primarily of coastal metropolitan area, including Boston (4th), San Diego (5th), Chicago (6th) and Los Angeles (9th), all with populations of over one million. Two exceptions were the relatively small areas of Monterey-Salinas, CA (7th), which has a population of 234,000 and Honolulu, HI (8th), with a population of 442,000.

Places where gas guzzlers still rule the road tended toward the south and Midwest, with the states of West Virginia and Mississippi holding seven of the ten areas that had the lowest rates of green auto ownership.

Learn more about Segmentation & Targeting.

In a down economy, price sensitivity can trump loyalty as customers are forced to reduce their spending. Nationwide surveys have reported a decline in corporate allegiance as consumers shift their concerns from patronage to price. When the Nielsen Convergence Audit surveyed 38,000 Americans about their technology purchases, 24 percent said they had switched their cell phone, cable TV and Internet service providers in the last six months of 2008. To strengthen the bonds with their best customers and retain wallet share, a number of innovative companies are applying consumer segmentation to enterprise-wide strategies designed to make their organizations more customer centric. At Nielsen, analysts have developed a framework for deploying these enterprise-wide segmentation initiatives that can yield significant results.

Realigning Operations through Segmentation

Best Buy launched a customer-centric program based on segmentation that now is at the heart of its company-wide growth strategy. According to published reports, the consumer electronics giant classified its best customers into five consumer segments, conferring names on them like Buzz (the young tech enthusiast), Jill (the suburban soccer mom) and Barry (the wealthy professional guy). Using a variety of demographic, lifestyle and marketplace data to flesh out these portraits, Best Buy re-aligned its stores, sales training and marketing according to the segments. As a result of this program, the company invested more than $50 million to renovate 110 stores. In the year after the makeover, the Best Buy stores that had been converted to the customer-centric model reported same-store sales growth in excess of nine percent-more than double that of outlets that had not been overhauled using the segmentation model.

Loyalty Has Its Privileges

At the Arizona Republic, a Gannett company, consumer segmentation drives their approach to maintaining customer loyalty. Using data from Nielsen’s PRIZM, a segmentation system that classifies households into 66 types based on demographics and lifestyles, reporters attend seminars about the most common PRIZM segments among their readers to better craft their stories with their audience in mind. Circulation managers differentiate customer service policies based on whether a subscriber is a long-time reader or a new customer. And marketers target subscription drives to prospects who, according to segmentation data, are most likely to become loyal readers. Before 2005, when the Arizona Republic sought new customers with mass mailings of generic direct-mail pieces, 23 percent of respondents canceled their subscriptions after the introductory offer. But in 2007, after the paper segmented and targeted Gold subscriber look-alikes, the drop-out rate fell to just 14 percent-a 39 percent improvement. Just as important, the newspaper was able to cut printing and postage costs, reducing its acquisition cost per subscriber by 23 percent. “Segmentation has really cut down on our mailing pieces and costs,” says Greg Bright, Director of IT Data Management, who notes the paper now sends out 40 percent fewer direct-mail pieces.

Increasing Customer Stickiness

Building customer loyalty can also help companies keep existing customers from defecting to competitors. When First Tennessee decided in 2008 to place a greater strategic emphasis on becoming customer centric, it employed an innovative approach to address the lifecycle needs of top prospects. The bank drew on both its customer records and data from Nielsen P$YCLE, a segmentation system that classifies households into 58 types based on demographics and financial behavior. “We want our bank to resonate with the lifestyle and financial needs of our target audience,” says Dan Marks, Chief Marketing Officer at First Tennessee, “so we emphasize the competitive advantages that we know resonate with our customers and use our products as the call to action.” While the bank used to run TV commercials on network news and sports programs, P$YCLE® showed that its targeted customers actually preferred cable channels like CNBC, the Weather Channel and the Food Network. The bank’s media buy changed accordingly, and the number of new deposit accounts and loan applications rose in response. “We’re still surprised by the Food Network,” Marks chuckles. “But it’s worked very well.”

Principles for Creating Loyal Customers

For those companies ready to undertake an enterprise-wide segmentation initiative to increase customer loyalty, there are a handful of guiding principles that are important to achieving success:

• Identify key customer segments.
• Create target groups of similar segments.
• Prospect for look-alikes in target markets and your own customer database.
• Deliver differentiated messages and experiences.
• Keep it simple.
• Get everyone involved in the consumer segmentation approach.
• Measure the effectiveness and adjust your strategy.

Using consumer segmentation to build customer loyalty can help companies prosper even in a difficult economy with comprehensive data and a willingness to modify practices throughout the enterprise. By shifting resources away from mass marketing channels to a focused campaign that puts their best customers front and center, businesses can improve sales and decrease costs, while building a loyal clientele that allows them to weather this challenging market.

Download the Nielsen Claritas Segmentation And Customer Loyalty whitepaper.

“If the overall worth of IRA and 401K accounts continues to decrease, perhaps there is an opportunity for financial institutions to place more of an emphasis on CDs as a way to help consumers save with some guaranteed interest rate during these trying financial times,” said Jane Crossan, Vice President, Practice Leader for Nielsen Claritas.

Key Findings

• Non-interest checking accounts grew in 2008 where the head of household was over 35 years of age. However, average balances for non-interest checking accounts were down across all age groups.
• More households had a savings account in 2008 than at the end of 2007—and the type of savings vehicle was driven by the age of the head of household.
  – Older households had the ability to keep higher balances for money market accounts or were able to commit some of their savings to CDs.
  – The younger households kept their savings liquid in fixed-interest savings accounts.
• Money market account penetration decreased year-over-year driven largely by the under age 35 households.
• Fixed interest savings accounts increased for all three age groups, which include under 35, 35-54 and over 55
• The number of households with an IRA and 401K increased, but average balances plummeted for all age groups.

Credit, Loans and Investments

Along with the ability to take advantage of money market and CD accounts, the older the head of household, the more likely they are to have an outstanding non-mortgage credit balance of over $10,000. That level significantly increased for households in the 35-54 and 55+ age groups.

Personal loans also increased since the end of 2007 in the form of home equity loans, student loans and other unsecured personal loans. Penetration of revolving debt accounts, such as credit card debt, decreased which indicates that people were closing their credit card accounts. All the major credit card brands, including Visa®, MasterCard®, Discover® and American Express® showed a decrease in penetration from 2007 to 2008. However, average outstanding credit card balances were on the rise, indicating that households are not reducing the debt they have, but consolidating it to fewer cards.

Investments, including mutual funds, stocks, bonds and cash value insurance accounts all fell from Q4 2007. The only investment account to increase in penetration was the tax-advantaged college plans (529 Educational Plan).

New data makes it clearer than ever: the U.S. is in a white-collar recession.

In the news and in our minds we understandably think of lower-to-middle income households as being the hardest hit victims of the housing, credit crisis, and the ensuing loss of jobs. But as we look back on a full year of recession, surprising patterns emerge that indicate higher-income households have been proportionately hit harder.

Since the beginning of last year, there has been a shift in household credit, according to an analysis of Nielsen’s Aggregated Consumer Economics (ACE) Indicators-a database of ZIP+4 level economic and financial data calculated as averages of individual credit records. Upscale households-those that earn upwards of $100,000 a year-have seen their overdue credit card balances increase by a hefty 40 percent, or more than $2,500 per household. Households with more modest incomes-less than $50,000-have seen an increase of just 14 percent.

With numbers like these, last year’s best customers don’t appear to be this year’s best customers.

What explains the change? One possibility is over-extension. White-collar workers accustomed to year-end bonuses didn’t see them in the first quarter of 2009. The big purchases they made… the growing reliance on credit cards to cover day-to-day expenses… the expectation that it could all be paid down when their bonuses arrived… were disappointed when the bonuses didn’t come, and many jobs were lost. Plus, facing reductions in income, their predicament only worsens as they rely on credit to cover expenses.

Indeed, the outlook for such households relying on credit to get by is not pretty. The ACE analysis also quantifies what people perceive anecdotally: credit has shriveled. Overextended consumers decreased their acquisition of new credit cards and new lines of credit by 18 percent since the first quarter of last year. For their part, credit card companies decreased their efforts to sell new lines of credit by 19 percent, both in terms of new credit cards or new loans.

Moreover, according to recently published reports, credit card companies have cut back further by reducing credit lines for cardholders who have no record of risky behavior, and increasing interest rates for those carrying a balance.

With regulation impending on the credit card space, there is even more change ahead. As this turbulent market settles, marketers should consider targeting downscale households with select, low risk products such as payday advances, pre-loaded gift cards or pre-approved loans of less than $1,000, instead of focusing on upscale households which are customarily the most profitable. But they shouldn’t walk away from the affluent market. Historically, the $100,000 and over household is 30 percent less likely to have a bankruptcy on their file than a mid-scale household.

Marketers who recognize and react to opportunities are the ones who will be positioned for the biggest and quickest turnaround. The key will be in staying close to the customer-no matter how counter-intuitive market developments are-and matching the right offer to the right customer at the right time. Those fundamentals never change.

Using data collected from its national and local television panels, the quarterly Home Technology phone survey and the Nielsen Claritas 2008 Convergence Audit survey, the report provides a detailed look at how Americans are getting on the internet and the differences by various demographic breaks.

Key findings of the report include:

• Internet access is correlated with education level and a household’s combined annual income. As they increase, so does the likelihood of internet access.
• Internet access is lowest in Hispanic and African-American homes, as well as those where the head of household has not completed a high school education.
• Access is much lower in rural areas and in homes that receive only broadcast TV.
• Those using dial-up service tend be older, with more modest incomes and lower education levels than those using high-speed internet.
• The East South Central region (consisting of Alabama, Mississippi, Tennessee and Kentucky), had the highest number of households with no internet access – 26 percent.
• The top five markets with the highest percentage of homes with internet access are Washington, DC, Norfolk, Salt Lake City, Boston and Portland, OR.
• The five markets with the lowest percentages are Knoxville, Greenville, Albuquerque, Memphis and Tulsa.

“Our findings indicate that there remains opportunity for growth in internet access in the U.S.  Indeed, President Obama stated during the campaign that we had to view broadband internet access the same way we did telephone service and electricity – an essential utility available to all regardless of economic status,” said Steve McGowan, Senior Vice President, Insights and Client Research Initiatives at Nielsen.  “But part of the challenge in extending web access to all Americans is the fact that there are more homes without computers, than there are homes with computers but lacking internet access.”

To view the complete report, click here.

Known as the “New Mass Affluent,” members of this group have amassed assets of more than $100,000 each, though most of these baby boomers were born into middle class households.  By 2007, the group represented 19% of all households in the U.S.  By 2012, the New Mass Affluent is expected to grow to account for at least 20% of all American households.

Often underserved by financial services companies, the group represents a significant opportunity for that industry, Nielsen’s white paper argues — especially now, as its members approach retirement and prepare to roll over 401(k) funds into retirement accounts.

Access the whitepaper.