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addresses, financials or staff titles—have been harder to come by due to the number of business start-ups, closures and unpublished information for private firms.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.

Jon Gibs, Vice President, Media Analytics, The Nielsen Company

SUMMARY: Why do advertisers still debate the value of online advertising? Because no precise measure of online audience delivery exists. The missing factor? Who—as in who is viewing your ads, not just how many ads were served. Does online advertising deliver the target audience? With current evaluation methods, it’s difficult to tell. What’s needed is a shift in metrics for audience targeting from impressions to dwell time, increasing the cost per thousand in the process.

Because of their simplicity, we in media research tend to overlook the core principles of successful advertising. These principles can be reduced to three basic questions:

• How many?
• Who?
• Did it work?

“How many?” is the volume of ads, using measures like impressions, gross rating points and the like. “Who?” is the targeted audience, whatever parameters are selected to define the desired population like age, income, education and household size. “Did it work?” is the effectiveness of the campaign. Did it change the thinking or behavior of viewers? Did it increase brand awareness? Did it drive purchase? The online advertising industry is very good at measuring “how many?” in the form of ad serving reports. We have also developed multiple models around “did it work?”, from branding studies to offline sales impact. We, however, have spent little time on the second question, “who?” The irony is that this question—the demographics of those people exposed to the ad campaign—is at the core of ad delivery reporting in almost all other media.

The missing link
Measures of demographic delivery are critical for every other form of media buying. The Internet, however, skipped over this link in the media value chain. Online publishers have spent a decade trying to answer the question “Does online advertising work?” The problem is, that’s the wrong question. This question has driven advertisers to focus on direct response metrics, such as click through, or short term brand lift, without any consideration of the long-term branding impacts on the advertisers’ targets.

The right question is “who does the advertising reach?” This is the question asked of almost all other media, where there is an understanding that a great deal of the impact of the advertising is related to the creative, rather than the media placement. To get to the answer of “who”, the industry needs to develop a standardized, robust, post-buy reporting structure to help keep the targeters on target, and prove from end-to-end, the value of Internet advertising.

Targeting for today
Targeting in the Internet world refers to any form of online advertising that is not run-of-site, run- of-network or content section-specific. I would argue that even contextual, content section specific ads are targeted. One of the great advantages of online advertising is that, unlike traditional media, targeting happens on the execution side, not just in planning. For online or mobile media, the first step in a campaign mirrors traditional media. Marketers determine a schedule of web sites, portals or ad networks that will deliver the desired audience.

The big difference: online media buyers can also buy actual audience segments based on elements like geo-coded inventory through a reverse IP look-up, modeled segmentation based on cookie or panel data, offline sales data, registered user data and a host of other possibilities. As this form of targeting grows in popularity, conventional census-based delivery reports become less useful as many only show raw server counts of impressions—rather than highlighting the ability of publishers to deliver on their promised targets.

Says who?
Another issue with actual online results is that they tend toward unreliable self-reporting. While reports cover impressions, they tend to skirt the issue of targeting accuracy. Some chalk it up to the fact that audience delivery metrics aren’t sexy, while a more cynical group asserts that it has more to do with not wanting agencies or publishers to look bad if results fall short.

Yet another opinion points to the fact that measurement firms have only recently started to produce post-buy reports. Since each research company uses a slightly different methodology, it is impossible to compare results across campaigns and vendors. Also, in many cases, these reports can’t be generated for some forms of behavioral targeting without the client revealing proprietary information.

Prime examples
Examples of online measurement at work for a mobile phone manufacturer include one case using household income as a segmentation criterion, the other using age as a criterion. In the first scenario, the company wanted to market a low-cost smart phone to middle income households in the $50,000–$75,000 per-year range.

According to a Nielsen analysis, the campaign failed badly. Only about 25% of advertising reached the targeted households. Even more disheartening, the supposedly targeted campaign impacted 9% fewer target audience members than a more general run-of-network buy. Three out of four ad dollars were wasted on other segments.

Killer app
In a second example, the mobile phone manufacturer was rolling out its new killer app—an iPhone substitute designed for young adults ages 18–24 primarily, and 25–34 secondarily. Results were better in this case, albeit mixed.

The good news: the campaign over-indexed significantly among the two targeted age groups, 56% more for the primary audience and 25% more for the secondary audience than a random campaign would deliver. The bad news: 62% of impressions accrued to consumers age 35+, outside of the preferred demographic. Although disappointing, it makes sense given the age distribution of the U.S. and online populations which skew older.

Timing is everything
Although ad impression counts traditionally have been the currency of the Internet, there is reason to believe that this accounting method itself had led to the decline of online advertising CPMs. Since publishers are paid on the number of ads served, many have created cluttered environments that increase inventory levels beyond demand—therefore driving down CPMs.

This decline in CPMs is made up by serving more ads and therefore, continuing to decrease the value of any individual ad unit. This cycle creates a financial situation where publishers are disincentivized in the short-term to provide a good advertising environment because they need to create more clutter. This clutter does not simply decreases CPMs, but also advertising effectiveness and therefore, the value of the media overall to advertisers.

In essence, because the Internet is the first medium with truly unlimited inventory potential (i.e., one can cut pages into tiny bits and there is no significant cost of delivery), an impression-based ad model has driven publishers to look for short-term gains at the expense of the long-term health of the industry.

So, what is the answer? When it comes to online advertising, time is the x-factor. Most research suggests that the longer a person is exposed to an ad, the more effective it will be—up to the point of diminishing returns. Perhaps the future of post-buy reporting—and online advertising—has more to do with time than impressions or page views.

The reason for this is that time is the only equalizing measure between the three core groups of online content—video, social media and standard content. Rather than simply counting the number of impressions served, the appropriate measure becomes the “dwell time” (time spent) on a page or with an impression. Using this method, we are also able to reduce inventory (and perhaps drive up CPMs) by saying that impressions that only have a “dwell time” above certain levels are actually counted as true impressions.

Time vs. frequency
A time-based post-buy measure rewards sites that surround advertising with a robust contextual environment, encouraging audience “dwelling.” As the graph illustrates, Site 3 provides a big bang for the buck on a per-target basis, generating fewer but much longer impressions, effectively increasing the value of each impression to the advertiser.

Conversely, Site 4 pursues an outdated approach of ramping up the number of impressions with much shorter exposure times, decreasing the value of each impression. As the value of each impression goes up, so should the CPM.

The way forward
If the Internet is to improve CPMs—and perhaps save the overall advertising market from its fate—we must focus on time-based post reporting. The post reporting itself provides brand advertisers with what they really need and understanding if their ads reach the audience they seek. The time element rewards those sites that limit their inventory by adding a financial incentive to create a good environment for advertising and also links inventory measures to a counting method that should produce more effective advertising overall.

Now that’s something to dwell on.

Ninety percent or consumers surveyed noted that they trust recommendations from people they know, while 70 percent trusted consumer opinions posted online.

“The explosion in Consumer Generated Media over the last couple of years means consumers’ reliance on word of mouth in the decision-making process, either from people they know or online consumers they don’t, has increased significantly,” says Jonathan Carson, President of Online, International, for the Nielsen Company.”

However, in this new age of consumer control, advertisers will be encouraged by the fact that brand websites are trusted at that same 70 percent level as online consumer opinions.

Carson adds, “We see that all forms of advertiser-led advertising, except ads in newspapers, have also experienced increases in levels of trust and it’s possible that the CGM revolution has forced advertisers to use a more realistic form of messaging that is grounded in the experience of consumers rather than the lofty ideals of the advertisers.”

Brands Gaining Global Trust… In Some Regions More Than Others

In the two years the biannual study has been conducted, brand sponsorship has seen the greatest increase in levels of trust from 49 percent of Internet consumers in April 2007 to 64 percent in April 2009. Regionally, Latin American countries lead the way with 81 percent of both Colombian and Venezuelan Internet consumers and 79 percent of Brazilians trusting brand sponsorships. In contrast, sponsorships hold the least sway amongst Swedish (33 percent), Latvian (36 percent) and Finnish online consumers (38 percent). In comparison, 72 percent of United States Internet consumers trust brand sponsorships, placing the United States 12th out of the 50 countries represented in the survey.

Brand websites, globally the most trusted form of advertiser-led advertising, hold the greatest sway in China (82 percent). Following China are Pakistan (81 percent) and Vietnam (80 percent). However, brand websites tend to be trusted least amongst Swedish (40 percent) and Israeli (45 percent) Internet consumers. In the US, 62 percent of Internet consumers said they trusted brand sponsorships, placing the United States 21st out of the 50 countries surveyed.

“The regional differences provide a clear guide to advertisers as to how they should focus their ad strategy in different countries. It also shows that, despite the authority of word of mouth when it comes to consumer decision-making, advertisers still have a major say in the process. This is backed up by past Nielsen studies which showed that the majority of people posting comments online went to the advertiser website or emailed feedback to the company before they posted. The website, and monitoring feedback through it, is a golden opportunity for advertisers to shape the tone and content of consumer opinion before it reaches the digital masses,” said Carson.

For more regional data, download the Nielsen Global Online Consumer Survey press release.

“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.