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Using Customer Segmentation to Retain and Acquire Customers

Deloitte | Using Customer Segmentation to Retain and Acquire Customers | A specialty insurer finds that getting to know its cust

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Abstract

Even with annual growth and customer retention that many companies would envy, a specialty insurer was serving only a small percentage of its potential market. Customer and market segmentation helped it understand customer behavior, preferences and lifestyles to tailor marketing and promotional strategies and ultimately grow the business.

The Challenge

While the insurer’s sales were growing 20 percent annually with 80 percent customer retention, the company had captured only 6 percent of the annual potential in its market. In order to grow the business, the company wanted to better understand its customer base with the goals to (1) improve retention among current policyholders using targeted communication and cross-selling and (2) identify potential new customer segments that were more likely to purchase its policies.

How We Helped

To supplement what the insurer already knew about its customers, Deloitte practitioners helped the insurer use third-party marketing, census and other demographic data to append nearly 150,000 policies and 300,000 customers, use cluster analysis to identify primary customer groupings and segments, and, finally, use decision tree analysis to differentiate those segments that produced the highest value for the company. The team also helped the insurer conduct a market penetration study comparing existing and potential market share by segment.

Solution

For the first time, the insurer had a unified view of its customer bases as well as insights on customer behavior, preferences and lifestyles — all useful in creating new up-sell, cross-sell and retention strategies and focusing growth on specific consumer segments and regions. As a result, the company was able to increase product purchase loyalty and growth among key customer segments, including migrating core segments to higher profitability.

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