Correspondence: Behram Hansotia, 226 North Street, South Haven, MI 49090, USA. Tel: +1 269 767 7235; E-mail: bhansotia@comcast.net

¹is the former president and CEO of InfoWorks, a database marketing consultancy and an Omnicom company. Behram has a Masters degree in Systems Engineering and a PhD in Management Science from the University of Illinois at Urbana-Champaign. He has taught graduate database marketing courses at Northwestern University and Western Michigan University. He has published over 40 papers in Database Marketing and Operations Research journals and serves on the editorial board of The Journal of Database Marketing & Customer Strategy Management. Behram currently is an independent database marketing consultant and also serves on the board of directors of the Adult Learning Community of Southwest Michigan, a non-profit organisation dedicated to improving adult literacy.

Received 25 November 2008.

Abstract

Enhancing customer equity is the primary challenge for all companies, but this responsibility is particularly critical for the Marketing department. Starting with a relatively simple three-dimensional value-based customer segmentation, we describe a goals-based approach to enhancing the value of the customer base. This requires setting marketing objectives for customers in each segment, namely the migration of customers from lower-value segments to higher-value segments. Several analytical tools for implementing our approach are discussed, including a purchase-timing model for the segmentation and clustering approaches, so marketers can develop greater insights into micro-segments characteristics and needs, as well as product propensity models for targeting the right products to different customers. We also discuss related applications of the segment transition matrix used to develop the marketing objectives. These include the development of pro forma income statements to justify possibly new marketing expenditures, the estimation of the lifetime value of a new customer and the value of the enterprise based on customer cash flows.