ECB.

com: Customer Profiling and Segmentation1

Authors: Blodwen Tarter and Debra Zahay
June 2013, revised Fall 2013
Jin Yang thoughtfully sipped her afternoon coffee, as she listened to her colleague, Jos
Gonzalez, summarize the meeting they had both attended earlier that day. The vice
president of marketing, Dana Achebe, had invited all the members of the marketing data
analytics team, to discuss the companys segmentation scheme and how to improve it.
Revenue growth had slowed recently and Dana thought that reviewing the customer
database and, possibly, revising the target market focus might alleviate the slow growth
problem. She suspected that too many customers were one-time buyers and that customer
retention was a problem. It was expensive to acquire new customers and she wanted to
increase the number and value of purchases made by existing customers.
Jin and Jos, both newly-hired junior data analysts and recent graduates from the same
university, had volunteered to review the current situation and recommend a better
approach to segmentation and targeting. This was a challenging assignment but one that
they were eager to undertake. They were confident of their ability to tackle this task as
they had studied segmentation in one of their college courses and, as summer interns for
the company, they had reviewed the existing customer database with a senior analyst for
one of their summer projects. Of course, they knew they could ask for help at any point.
ECB.com (formerly Entertainment Coupon Book) sells coupons directly to consumers
who use the coupons to obtain discounts for many different types of entertainment. For
example, ECB.com would sell a $25 certificate for a specific restaurant for only $10, a
savings to the buyer of $15. A $50 seat to a concert might be offered for $25.
ECB.coms partners, the providers of the entertainment, used these coupons to introduce
new audiences to their services and relied on ECB.com to market the coupons to
ECB.coms customers.
Cost-conscious individuals visited the companys website to see what entertainment
offers are available. They could sign up for email notices to learn about all of the offers
available or choose only the specific categories in which they were interested. Over time,
ECB.com expanded its offering to include coupons for restaurants, movies, live theater,
concerts, theme parks, rafting, even attendance at blockbuster (and not-so-blockbuster)
museum exhibitions. In fact, entertainment had become broadly defined at ECB.com,
so that the website offered some form of discounted entertainment for almost everyone.
However, coupons for dining out in restaurants were the most popular.
In the morning meeting, Dana had provided a brief overview of ECB.coms history of
targeting prospective customers. When the company started, the founders used their own
1

The case was prepared as a basis for class discussion and is not an illustration of effective or ineffective
management. The company and events are fictional. All trademarks are the property of their respective
owners. The data in this case may be used for teaching purposes only and not for the creation of other
published case material. Only the authors of this case have permission to use the data for this purpose.

ECB.com: Customer Profiling and Segmentation

Authors: Blodwen Tarter and Debra Zahay-Blatz

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judgment to forecast who would be most likely to buy these coupons. Initially, the
founders targeted their marketing messages based on their intuition, some primary
research about the business concept, and some secondary research about the scope of the
entertainment business. They developed specific offers and directed their marketing
communications efforts accordingly. As consumers became more aware of ECB.com,
and the valuable deals it offered, more people visited the website and purchased coupons.
Six years later, ECB.com had sold millions of coupons to thousands of consumers.
Jos began the recap. Lets see what we know. Several years ago, ECB.com developed
its first formal customer profiles to identify the characteristics of its customers. Then, it
developed a segmentation scheme, based on the data accumulated from the inception of
the business. The goal was to divide the market into groups of potential customers, or
market segments, which would then allow ECB.com to target the most desirable
segments. Each segment contained a cluster of people who were alike (or homogenous)
in one or more important ways. Each group or cluster differed from the other groups.
The segments (or groups) we have been using for a while are classified as new, engaged,
lapsed or inactive. New are people who have ordered for the first time in the previous
three months. Engaged customers have ordered within the last six months but are not
new. Lapsed customers placed their last order 6 to 12 months ago. And inactive
customers ordered last over 12 months ago. I wonder if that still makes sense?
Jin interjected, Yes, our current segmentation is based mostly on R/F/M (recency,
frequency, and monetary value). Well, actually, if I remember correctly, it is mostly
based on recency and frequency. We know how often people buy, when they buy, and
the value of each purchase. Thats observable data and collecting it online is so easy!
Whenever someone orders, we capture exactly that information. Then we just add it to
the customer database. Of course, we do have some demographic data too. That may be
useful. But maybe all we have to do to complete this assignment is simply to update the
analysis based on more recent data and see what we learn. We think our assumptions
about our customers may be wrong, that things have changed. Isnt it just as likely that
they havent changed?
Jos considered Jins comments silently, remembering the direct marketing goal of
beating the control. A long-standing practice among successful direct marketers, beat
the control meant testing your best-performing direct mail package or email or direct
response ad (the control) against different executions to try to improve the results of the
direct marketing effort. Jos realized that the control here was the existing segmentation
scheme. He also realized that it was usually difficult to beat the control. Maybe this
assignment would be harder than he had thought!
Jin interrupted Joss thoughts again, adding On the other hand, we could update the
analysis, using ECB.coms data, and add more data from an outside service. Remember
when we took that direct and database marketing class? We learned about commercial
services that had information about lifestyles, financial behavior, technology usage, and
other data that ECB.com cant possibly capture. We could figure out which of those
characteristics we think are relevant, take a meaningful sample of the total customer
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database and have this additional data appended it to the sample. Im sure we could gain
better insight into our customers. And, we would have more data to use in our own
segmentation analysis.
Jin and Jos continued to brainstorm the assignment and how best to tackle it. They
reasoned that the ideal customer would contribute the most to generating revenue when
he or she would buy frequently, buy higher value certificates, and buy multiple
certificates each time. One-time buyers were not as desirable as customers with longterm relationships. Over the remainder of the afternoon and with further discussion the
next morning they concluded that they should first review what the average ECB.com
customer looked like. They would first focus on recency, frequency, and monetary value
but they wanted to create as complete a profile as possible so they agreed they would
look at most of the other types of customer data available too. Just for fun, they each
wrote down their best guesses of the characteristics of the average ECB.com buyer. The
person who came closest to the actual average order value, the average number of
certificates, and the average number of orders would be treated to coffee by the loser
for an entire week.
Once Jin and Jos had developed the profile of the average customer, they were confident
they could develop a clustering method to identify meaningful market segments that was
superior to the current approach. They decided they would begin this phase by analyzing
the R/F/M of the existing segments (engaged, inactive, lapsed, and new). Once they
understood what these segments looked like, the team would try to create meaningful
new categories that are similar within the category but different enough to be a truly
distinct group.
To begin, Jos started reviewing the data dictionary (see Appendix) to see exactly what
ECB.com data was readily available. He also wanted to decide what data categories were
equivalent to the recency, frequency, and monetary value concepts with which he was
familiar. Jin took responsibility for researching external suppliers of information that
could be used to augment ECB.coms internal data.
Jin and Jos had already decided that they would base their analysis on 60,000 customer
records, randomly selected from the customer database. The subset was large enough to
meet statistical sampling requirements but small enough that the data could be
manipulated relatively easily for analysis. Once they had refined the segmentation
scheme, they could apply it to the entire database.
Then, they realized that they would need to use a single product category, rather than a
mixture of products. After a brief discussion, they agreed that using the category for
which they had the most data and which contributed the most to ECB.coms revenue
made the most sense. This turned out to be dining out, the restaurant category. Once
they had a better approach for restaurant coupon buyers, they could look at the other
product categories. Tempering their initial enthusiasm to do everything all at once meant
a more methodical approach to the analysis, starting with basic customer profiling.

ECB.com: Customer Profiling and Segmentation

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At that point, Jin and Jos stopped to review some of the mechanics of doing this
analysis. They were both experts in using MS Excel, the standard spreadsheet
software. They had used IBMs SPSS software in their statistics classes and had heard
that SAS could be used for cluster analysis as well. Undoubtedly, there were other
software programs that could be helpful. They agreed they needed to know a
what software ECB.com had that was available for their analysis.
Just then, Dana Achebe stopped by to see how they were doing. When Jin and Jos
explained their plan of approach, Dana smiled. She was interested to see the latest profile
of the average ECB.com restaurant category customer and what would be discovered in
the review of the existing segmentation scheme. Most importantly, she was looking
forward to hear what new clusters the two data analysts came up with. If they could
identify a better segmentation scheme, ECB.com could revise its targeting and marketing
communications. Perhaps this was the starting point to reverse the decline in revenue
growth.
While Dana liked the idea of appending additional data to enhance the ECB.com
customer database, she asked that they research the various options available and
recommend a data enhancement scheme. She could then decide whether or not she
wanted ECB.com to invest in the additional information. The company had already
invested in some outside data and, using ZIP code, was able to get information on the
customers designated market areas (DMA)2, some imputation of income and income
rank and customer location (i.e., large metropolitan areas vs. suburbs). What other data
would help in segmentation? Would an outside firms segmentation scheme be helpful?
Dana closed by letting the team know that not all of the customer records were complete.
To facilitate the registration process, some data was optional and some data was just not
in the file. The data on acquisition channel was particularly incomplete. Since some data
was missing, Jin and Jos would need to decide how to handle that.
Questions for analysis:
1. What does the average ECB.com customer look like? Is the average
customer desirable or undesirable? Why?
2. Describe each segment (new, engaged, lapsed, inactive). How much revenue
does each segment produce? What are the behavior patterns of the customers in
each segment? How different are the segments from each other? Is there a better
segmentation scheme?
3. Find one vendor that provides data to enhance customer files. Indicate the source
of your information. Describe what additional data would be useful to append to
ECB.coms customer file and why you think this information would be helpful.

DMA (Designated Market Area) regions are the geographic areas in the United States in which local
television viewing is measured by The Nielsen Company. http://www.nielsen.com/us/en/campaigns/dmamaps.html

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APPENDIX A
Dataset
Your instructor can provide the ECB.com dataset for analysis. (Instructors: NOTE: For
copies of the dataset and Instructors Manual, please contact Debra Zahay at
dzahayblatz@aurora.edu. Dr. Zahay can provide the ECB.com dataset for analysis)

APPENDIX B
ECB Data Dictionary
DATA DICTIONARY
Variable Name
Unique ID
Transaction/Segment Data
# days since last order
# of Orders
# of Certificates
Revenue
Tenure (in days)
Lifecycletenurerecovery

Average Order Value

New Customer Flag
Active Flag
Subscribed to Email Flag

Marketable thru Email Flag

# of Orders with a Promotion
# of Orders with a 70 Off
Promotion
# of Orders with a 80 Off
Promotion

Description
Unique Identifier for Customer
# of days since last order (recency) in the last 3 years
# of Orders in the last 3 years
# of Certificates in the last 3 years
Revenue in the last 3 years
# of days since first order with ECB
New = First order with ECB in the last 3 months
Engaged = Last order was within the last 6 months (and not new)
Lapsed = Last order was 6 - 12 months ago
Inactive = Last order was over 12 months ago
Revenue / # of Orders in the last 3 years
1 = First order with ECB occurred in the last 3 months
0 = First order with ECB occurred in over 3 months ago
1 = Last order was within the last 12 months
0 = Last order was over 12 months ago
1 = Customers email address is subscribed to our email program
0 = Customers email address has unsubscribed from our email
program
1 = Customer email address is email marketable (we don't have
affiliate partnerships that limit us from emailing to this customer)
0 = Customer email address is unmarketable, we have affiliate
partnerships that limit us from emailing this customer
# of orders the customer has placed during a promotion percent off
# of orders the customer has placed during a 70 Off promotion
# of orders the customer has placed during a 80 Off promotion

ECB.com: Customer Profiling and Segmentation

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# of Orders with a 90 Off

Promotion
Acquisition Channel
# of Certificates Validated
DEMOGRAPHIC DATA
Customer DMA
Headofhouseholdage
Maritialstatus
HomeOwnership
Kids
AgeofKids
IncomeAffluence
Incomerank
CustomerLocationType

Ethnicity

# of orders the customer has placed during a 90 Off promotion

Channel customer placed first order with ECB, Affiliate, Email, Paid
Search,Uncategorized, Null
# of Certificates the customer has brought to a restaurant and
validated (used)
Customers DMA Area
Actual age, 25 to 84
Single, Married, Missing
Owner, Renter, Missing
Yes, No
Age Mix, Infant/Toddler, Pre teen and teenage, Teenagers
1 to 5, 1 is highest
1 to 71, 1 is highest
Large Metros; Not Top 10
Large Metros; Suburban, city del.
Larger Metro Areas; Not Top 10
Larger Metros; Suburban, city del.
Largest Metro Areas
Largest Metro Areas
Metro Suburban
Metro Suburban, city delivery
Metro Suburban, non-city delivery
Metro Suburban, non-city delivery
Mixed; But Not Top 10 Metros
Rural
Rural; Suburban, non-city delivery
Mixed; But Not Top 10 Metros
Rural
Rural; Suburban, non-city delivery
African-American, Hispanic, Mixed, White

ECB.com: Customer Profiling and Segmentation

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