Appealing to Baby Boomers through Enhanced Cluster Analysis

I’ve been reading a lot recently about the current squeeze on baby boomers and how this is affecting the traditional targeting methods used by many retailers. Noreen O’Leary over at AdWeek had a pretty good article last week on how the recession is weighing on the minds of boomers getting ready to retire – so much so that many have already curbed spending and are starting to discard brands that now seem too expensive or luxurious.  This is a huge problem for many retailers – baby boomers are the heart of many businesses and represent the best and most profitable segments. So what’s a retailer to do?

In truth, there are two options: adjust current product selection to appeal to the changing needs of our top segments or work to move less profitable segments up the customer pyramid.  Regardless, the first step in both of these scenarios is finding out more about your customers through segmentation. By grouping customers into clusters using demographic information and previous purchasing behavior, we can get a good indication of the profitability, demographic profile, and purchasing interest of our customer types and, in the majority of companies we work with, we can usually identify one or more clusters that are composed primarily of baby boomers .

Once we’ve identified boomer segments, we can focus on one of the two options above. For now, let’s focus on our first option since this represents the less intrusive option for most companies: adjusting our current product selection to fit the changing baby boomer profile.  While we typically work with customers at this point to find the next best product recommendations for a particular cluster, in dealing with a dwindling segment, we used enhanced cluster analysis to look closely at the data the defines the products a segment purchases – the product meta data. By using this metadata in a next best recommendation analysis, we can identify the attributes of products that customers in this segment are forecast to buy next - not just individual products.  Although this may seem less useful initially, it allows us to better explore current inventory to find substitute products that might appeal to our boomers while also giving us the information we need to find new products or merchandise that appeal to this segment.

Even though the baby boomer generation may be tightening its collective purse strings in order to weather the current economic downturn, it’s important to realize that this customer group still represents a significant percentage of total revenue. Focusing on the attributes that appeal to a segment, in this case baby boomers, helps a company continue to stay in touch with a those customers - even as their spending habits change.

Tags: customer segmentation

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This entry was posted on Tuesday, January 27th, 2009 at 1:27 pm and is filed under Customer Segmentation, Demographics, Economic Downturn, Predictive Models. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.