Decile Analysis

Decile Analysis is a technique that involves dividing customers into ten equal groups based on metrics such as purchase amount or frequency of use and analyzing each group (decile) individually. This analysis helps to understand the differences in customer value and behavior, thereby optimizing marketing strategies and sales strategies.

Features and Objectives of Decile Analysis

  1. Customer Value Assessment:

    • Divide customers into ten groups and evaluate each group's purchase amount or usage frequency. This helps identify which group of customers is the most valuable.

  2. Optimization of Targeting:

    • Conduct focused marketing activities for high-value customer groups to maximize the impact.

  3. Efficient Resource Allocation:

    • Allocate resources based on customer value to use limited resources most effectively.

  4. Understanding Customer Behavior:

    • Comprehend differences in customer purchasing patterns and behaviors to adopt personalized approaches.

Steps of Decile Analysis

  1. Data Collection:

    • Collect customer purchase data and usage data, including purchase amount, frequency, and dates.

  2. Data Organization:

    • Organize the collected data and convert it into a format suitable for analysis.

  3. Creation of Decile Groups:

    • Sort all customers in descending order based on metrics like purchase amount or usage frequency.

    • Divide the sorted customers into ten equal groups, categorizing them from Decile 1 (top 10%) to Decile 10 (bottom 10%).

  4. Analysis of Each Decile:

    • Calculate the average purchase amount, total purchase amount, number of customers, etc., for each decile group.

  5. Interpretation of Results and Strategy Formulation:

    • Based on the analysis results, plan focused marketing activities for high-value customer groups.

Example of Decile Analysis

Example 1: In Retail Industry

  1. Data Collection:

    • Collect customer purchase history data (e.g., purchase amount over the past year).

  2. Data Organization:

    • Aggregate annual purchase amounts per customer.

  3. Creation of Decile Groups:

    • Sort customers by purchase amount and divide them into ten equal parts.

  4. Analysis of Each Decile:

    • Calculate the total and average purchase amount for each decile group.

  5. Interpretation of Results and Strategy Formulation:

    • Offer special promotions and privileges to Decile 1 (top 10%) customers and implement campaigns to encourage repeat purchases from Decile 10 (bottom 10%) customers.

Advantages of Decile Analysis

  1. Visualization of Customer Value:

    • Evaluate customer value quantitatively and understand it visually.

  2. Maximization of Marketing Effectiveness:

    • Enhance ROI by strengthening marketing activities for high-value customers.

  3. Personalized Marketing:

    • Provide more personalized marketing messages based on customer segments.

  4. Support for Strategic Decision-Making:

    • Assist in strategic decision-making based on data.

Disadvantages of Decile Analysis

  1. Dependence on Data Quality:

    • The accuracy and completeness of data significantly affect analysis results.

  2. Risk of Oversimplification:

    • Dividing customers into just ten groups may not capture complex customer behaviors adequately.

  3. Bias from Temporal Data:

    • Data based on specific periods can be influenced by seasonal variations or temporary factors.

Comparison with Other Techniques

RFM Analysis:

  • Evaluates recency (R), frequency (F), and monetary value (M) of purchases. Combining it with decile analysis allows for more detailed customer segmentation.

Clustering:

  • Naturally groups customers based on their characteristics and behavior patterns. It provides more flexible segments compared to decile analysis.

Conclusion

Decile analysis is a technique that divides customers into ten groups based on purchase amount or frequency of use and analyzes each group. This analysis helps to understand customer value and behavior differences, optimizing marketing and sales strategies. Decile analysis has advantages such as visualization of customer value, maximization of marketing effectiveness, personalized marketing, and support for strategic decision-making. However, it is dependent on data quality and carries the risk of oversimplification. Combining it with other techniques can lead to more effective customer segmentation and marketing strategies.