Customer categorization using a three-dimensional loyalty matrix analogous to FMEA

Purpose The purpose of this study is to present and explain a new customer segmentation approach inspired by failure mode and effect analysis (FMEA) which can help classify customers into more accurate segments. Design/methodology/approach The present study offers a look at the three most commonly used approaches to assessing customer loyalty:net promoter score, loyalty ladder and loyalty matrix. A survey on the quality of restaurant services compares the results of categorizing customers according to these three most frequently used approaches. Findings A new way of categorizing customers through loyalty priority number (LPN) is proposed. LPN was designed as a major segmentation criterion consisting of customer loyalty rate, frequency of purchase of products or services and value of purchases. Using the proposed approach allows to categorize customers into four more comprehensive groups: random, bronze, silver and gold – according to their loyalty and value to the organization. Practical implications Survey will bring a more accurate way of categorizing customers even in those sectors where transaction data are not available. More accurate customer categorization will enable organizations to use targeting tools more effectively and improve product positioning. Originality/value The most commonly used categorization approaches such as net promoter score, loyalty ladder or loyalty matrix offer relatively general information about customer groups. The present study combines the benefits of these approaches with the principles of FMEA. The case study not only made it possible to offer a view of the real application of the proposed approach but also made it possible to make a uniform comparison of the accuracy of customer categorization.