Inspirational books and armchair advisors often make the mistake of taking simplistic memes and applying them to real-world sales organizations. We’re told that “the customer is always right,” and are encouraged with inspirational words on how even the smallest customer has value to the organization.
This is generally true. But the bigger question is, how much value, and is that value worth cultivating? Will there by an acceptable ROI for selling and servicing for any given customer?
Most companies have limited resources with which to interact with customers, and must be able to make difficult decisions as to how much attention to devote to each one. There is a valid argument that even the smallest customer should receive good service, especially in the age of social media, where any client, no matter how small, can create a big backlash if they feel they have been dis-serviced.
Within that framework however, a company must realize that their customer-directed resources are limited. While no customer should be ignored or dis-serviced, the reality is that those resources sometimes need to be ruthlessly allocated, especially in this age of relentless demands for productivity. This can be done effectively through a disciplined approach to customer segmentation, based on how likely any given customer is to contribute a measurable impact on growth and/or profitability.
Creating customer segments
All customers are important – but not all customers are equal.
Servicing the customer really begins with understanding who they really are and where they are going as an enterprise, and that involves data collection – and that data has two purposes. First, data helps to better understand the customer, what their needs and goals are – information which helps provide better services and offerings, and an understanding of what value the organization can bring to the customer. But second and perhaps more importantly, that data includes information on customer size, growth rate, profitability, and their standing in the marketplace, which helps the company better understand the value of the customer to the organization.
An analysis of that data can then be used to create a relative index of customer attractiveness. This analysis ultimately segments customers into four quadrants, which can be easily represented graphically along an X-Y axis, where X equals profitability and Y equals growth, with customer size in bubbles plotted on the field. The quadrants are formed by placing lines drawn at universe averages, thereby defining the four customer segments below.
Quadrant 1: INVEST (Upper right…High Growth; High Profitability). Your highest potential customers, with the largest bubbles delivering the greatest sustainable growth. It is this group that you migrate a disproportionate amount of resources to, sales and otherwise.
Quadrant 2: SOURCE (Lower left… No-Low Growth/Low Profitability). This group of customers represents a segment that can be tapped to redeploy resources to other areas. They are the least attractive, and therefore cost-to-serve should be minimized, or the customer potentially dropped altogether.
Quadrant 3: NURTURE (Lower right… Low Growth/High Profitability). These customers have all the right tools to make a major impact, if growth profile is accelerated. Focus on driving consumer/end user growth to this emerging group.
Quadrant 4: MAINTAIN (Upper left…High Growth/Low Profitability). This group is already growing faster than average, though it is either less profitable, less capable, or both. The quickest fix in this group is to optimize assortment, drawing in more profitable items into the distribution.
Supplemental scoring may include other attributes, such as how collaborative the customer is to work with, whether they are growing in market share, how well they adapt to new product introductions, and how developed their ecommerce businesses are.
Once Customers are tagged, it not only guides structure and coverage metrics, but also all manner of allocated resources, including customer service levels, trade promotion, brand activation, data investments, and planning intensity which can all be modulated.
And now the flywheel really starts to turn
Organizations employing this customer triage have seen impressive results…growth and profitability accelerates; customer satisfaction by those who truly matter increases and the enterprise is clear as to where and how to focus. And sales ROI expands, as the same amount of effort and resources pre-segmentation, now returns at a higher rate.
In essence, this approach objectively defines a company’s go-to-market and customer development strategy. And this strategy is broadly applicable, both to a retail or B2C environment, and in a B2B distributor environment as well.
Segmentation of the customer base adds a great deal more precision to any customer-facing organization, but the addition of digital, self-service, and ecommerce tools also greatly expands the potential to serve more customers than would otherwise be possible. Creation of an ecommerce engine could yield potentially limitless sales – although those engines must still be continuously tweaked and adapted towards increasingly specific demographics (segments) on a continuing basis, in response to a constant flow of new data. With the right tools, segmentation here can be real-time versus static, reflecting the customers’ purchasing behavior and changing demographics.