Using Customer Segmentation For Your Sales Strategy
Customer segmentation is more than just nominal grouping and categorization. If you approach your customer segments correctly, your customer segmentation becomes a blueprint for driving success throughout your organization with real, profit-driving behavioral data. Your segmentation is a major part of your go-to-market sales strategy.
When done right, segmentation outlines what is important about your business. Most distributors start their segmentation with industry, region, or size. This type of segmentation lacks a call to action for changing customer purchasing behavior toward higher profit potential. Size and geography don’t drive customer behavior. Customer behavior is what drives the success of your business. It’s important to set your customer segmentation strategy up in ways that add up to more business.
Segmentation by the Customer Impact
Let’s look at an example of a distribution business that organizes its customer segments around three simple buying cues:
- Profitability
- Cost to serve
- Buying power
These buying behaviors lead to much richer segments than simple ABCD rankings. When tracked using this customer segmentation strategy, you can see which customers are high value and which are not.
4 Types of Buyer Segments
Consider buyer segments with four main types of categories that lead to action for the entire business rather than simple classifications inside your ERP (Enterprise Resource Planning) system. It is also important to name your segments descriptively that indicate the different strategies you might take with each group.
1. VIP
VIP: These are highly profitable customers. They maintain a great relationship with your company, drive good volume, and have a low cost to serve. These are customers you want to keep and grow, so by calling them VIP customers you spell out what they mean to the business rather than just an “A” customer. A sales rep might think that their favorite customers are “A” customers, but when you define your segments in terms of profitability, buying power, and cost to serve, you have a meaningful and objective way to categorize your best customers. Your strategy with this group is to keep them loyal and go above and beyond, not just with better pricing but with better service as well.
2. Potential
Potential: These customers might have good profitability but lack a little in terms of relationship and volume. The segment name “Potential” is very descriptive of the strategy we want to take with these customers. Since they are already profitable, we know our strategy is to watch these customers for opportunities to grow their engagement with us with a better relationship that leads to increased volume. If we had simply called them “B” customers without an objective measurement, we wouldn’t know how to improve their buying patterns.
3. Convert
Convert: These customers have a good relationship, so they are driving good volume, but for some reason, their purchases are at low profitability and potentially a high cost to serve. By calling this segment “Convert,” we signal that we want to identify what is causing the profitability drain on an otherwise good customer so we can move them into the core category with a focus on more profitable behavior, higher lines per order, better shipping, or other cost savers.
4. Preliminary
Preliminary: These customers are low in all categories, low profit and volume, no real relationship, and a high cost to serve. Here you just want to raise prices to offset the cost to serve, and in a lot of cases, small customers are not as price-sensitive because their volume and relationship are low, so they are buying from you for other reasons. You might have many customers enter here until you work with them more frequently to understand their purchasing behavior better.
With White Cup Pricing, you can easily organize your customer segments based on the important data for driving new profit in your business. Just as importantly, you can segment and re-segment regularly. It takes minutes to analyze and create new segments and subsegments when it used to take weeks or months using manual processes and spreadsheets. Being able to move your customers into the correct segment allows your team to fully realize your strategy and take action to affect your customers’ experience, pricing, and profitability.
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