Customer Performance Segmentation
Strategy is integral to success, especially in revenue and sales environments. Leading organizations center their strategies around a specific product or a portion of the market. Customer segmentation represents a more focused view versus the traditionally marketing lens of market segmentation. It’s specificity allows revenue and sales departments to curate their strategies on a granular level. Additionally, it is possible to look even further into the factors that lead to sales.
With customer segmentation, revenue and sales organizations assess its target audience to find groups warranting different messages, channels and coverage models. Alexander Group leverages experience and research to help company identify, target and operationalize customer segments that lead to increased revenue growth.
This article will discuss customer segmentation and ways your sales department can use the strategy to drive revenue.
What Is Customer Segmentation?
Customer segmentation is a way to forge a sales strategy around a specific group of prospective buyers.
Every business that a B2B revenue or sales organization targets is unique. While each prospect shares a common interest in your product or service, there are numerous factors that differentiate them. Customer segmentation identifies the characteristics that link groups of customers. Those factors are then used to develop unique sales strategies for each group.
A customer segmentation strategy considers the target audience’s needs and delves into their pre-purchase habits. Some the variables commonly used include:
- Demographics and firmographics
- Geographic location
- Purchase history
- Profitability
- Budgets
- Marketing channel service interactions
- Product or service usage and telemetry data
- Customer service interactions
- Identified engagement preferences
Customer Segmentation vs. Market Segmentation
Customer segmentation overlaps with another concept called market segmentation. Each relies on grouping prospective and existing customers according to common themes. However, customer segments are more specific and actionable for marketing for sales teams. Market segments look at the market as a whole to answer questions around new lines of business, new market entry and branding..
Analyzing the market as a whole is useful and more traditional view of segmentation. For example, market segmentation helps companies find a general niche. If your organization sells digital security software, you should determine whether you want to target businesses looking for corporate-scale technology or individuals interested in a home firewall. You establish a market segment to target before working your way down to the actionable details that customer segmentation considers.
Benefits of Customer Segmentation
Detailed information paves the way for precise strategies, and precision leads to success. In sales, a seller’s chances of closing increase when they use a well-crafted strategy backed by detailed information. Customer segmentation uncovers the information sales teams need to drive revenue.
Sell the Right Products
Customer segmentation is focused on considering your customers’ needs. This extra attention to why customers interact with your company will open opportunities for reflection and allow your organization to innovate. In turn, the products you offer will become more likely to succeed.
Communicate the Right Messages
Customer segmentation improves marketing strategies. Some segments will respond well to the tone, phrasing and imagery you used in a recent marketing campaign. The same marketing strategy may not work as well with another. Segmenting at a customer-level enables the monitoring and assessment of marketing strategies so you can reach prospective and existing customers with the most effective messages.
Target the Right Customers
Two customers interested in the same product may require different levels of attention. Focusing on the customer that will require the least attention for the same sale helps increase revenue growth and close more sales faster.
Close the Right Deals
Claiming that all revenue is the same is an oversimplification.
Connecting the right customer with the right product will enter them into a cycle that expands the relationship, adds value to the customer’s business and drives more revenue. Too often resources are wasted connecting the ideal customer with the wrong product or selling a useful product to a customer who is unlikely to return.
Types of Customer Segmentation
Customer segmentation falls into three categories:
- Customer performance segmentation
- Micro-segmentation
- Customer-centric segmentation
Customer Performance Segmentation
Customer performance segmentation assesses trends within each existing customer’s value to the organization. Customer performance segmentation focuses on the positive and negative changes within accounts to uncover growth opportunities.
Assessing customer performance involves a detailed analysis of revenue sources. Each sale (transaction) over a given period of time is grouped into three categories—conversion, retention and penetration. Analyzing the characteristics and trends within each category over time unveils trends about which growth strategies are successful and unsuccessful with each customer segment. Root-cause research can further explain the reasons behind the sales trends.
Micro-Segmentation
Micro-segmentation splits customer pools into smaller groups according to their common characteristics.
Forming a micro-segment begins with defining a market segment based on factors like demographics, needs and values. Researchers will determine revenue opportunities within the larger market segment.
Micro-segmentation looks at the products customers prefer, how often they purchase those products and the methods they use to purchase them. Knowing this information helps to predict customer behaviors and develop sales strategies accordingly.
Customer-Centric Segmentation
A customer-centric sales model is one that prioritizes customer needs across the sales process. This approach is a response to product-centric selling wherein sellers focus on the benefits the products can provide more than the hard facts of their function.
Customer segmentation is an integral part of customer-centric selling. The customer base is analyzed to find groups that share common needs. Need-based sales strategies are then developed for each segment.
Phases of Segmentation—Evolving as You Grow
The discipline of customer segmentation should evolve and grow to match the needs of your business. You can implement segmentation within three phases:
- Phase 1: Segmentation based on simple observable factors
- Phase 2: Segmentation based on buyer needs and algorithm-based Total Available Market (TAM)
- Phase 3: Segmentation based on buyer needs and algorithm-based Customer Lifetime Value (CLV)
Phase 1—Observable Factors
Simple, easy-to-see data, such as company revenue and the number of employees, is used to segment customers based primarily on size or other available data. With traction in the marketplace, additional variables such as spend patterns or industry are included.
Companies that focus their efforts initially on the high end of enterprise will likely favor direct, field-based, high-touch sales models with inside roles for lead generation, customer support and renewals/customer success. Meanwhile, companies with an initial focus on SMB or seeding strategy may be more reserved upfront. They might pursue a viral or brand marketing strategy to drive initial growth (such as Box, LinkedIn, and Amazon Web Services) with a predominantly inbound/outbound inside sales model.
For instance, a large infrastructure company Alexander Group recently worked with was built from the ground up with an inbound model serving SMB customers. We began by understanding their current customer base by revenue and made recommendations on how to separate their core inbound business and develop a proactive outbound acquisition engine.
Phase 2—Buyer Needs and Algorithm-Based TAM
Many companies quickly outgrow their initial sales segmentation models and require more sophisticated approaches to drive greater levels of sales productivity at the same or reduced sales costs. Initially, this can take the form of more and more granular segments based on traditional metrics—such as revenue and employee count—instead of just broad segment buckets.
However, the other dynamic that develops as companies grow is the need for continued upselling and cross-selling. As the offering set expands, company size alone may not be the best indicator of opportunity.
Growth, particularly in existing accounts, may be tied to more specific factors, requiring more sophisticated sales potential estimation modeling for the total available market (TAM) at the account level. This analysis may inform a variety of sales investment decisions, including deployment of various overlay specialist roles—such as product, technical, solution and success—or channel partner programs.
Phase 3—Buyer Needs and Algorithm-Based CLV
Some companies are beginning to develop even more sophisticated segmentation strategies built on customer lifetime value (CLV).
In some cases, this is a sign of size, scale and maturity—the company has enjoyed success that enables it to take a longer view on investment and growth. In other cases, the CLV approach is imperative, even at an earlier stage of the business, given the nature of the product or service. As an example, a company may pursue a market share gain strategy to attain number one or two market position at the expense of short term revenue or cash flows.
In order to understand CLV models, companies will want to look at more mature industries such as insurance, where businesses have operated using CLV for years. Customer segmentation by CLV helps them decide which types of customers to actively pursue and even drives pricing in the form of customer premiums.
Examples of Customer Segmentation
Alexander Group has ushered organizations from numerous industries through the customer segmentation process. Consider these examples to understand how implementing customer segmentation can benefit your sales and marketing departments.
Improving Sales and Marketing ROI
Quest Software, a developer of IT system management software, wanted to determine and act on the marketing investments that produced the greatest return on investment (ROI). Alexander Group gathered and analyzed customer data to develop new market segments and determine the products that appeal to them. This information highlighted where the company’s marketing strategies over-covered or under-covered customers. Quest Software used Alexander Group’s findings to develop new segment-based marketing plans that boosted efficiency and ROI.
Adjusting Sales Strategies
Alexander Group assisted a global multibillion dollar industrial manufacturer when it noticed that the customer segments it developed were outdated. The manufacturer wanted to narrow customer segments in order to identify high-potential share-of-wallet opportunities. Alexander Group conducted interviews, global design sessions and time studies to establish models for customer segmentation and share-of-wallet opportunities.
Contact Alexander Group
Alexander Group can help you mobilize customer segmentation strategies that drive your organization to achieve its goals. To discuss the ways customer segmentation can benefit your organization, contact Alexander Group online today.
