Customer Segmentation Models

Introduction?

Customer segmentation models allow you to break down your customer base into smaller segments so you can get a better understanding of them and the different characteristics they have; after all, not all customers are the same. There are various ways in which you can break your customer base down including geography, demographics and others such as technographic (technology use) or indeed you can use a combination of factors depending on how forensic you want to be. The key is deciding what’s going to be most helpful when it comes to solving your business problem such as improving sales, reducing costs or managing risk.

Most businesses have some sort of customer segmentation model in place to help target and attract the right type of customer to their business, especially if they are focussed on above-the-line marketing channels such as pay per click (PPC) or working with lead generation partners. For regulated financial services firms it’s also important that they understand who their target market is and that the services they provide are aligned to them - it’s a key part of the FCA’s Consumer Duty.

But how are you leveraging customer segmentation data to drive better business performance beyond marketing?

?

My Experience?

I led a sales function in a business where overall performance was good, but when I took on the role I believed there was potential to improve, but it would require an analytical approach - and the accountant in me always looks for a solution in the data.

The business had a decent understanding of customer segmentation and a model based on demographic and geographic segments was used in the customer acquisition process, but once the leads and customers had been acquired the segment information wasn’t retained or used in the customer journey.

As a result, all customers in the sales cycle were treated the same; they were qualified in the same way, communicated to in below-the-line campaigns in the same way and dealt with by the sales agents in the same way - the result was a sub-optimal performance with some segments performing well below the average when it came to conversion through the sales funnel.?

I initiated a project to improve performance which commenced with a study of performance through the sales cycle by customer segment. The in-depth analysis across the various segments found that those customers who presented the biggest opportunity in terms of value creation for the business were performing at one of the lowest levels when it came to conversion and actual revenue generation. The marketing was bringing in the opportunities, but once in the system they weren’t performing in line with other segments.

A detailed quantitive performance analysis showed that these customers performed below par at every stage in the sales cycle - conversion from enquiry to appointment, appointment to sale and then post-sale retention.

The quantitive research was complimented with qualitative analysis by listening to customer interactions, speaking to sales agents and the customers themselves. The results of the study revealed the following:

• The customers who presented the larger revenue opportunities were typically more sophisticated and had more complex needs - the standard approach to the sales process didn’t recognise this and customers were often put in front of sales agents who weren’t sufficiently experienced to deal with these customers
• The sales agents formed a view that these customers were harder to convert, they took longer to build a relationship with, had more needs and were harder to handle due to the complexity
• The remuneration model in place didn’t recognise these factors, it was volume related so sales agents would happily compromise their performance with these customers in the hope that they could deal with more straightforward cases in the same amount of time
• The customer’s needs and sophistication made the sales process inherently riskier, so more cases were subject to quality assurance checks and those checks were also part of the sales incentive scheme - giving sales agents another reason to dodge these customers
• Once into the buying journey the on-going communication and engagement delivered to these customers wasn’t inline with their expectations meaning that many carried on shopping around and went on to buy through a competitor who offered a more bespoke service

The results of the analysis helped us to identify a number of actions that would improve performance - some easily implemented such as routing customers to more experienced sales agents, others more structural linked to remuneration schemes, QA processes and so on. All do-able though and with little or no cost implications - the business case wrote itself.

Once the changes were implemented, the results were significant - sales improved by 25% at the same cost as conversion through the funnel improved at every stage of the journey.

Call to action?

You may think this is all obvious stuff - it is, but like common sense, it’s not that common!

Businesses don’t often get into to the detail of their performance, especially if the headline performance is good and overall sales conversion is acceptable, but the devil is in the detail and often a fresh pair of eyes can spot things that have gone unnoticed for years.??

If you want to unlock the potential in your sales performance and you’d like to know how I can help you, then get in touch for an initial consultation call.

?

I’m Matt and I help CEOs and P&L Owners improve their business performance through streamlining processes and optimising operating models in sales and service teams.