A disciplined approach to customer segmentation and engagement is a key performance lever in any macroeconomic climate. In times of disruption and uncertainty, businesses must be especially thoughtful about how they determine the optimal customer segments and create differentiated engagement approaches based on those segmentations. The universal truth that “one size does not fit all” is especially relevant when considered in the context of major market shifts, such as the one we are currently experiencing.
In our experience serving companies with a variety of business models across myriad industries, we typically see that organizations already engage in some form of customer segmentation exercises. However, companies vary widely in terms of the level of sophistication they bring to the practice, as well as how effectively they translate customer intelligence into value-add activities. This is an excellent time to revisit the topic of customer segmentation and explore routes to significantly improve your approach and execution.
It would be impossible to fully address the breadth of this important topic in one article. Rather, our goal here is to provide a high-level overview of customer segmentation with the intention of diving more deeply into specifics in future articles to answer the following:
There is often a natural appeal to pursuing all possible customers with equal zeal hoping to increase topline growth and market share. However, we believe there are two universal truths that face any business, regardless of model or industry:
Taken together, these truths point to the value of customer segmentation as a means to conserve resources, enable greater penetration of important “right-to-win” segments of the market, and ensure that revenue growth is profitable and sustainable. To realize these benefits, companies must A) identify the optimal dimensions along which to segment customers, and B) translate their findings into differentiated customer engagement approaches.
Organizations’ practices on customer segmentation tend to fall along a spectrum, with varying degrees of success.
Degree of sophistication of customer segmentation
Many organizations combine elements of Basic and Intermediate approaches across two dimensions. Some recent client examples include:
Not all organizations should strive for the greatest degree of sophistication. Where any organization should optimally fall on this spectrum is a function of a few key factors:
A strong understanding of your addressable market will enable you to identify the optimal level of sophistication you should bring to the practice of customer segmentation. For some markets, heavy investment in advanced segmentation capabilities may actually be value-destroying!
The act of customer segmentation itself is not sufficient to drive value. In our experience implementing customer segmentation strategies with clients, we have found the following best practices to be critical to value creation:
Akin to individual personalities, customer segments have unique preferences, communication styles, and values. To engage a diverse customer base with a homogenous approach would be to ignore these idiosyncrasies, inevitably leaving value on the table. In a time when many customers may be reassessing which vendors are truly a necessity, it’s critical that you fine-tune and enhance your current approach to customer segmentation.
Stay tuned for future, deeper dives and insights into customer segmentation from Axiom Consulting Partners.
Ready to discuss your approach to customer segmentation? We’d love to hear from you.
Additional perspectives for sales leaders: