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Segmentation

The level of effectiveness of any customer management programme can be dramatically increased by "slicing and dicing" the customer base according to different characteristics that relate to overall objectives. This process is commonly referred to as segmentation.

Imonic have experienced many different situations that required the use of various techniques. In business to consumer work with a domestic supply company holding 5 million customers, building customer databases, applying analytical tools and then operationalising the outcomes was the name of the game. The intention of course was to finely slice the customer base so that actions could be tailored to each different slice, hence accuracy was increased and waste reduced.

Much of our work however, is in the business-to-business arena, with high value customers. Here the approach needs to be very different. In some cases it can be a matter of segmenting into slices of one or two customers per segment, in order of value to the organisation, and thus creating a customer league table. This approach is particularly relevant to large clients that only have a handful of customers (e.g. Aerospace and Military).

Criteria for segmentation can vary enormously from client to client, dependent on sector and project objectives. Imonic would advocate a simple approach to 'testing' initially. This will identify key information which is required and what is currently 'not available'. Take the matrix below (Fig 1). This was used to identify and confirm 'key account' status in a recent aerospace client.

Figure 1: Simple Key Customer Segmentation Matrix

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Identification of the criteria or characteristics on which to segment can usually be agreed very quickly by input from a cross section of the management team. Next comes the 'weighting' of criteria; e.g. is profitability more important than 'historical value', 'turnover', or 'prestige'? If so, by what order of magnitude (20%, 50% or 200%)? Point's totals are allocated to each criterion to replicate the weighting levels.

Each criteria is further divided into 'bands' e.g. if profitability is scored out of 10, you may have 2 points for breakeven, 5 points for a profit margin of 10% or less, 7 points for 10-20% and 10 points for a customer with above 20% profit margin.

Simply taking a selection of well-known customers and applying the model to them can easily test the matrix.

One of our clients used a similar simple approach which worked so well they integrated the model into their ERP system, this then flagged any customer reaching their pre-determined 'key account status'. This came from the point's level the account had amassed via daily trading. In some cases this identified new key accounts up to six months earlier than they had been able to do previously. They could then begin to apply individual customer focus and differentiation much earlier - and of course before the account migrated.

Please contact us if you believe we can help you.