10 Principles for Needs-based Segmentation , 1-4

 Here are some guiding principles, 10 of them, tested and tried, for this test of "selection".

Step 1: Identifying your best customers

 

Earlier attempts at segmentation generally focused on certain demographic characteristics, such as company size, SIC code, sales volume, and the like. This was (and is) certainly a start; but compared to today’s segmentation strategies, it was like wielding a meat cleaver rather than a scalpel. Demographic, firmographic and psychographic profiling, after all, tell you relatively little about a company’s specific needs, its interests, or its ways of doing business. Two customers, who look virtually identical, according to these criteria, may in fact buy from you for very different reasons. One may be among your most loyal and profitable customers – while the other is hardly worth the effort.

 

Today’s most successful customer relationship and database marketers begin at the other end of the equation – examining the needs that your most loyal customers meet when dealing with you. The starting point for this kind of analysis should be defining those customers – focusing on those who consistently give you their largest share-of-wallet, use the broadest range of your offerings, and provide the best profit margins.

 

Step 2: Identifying their needs and concerns

 

Your next challenge is finding out why these companies have chosen yours. Which of their needs have you been particularly qualified and willing to meet?

 

Before you go outside to acquire this information, ask those people in your own organization who know them best, such as account managers, sales reps, and dealers. Asking where you might improve your service to them can help you identify unmet needs, as well. You have a wealth of information right at hand; and it’s data that is unique to your company. Your competitors’ segmentation won’t look anything like yours.

 

In the process, find out as much as you can about how their business, and particularly their purchasing cycle, works. Are the company’s purchasing decisions centralized or decentralized? How long is the buying cycle, form initial identification of needs to purchase decision? Who (by job title) influences that decision, with what degree of clout, at what points in the cycle? What information do they need to do that, and when?

 

Next, check out what’s available in industry research – for instance, from trade journals, government sources or professional organizations in your customers’ fields. For additional “data overlay” information, or to validate the data you have, such firms as Dun & Bradstreet are a resource. In some industries, there are very good syndicated reports available.

 

Your best sources of data, however, are your customers themselves. You can initiate ongoing two-way dialogue directly with current customers, via such techniques as offering an inbound 800 number or a help line, establishing users groups, publishing a market – or segment-specific customer newsletter and interviewing customers for articles, scheduling advertising or direct mail with a response mechanism, querying visitors to your trade show booth, and conducting surveys or focus groups. The burgeoning growth of blogging, industry observer web sites and other social media sites offers further insights.

 

But keep in mind that unless you also have a mechanism of incorporating all this information into your database, no single person – even the individual at the top – will have more that a few pieces of the total jigsaw puzzle. When a player leaves, so does his portion of the puzzle. And so each of you will be making critical strategic decisions that are base on only fragmentary information. (Is it any wonder that American business is a wash in endless meetings, trying to bring as much of that knowledge as possible together in one room?)

 

A well-designed, well-implemented database serves as the repository of corporate memory. And every customer-contact person in your company, from your service people to your telemarketers, should understand that part of their job is enhancing the resolution of the images – making sure each pertinent insight is logged into the corporate database, through whatever processes you devise. [please do not ignore, or ignore at your company’s peril the difficult issue of data hygiene and account maintenance!].

 

 

 

 

Step 3: Compare their needs to your strengths

 

If you’re typical, 80% of your customers buy from you for one or more of just a handful of reasons – usually, no more than four to six. What are they? And how well do they coincide with the external service values you consciously have worked at developing?

 

You may find that for some customers, the differential value you create may consist of quick response time, or quality of the product, or how often your rep calls on them (or conversely, how easy you make it for them to order via E-mail, minimizing disruption of their day).

 

In other words, one customer’s perception of the value you add may be another’s disincentive to buy from you; and it’s important to know which is which and for whom. The more you work with your database, the more leery you’ll become of single, anecdotal comments – that is, the tendency we all have to think that if one customer feels this way or that, it must be true of all.

 

In the course of the research, you may well have the pleasant experience of discovering strengths you didn’t recognize you had – or at least which didn’t seem as important. What matters, however, is what your best core customers think. If something is important to them, then it’s important, period. You should be nurturing it, refining your ability to deliver it and capitalizing upon it.

 

For most organizations, the great “a-ha!” occurs when you overlay the external service values you have deliberately cultivated, in which you know that you excel, over the matrix of your customers’ needs that you can begin to see where your marketing emphasis should be.

 

Step 4: Develop segments based on customer needs

 

You’re hunting for other current or potential customers who “look” as much as possible like your best, core, customers, those whose needs best coincide with your strengths – because it is within their ranks that you’re most likely to be able to develop still more loyal, profitable customers.

 

You may identify only one segment, your full universe of target customers and prospects – or to be able to recognize several clusters who share similar acts of unfulfilled needs and buying behavior. The process can be enhanced with the addition of complex basis variables. In either case, there are two key questions:

 

Who are those most loyal customers, those most interested in those service values that best differentiate you from your competitors? And what differentiates them from the mass of customers? When you have those answers, you’ll be halfway home.

 

Critical to effective segmentation is making each segment as unlike any other as possible.

And this is the point at which the process becomes more of an art (of interpretation) than a science (of data analysis). A well-constructed database, however, with its ability to slice and dice customer characteristics many different ways, gives you a wealth of tools to turn data into information. In developing the meta-data table, one visualization tool to use is the Rubik’s cube: it presents neatly both the concept of the multi-dimensional data cube as well as a method whereby your team can visualize the targeted account and the penetration strategy and its success therein.

 

To be of value to you, that information must be actionable. That means it must include a customer profile (most often consisting of firmographics, unfulfilled needs and buying behavior) that enables you to assign customers – not just your selected “best” customers, but all your customers, and perhaps prospects – to one or another of your defined segments. Keep it simple. The data collected and captured must be verifiable and updatable as well as meaningful and actionable. One note of caution therefore: trying to gather too many data points, or to use too many data points in the “business intelligence” algorithms, will have either diminishing returns or may provide no relevance.

 

You now have a good sampling of your best customers; each identified by the needs that are most important to them. (Keeping in mind that a customer, in business-to-business marketing is an individual who buys on behalf of an organization. Furthermore, recognizing that a customer is someone who buys x-$’s of y-products over z-duration). They are also tagged by firmographic data. Is there a relationship between needs and firmographics? Your database program can let you mine the information to find out.

 

Start with a list of identified needs and buying behaviors. Then query your database as to how many customers cluster into groups that care about each of various combinations of those needs. Where you find larger numbers, you have identified “need clusters” that are common to particular segments of your marketing universe. And that’s the raw material for needs-based segmentation.

 

Now, what easily identifiable characteristics do the customers in each cluster have in common, in addition to those needs? Here’s where firmographic data comes into play. You may, for instance, discover that many of them share geographical, SIC code, company size, or some other combination of characteristics.

 

In other words, it permits you to define very specific need-based market segments – into which you can divide your entire customer universe, present and potential.