Smarter Segmentation

In a classic Harvard Business School white paper from the 1970’s, the Cramer Electronics company experiences difficulties when a broadly cast marketing campaign attracts too many unqualified inquiries. As a result, sales staff are swamped with time consuming follow up that never converts into revenue. This is only one of the company’s numerous challenges. But, it illustrates the value of targeting the right suspects with well thought out marketing campaigns. Moreover, it highlights an important point:

Smart segmentation does not just save an organization marketing dollars by focusing the advertising spend. Smart segmentation is more than a marketing concept. Its value carries over into sales and delivery, giving every hour spent selling and servicing clients a higher return on investment.

A Case in Point

In 2010, I worked for a high-touch technology services company that was struggling with growth during the last few years of recession. In analyzing the existing client base, we found some interesting facts:

  • 80% of our clients generated only 20% of our annual revenues.
  • The more clients a salesperson served, the less revenue they produced. In every case.

Grouping clients by characteristics such as industry, geography and size, we found an ideal segment based on easily definable organizational traits. But what was more interesting was when we created a system to quantify the strength of the relationship between our organization and the client. First, we grouped the clients further into two relationship categories, “Strategic” and “Transactional.” Then, we developed the below diagram to demonstrate the difference in revenue generated by the four different segments of accounts.

Unsurprisingly, clients with an ideal profile spent more with us, about twice as much. And clients who gave us a seat at their strategic table also spent more, roughly three times as much. But in the top right quadrant, we found that clients with an ideal profile AND a strategic relationship with us spent eight times as much as a standard, transactional customer. That was compelling information!

It meant that, as a services company who provided a differentiated experience to clients, segmentation needed to be more than just narrowing down who to market to. It meant finding that niche of clients and then spending the time to cultivate strong, value added relationships with them. This meant narrowing down the number of clients we worked with. Why? So we could spend more time actively building relationships with those who found value in our services. And that was a new perspective for many salespeople.

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What Happened Next?

Asking a seasoned salesperson to stop chasing every new lead and hunker down on clients who fit an ideal profile was a big ask. It took education, training, changes in comp plans and more. We even spun off a new company to serve clients who no longer fit our target profile. They were still good clients, they just didn’t see the value in our high touch service products, so it was better to create a new entity geared to their more transactional needs. Sales set goals to transition a percentage of their clients to the new company every month so that they had more time to focus on the ideal segment. It took a dedicated, consistent effort and a focus on key metrics, but it became transformational. This snapshot about a year into the process shows the measured, intentional change taking place over time as we marched towards a new mix of clients with a greater representation of our ideal segment:

So, what were the results?

Over two years we more than doubled our company revenues, from 32.7M to 68.0M. We saw that those salespeople who embraced the strategy increased performance dramatically over the period. And those who did not embrace it either struggled to get by or washed out. Additionally, we found that accounts in the ideal segment that received more attention produced more opportunities and more revenue. And we saw that the sales cycle shortened, with the ideal segment moving the average time to close from 81 to 62 days.

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Lessons About Smarter Segmentation

What we witnessed demonstrated that smarter segmentation is not just a matter of more focused marketing. Done right, it’s really a more holistic, company-wide approach which modifies both the ideal client profile AND the way we interact with them. It is rooted in a solid understanding of our company’s underlying generic strategy, its value proposition and the needs of the marketplace. It takes thorough analysis and a commitment to intentional action over an extended period of time. But, executed properly, it is a powerful catalyst that sparks unprecedented growth.

Could your company benefit from a growth strategy like this? Reach out (click here) if you would like to discuss it in more detail, we’d love to help!

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