Segmentation is the process of grouping different products and customers into categories based on their similarities.
Why do we stress the importance of segmentation? As it serves as a basis to many analytical works aimed at commercial excellence. In this article we are going to introduce 4 commercial areas where segmentation provides real advantage.
In our previous article, we have introduced 4 groups of segmentation methods that might be applied (and combined), depending on the desired outcome and availability of data:
- Segmentation methods using existing information
- Needs and behaviours based segmentation methods
- Segmentation methods that focus on account prioritization
- Value-based segmentation
Photo by Providence Doucet on Unsplash
As previously mentioned, segmentation serves as basis for different data analysis aimed at sales performance improvements, and different segmentation methods are typically used in parallel to enable a more comprehensive understanding of customers and products; at Solia Consulting we believe segmentation works best in 4 specific commercial areas for which we use data science to develop innovative and technology-based analytical tools:
Pricing: Segmentation is the basis for improving business pricing strategies: on one hand, that allows prices to be optimized to achieve different goals (e.g. profit, revenue, turnover), while also provides a structured, rule-based approach for the sales force when approaching pricing. In more details it is possible to use segmentation as a basis for:
- Calculating price ranges based on cluster
- Developing and refining price sensitivity models
- And enables value pricing: differently from the cost-plus approach, it is meant at creating additional profit by selling values. Identifying value drivers is the basis to develop pricing models based on product values and enhances the communication of them across the organization and with the sales force.
Customer Management: Prioritization among customers allows better customer management, communication and account planning, thus supports capturing full potential, extending customer lifetime and increasing customer satisfaction. Segmentation serves as a basis for:
- Account planning: Helps understanding in which stage of the customer journey each account is, to target communication and offering.
- Churn reduction: by identifying accounts that are likely to churn, is it possible to mitigate risk.
- Additional sales: better customer management allows better communication with clients, thus increasing the opportunity of additional sales.
Sales Force Management: Customer clustering allows to better distribute sales force efforts across account, while optimizing time and resources. Segmentation serves as a basis for:
- Sales force time management
- Territory analysis: clustering customers based on their geographical location optimizes travelling times and distances for customer visits
- Sales force Ranking: fact-based sales force performance assessment improves sales force motivation, thus productivity
Growth: Through segmentation it is possible to identify growth potentials both within the existing customer base and at prospects. Segmentation serves as basis for:
- Product portfolio analysis: helps identifying high margin products and enabling cross and up selling opportunity.
- Lead scoring: helps prioritizing among leads, thus improving conversion.
To conclude, segmentation serves as a basis for business performance improvements in the fields of:
- Customer management
- Sales force management
- Growth management
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