Avoiding the Death
Spiral While Reducing Operating Costs - Part 7
(Segment the Customer Base & Provide Appropriate Levels of
Support for Each)
This is the 7th
article in the series “Avoiding the Death Spiral While Reducing
Operating Costs” covering approaches to reduce operating costs
while maintaining customer confidence and increasing customer
satisfaction. Topics in this series include:
- Cease activities that provide
- Implement efficient and
- Focus on existing product
quality instead of new features and functions
- Enabling customers to
- Perform elements of the work
with lower cost labor
- Segment the customer base and
provide “appropriate” levels of support for each
- Make informed, not random,
- Cease big, expensive projects
with long-term ROI
- Renegotiate vendor contracts
In this edition
we will cover: Segmenting the customer base and providing
"appropriate" levels of support for each.
Does your company
treat all customers equally? Perhaps they are equal. However, many
firms realize that their customers have diverse needs and
expectations. If this is a reality for your firm, and you have not
yet performed customer segmentation, you may be overlooking many
opportunities to improve customer satisfaction AND reduce
reason to perform segmentation of your customer base is to tailor
your complete customer relationship model (sales, marketing and
service) to meet or exceed the expectations of customers with
differing needs. Too often, companies look at ways to improve
customer satisfaction and operational efficiencies "across the
board" with a "one-size-fits-all" approach. This can be an
inefficient application of a firm’s precious resources.
typically categorize their customers into at least 3 segments. For
the purpose of this discussion we will generically label the
segments as follows:
This segment contains those customers that are "more equal" than
others. That is, these customers generate the most revenue for the
firm, represent a strategic relationship and/or have the potential
for significant growth in the future. This segment, representing
only a small percentage of the entire customer base, likely
requires a level of service that is high-touch, personalized and
relationship oriented. These customers, more so than those in
other segments, have "bet their business" on your products and
services; they expect you to be a trusted advisor, partner or
extension of their firm. These are the customers for whom you will
want to continuously attempt to "exceed" expectations.
These are customers that deal with your firm on a transactional
basis. Typically, customers in this category merely want a
low-cost and efficient transaction. To the extent that you can
"meet" this requirement, these customers will remain loyal.
However, as soon as another provider offers similar products and
services for a better price, the customer will consider how they
can switch, when their contract is up.
This segment may actually represent the largest (from a customer
count perspective) of the 3 segments, containing customers that
are at neither of the extremes (high or low-end). The needs of
this segment can be the trickiest of all to address.
I have found
that, in advance of segmentation, customer satisfaction scores
could be predicted for each segment: Low-end customers would be
highly-satisfied and require no additional attention (from a
continuous improvement perspective). High-end customers would be
"fairly" satisfied needing some additional attention. Medium
segment customers would be the least satisfied and need the most
attention of all.
In my experience,
further analysis often revealed that, after several years of
driving continuous improvement efforts directed at the entire
customer-base, the low-end customers benefited the most from the
one-size-fits-all approach, while most of the high-end customers
were already recognized, with programs or senior account teams in
place to cater to the needs of customers in this segment. However,
it is the medium segment, containing customers just above the
low-end, and just below the high-end, that is the least understood
segment of all. If this (likely) scenario plays out for your firm,
the next step to consider is that of slicing the medium segment
into 2-3 logical segments.
Once you have
placed your customers into the segments that make sense for your
firm, you can consider how to deliver on the expectations of each.
This includes how you will market, sell, and provide support to
each segment. You might consider the following:
partners / VARs to perform Sales and Support for a segment of the
Introducing new levels of support and charging appropriately,
e.g., charge different fees for 1 hour, 4 hour, 8 hour response,
or off-hours support. These must be offered as a new service,
previously unavailable, rather than to begin charging for
something that was previously free.
One of the most
frequently expressed concerns of customers is that the firms they
do business with seem to be disjointed, that each contact with the
firm feels like a separate company. As such, a customer
segmentation initiative should consider EVERY touch-point that the
customer has with your firm. If cross-functional coordination
doesn’t take place during your customer segmentation initiative,
the result may be that you further exasperate this situation.
customer base into groups of customers with similar expectations
and aligning your entire organization around the segmentation
model will provide your firm with many opportunities to deliver
the products and services to your customers more efficiently. Not
only can this reduce the cost of service delivery, but it will
also improve customer satisfaction and loyalty as you more
effectively meet the needs of each customer.
If you would like
to discuss further how your firm (and customers) could benefit
from customer segmentation feel free to give us a call.
newsletter editions will cover additional items on the topic of
“Avoiding the Death Spiral While Reducing Operating Costs”.
Previous articles in this series: