Customer segmentation has long been a standard in the retail and automotive industries. For example, there are countless examples of car manufacturers slapping a different label on an automobile and marketing it to a dissimilar demographic either based on a difference in price, image or even branding. The concept of customer segmentation also is standard operating procedure for the airline industry. Passengers with enough frequent flyer miles are part of an elite club that affords them the opportunity to board early, move up to first class, or use a special lounge. Applying this same philosophy to our own clients in the design and construction industry though is a relatively new concept. However, it can prove extremely beneficial in terms of customer retention and profitability.
In its simplest form, customer segmentation is a process by which you organize your customers with regards to their needs and your services. The process allows a company to select and de-select customers to service, prioritize customers, define and deliver tailored value propositions for customer segments, as well as develop and manage effective channels for serving these customers. Those questioning the relevancy of such an exercise should consider the fact that all clients are not created equal. While we know this to be true, too often we provide the same level of service to our top clients that we provide to our least desirable ones. For example, while it is appropriate to work overtime and move other deadlines around to meet the needs of an “A” client — one that refers other profitable work to you, understands your value, does not question fees, provides challenging work, pays your invoices on time, etc. — it simply is not smart business to take that same approach for a one-time client that will never refer you to others, thinks you are too expensive for the value they receive, and is slow to pay.
The first step in segmenting your customer base is to identify what you view as important in a client. Make a list of the things you deem important. Ideas include understanding the value you bring to the table, referrals, does not nickel and dime on fees, provides challenging work for which you are well suited, possibility for a long-term relationship and future projects, upholds a true partnering spirit, is profitable and is a strategic fit in terms of market niche goals.
With this list of desirable attributes complete, go through and weigh your clients on a one to 10 scale in terms of how they perform as a client. Many find it simple to group the tallied numbers at the end in three categories – A, B and C clients. It is likely that you’ll be surprised by the immediate realization that you cater to many of the undesirables. Now, with the criteria established and a basis for where each client falls, determine what level of service is a fit for each category. This is often challenging for service companies to identify, but extremely necessary. In today’s age, for example, many retail companies move C customers to web and phone orders only, ensuring that expensive time with a salesperson falls in the A or B range. They also break down ongoing service with regards to customer segments. Using these scenarios as an example, discern different offering levels for the products and services you provide. For example, an A client may garner same-day service – guaranteed – while a C client should be handled within 48 hours. Be sure that the definition of service offerings goes beyond actual tangible deliverables but also includes areas such as communication. As an example, an A customer should warrant interaction from a senior staff member on a monthly basis, while a C customer should be part of a quarterly communication from the same staff member. The key is to be fair — not equal.
The end result from this planning process should be a customer action plan for your firm that guides your standard operating procedures for all clients. While such tactics may seem out of the norm for your firm’s culture today, most firms report that customer segmentation improves customer service since it enables you to better focus energies on tasks and communication vehicles through more effective allocation and utilization of resources. Profitability also increases as a mechanism is established for getting paid for value delivered. But, most important, customer segmentation directly links customer behavior and their potential profitability to customer loyalty – the key to success in today’s highly competitive marketplace.