Today sees the start of a week-long serialisation of our latest white paper - A Practical Guide to Market Segmentation, by Paul Hague. Subsequent parts will be posted each day this week. Of course, the paper is also available in full for our registered members - Just click on "Articles & White Papers" at the top of the screen, then on "White Papers". And, best of all, registration is completely FREE!
Step 1: Always Make Key Accounts a Segment on their own
Every company needs to segment its customers. Customers aren’t all the same and they shouldn’t be treated as such. Virtually every business to business company has key accounts and these are recognised as different and given special treatment.
The 80/20 rule which determines that 20% of customers account for 80% of turnover focuses special activity on those large accounts which determine the future of a business. For many business to business companies these key accounts amount to just a couple of handful of customers. It is quite reasonable therefore that such large and crucial customers should be treated as individuals, scoping products and services to exactly meet their needs. This is segmentation at its best – segments of one.
Step 2: Apply Market Segmentation Analysis to the Smaller Customers
However, the corollary of the 80/20 rule is that 80% of customers account for only 20% of revenue. Eighty per cent of customers are, by definition, relatively small accounts and they dominate the customer population. Clearly they should not be treated in the same way as the key accounts. Since this tail end of customers can run in to many hundreds of accounts, some sort of segmentation is needed. Without a segmentation these companies will either be treated as all the same (in which case many will be disappointed by an offer that does not suit them) or, equally unsatisfactory, an attempt will be made to treat each and every one as a special accounts, swallowing up a huge resource and yielding very little in the way of profit.
Segmentation enables us to group together customers with similar needs so that we can bring together limited resources to best serve them.
Diagram summarising 10 steps in market segmentation
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on Monday, January 14th, 2008 at 11:03 am and is filed under White Papers, Segmentation, Market Research.
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January 18th, 2008 at 10:30 am
[…] Part 1 - Segmenting Key Accounts and Smaller Customers […]
February 28th, 2008 at 8:23 am
[…] A Practical Guide to Market Segmentation This five post series on market segmentation is taken from a white paper that you can get free for registering. It covers 10 Steps in Market Segmentation: 1. Always make key accounts a segment of their own, 2. apply segmentation to smaller customers, 3. consider a firmographic segmentation, 4. look where possible for a needs based segmentation, 5. use market research to determine needs, 6. customer needs are simpler than you think, 7. consider a beharior segmentation if needs are hard to recognize, 8. use cluster analysis to group together companies with different needs, 9. in a spreadsheet code all customers and potential customers, 10. implement the segmentation. […]