In our final posting this week, we finish off our serialisation of Paul Hague’s latest white paper on a Practical Guide to Market Segmentation. In this concluding part we consider the importance of making best use of segmentation information, such that it adds real value to a business’s activities. At the end of this post, we also provide links to the previous installments of this white paper for your convenience.
Step 9: In a Spreadsheet, Code All Customers and Potential Customers
Almost every business-to-business company has its customers listed in some sort of spreadsheet. This record of customer activity could be a sophisticated customer relationship management system or in most cases a simple Excel file. In the segmentation process, every customer on the spreadsheet must be located in one of the segments.
The starting point for grouping companies on the spread sheet is to use the answers to the points spend question. This should not be without some debate. It is conceivable that the answers to the trade-off question (or behaviour questions) do not fit with the actions of the respondent company. It would not be the first time that the answers given in the interview were wrong, either because they were not given sufficient consideration by the respondent and answered glibly, or it was someone other than the key decision maker who answered, or that the respondent was simply being mischievous and trying to make a point (such as saying they were looking for lower prices in order to drive prices down).
Each response must pass a review and debate until there is sufficient confidence to allocate it to a particular segment in the spreadsheet. This spreadsheet will then be used to group companies, to direct messages and mailings, and to measure sales and profitability. The ultimate test of a good segmentation is that it brings in business which is profitable. The spreadsheet is the control mechanism by which this is measured.
Step 10: Implement the Segmentation
Having established a segmentation based on either customers’ needs or behaviour, the final and arguably one of the most difficult tasks is to implement it. Each segment by definition requires a different offering. The offering, or as we prefer to refer to it the customer value proposition (CVP), must be recognizably different and distinctive for each segment. Where claims have been made for the value proposition, these must be defendable in that it should be possible to demonstrate and prove to customers that the wonderful claims that distinguish it really are true.
Armed with the segmentation and appropriate CVPs that go with them, it is now time to engage the support of the sales force. Winning the cooperation of the sales force is not always easy. Salespeople have a built in resistance to being told that there are customers in their patch who are not necessarily interested in the lowest prices. In many business-to-business segmentation studies, price fighters usually account for less than a third of all customers and sometimes considerably less. This flies in the face of a salesperson’s instinct who believes that all customers are price conscious and therefore driven by price.
Implementing a segmentation study requires the sales force to understand the benefits of segmentation. It also requires them to be trained in asking the “killer questions� that determine which segment customers and potential customers fall into. In the early days of implementing a new segmentation it is essential to closely monitor the sales force to ensure that they work towards a successful needs segmentation and do not kill it in order to return to a cozy life in which they are given free rein and any offer will do.
Notes
B2B International is a specialist business-to-business market research consultancy with offices in both Manchester, UK and Beijing. We have extensive experience in carrying out research in business-to-business markets, particularly market segmentation research.
Paul Hague, the author of this white paper, is managing director of B2B International, Europe’s leading specialist business-to-business market research agency. He has almost 40 years experience conducting market research projects, and estimates that to have managed more than 2,500 projects during that time. A leading figure in market research circles, Paul has published widely on the subject, having written books on Questionnaire Design, Market Research in Practice and our free e-book A Practical Guide to Market Research amongst others.
Index to this White Paper
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on Friday, January 18th, 2008 at 10:30 am and is filed under White Papers, Segmentation, Market Research.
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