Tag Archives: classification

From #classification over #segmentation to #extrapolation

Many B2B organisation have grown a very loyal customer base over time. Usually, this is a good thing. Achieving customer loyalty is amongst the top goals for marketers in almost every organisation. Particularly in B2B industrial settings or niche industries with an oligopolistic structure, market players often grown and nurture these relationship over years. It is seldom that organisations in these industries apply Customer Relationship Management (CRM) methodologies or some form of customer analysis, mostly due to the lack of knowledge, the growth path of the organisation, the missing intrinsic driver for adoption and in many cases, missing external influence through cross-industrial employee fluctuation. Over the course of my career, I have experienced various of these organisations already with often stunning rationals as to why customer analysis has not been applied; yet buzz words like CRM or Key Account Management (KAM) often surface in presentations. One could of course start a philosophical argument whether a rigid CRM application depends upon formalised methods or tool or if uncodified knowledge is good enough to run a business which has obviously grown successfully over the years. Despite the weight of the growth argument, many businesses will find unprofitable customers once digging into a customer base analysis. A change in the external environment, e.g. through a change in competitive forces, directives or product innovation often confront these businesses with sales and cost pressures demanding changes in the way they conduct business.

The shift from “business as usual” to some sort of analysis driven customer management is often initiated by way of customer classification, which often finds the wrongfully attributed label of segmentation. These classification are usually done on an aggregated level to resemble ABC analysis. With a growing customer base and or increasing environmental complexity, these classifications are however not enough to streamline customer efficiency programs and or to help businesses increase their bottom line contributions. A shift from classification to traditional segmentation is the logical next step. Approaching segmentation efforts challenges organisation on 2 levels. First, the segmentation model has to be created and can hardly be copied from an existing blue print. This means that various stakeholders in the organisation need to come together to identify value defining parameters for an initial segmentation model. Furthermore, these models need to be tested, deployed and run for some time to validate underlying assumptions and assure high cause effect correlations of the model to the organisational value creation process. To achieve the later, organisations need to face a second challenge which is as much about system change as well as cultural change. To support a segmentation model, it is very likely that the aforementioned organisations, do not have supporting CRM systems to allow a data based segmentation effort. Defining system requirements and locating third party IT resources is the easiest of tasks, yet assuring the buy in of key stakeholders is a completely different challenge. The cultural change most organisations need to go through is hardly quantifiable; yet it will determine the success or failure of such an endeavour and should thus not be neglected. External project stakeholders, e.g. consultants, are however usually less likely to touch this subject due to its very intangible nature and thus difficulty to capture its essence in form of project budget requirements. A savvy marketing manager should nevertheless be aware of this challenge and factor in adequate time to engage all necessary stakeholders in the organisational change process.

Once this is achieved, an extrapolation of existing customer data to market potentials is the next step to extrapolate lessons learnt, existing segment strategies to other likely market targets to further streamline efforts and optimise the use of resources. This requires further customisation of CRM systems to shift from static to dynamic models. As with the segmentation implementation effort mentioned above, it also requires various internal stakeholders to be ready for further change processes to amend both service levels, product offerings, sales and marketing efforts to identified potential and existing customer segments. Codifying such a change into organisational processes demands further internal process review cycles and disciplinary structures to enforce the change in process setups.

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