Wednesday, February 23, 2011

Business-to-Business Segmentation in four easy steps…

Why worry about segmentation? You already know who your best customers are (kind of), and you’re too busy for some kind of facacta academic exercise. But that’s the very reason why segmentation (try calling it prioritization if that seems more comfortable) is a good idea. First, you are likely to be surprised by some of the clients who float to the top, and second, prioritizing your customers will save you time (and help you make more money) in the long run.

I’m suggesting four factors that can jumpstart your segmentation/prioritization project.

1) Current profitability: What are you netting from the account? Revenue is good to know, but a customer may be costing you more than you’re taking in, due to excessive customer service demands and late payments. [If you’re not already measuring net income by account, this is the place to start!]

2) Future potential: What are the opportunities for cross-selling or up-selling the customer? Are there different products or services you can sell to the department you’re dealing with? Are there other departments in the company you can sell your current product or service to?

3) How much attention they require: Sales and service calls, requests for (free) extra work like accounting reconciliations, socializing, freebies like Bengals and Reds tickets, etc.

4) Strength of relationship: Measured by consumer satisfaction scores, willingness to refer other companies to you, the longevity of the relationship, and the degree of interactivity (frequency of reviews, how often they open your e-newsletter etc.)

Data for all four factors should be available within your organization--all you have to do is
a) collect them into a single database (an Excel spreadsheet can work fine)
b) assign a value to each factor (nothing fancy--maybe two points for good, one point for
average, and zero for bad), and
c) rank your customers by their composite score.

Congratulations! You’re segmenting!

If you would like help with this process from someone who’s done it many times before (examples), or want to talk about how to create a great ROI from segmentation once its done, give me a call. You’ll like the results!

WHAT'S YOUR COMPANY'S GUIDING STAR?

In days of old, mariners steered their course by the stars, often picking out one particular star to follow.

Today's companies often have a mission statement which should (but seldom does) serve the same purpose. A mission statement is like a compass, which can keep your company from veering back and forth as the makeup of your management team changes.

Republicans recently read the US Constitution out loud to start the new congressional session. They obviously felt that the country was off course, and were trying to focus attention back on what they considered to be the "national mission statement." If there is this kind of disagreement over our country's direction, how much easier is it for a company to drift off course?

Unfortunately, for many companies, the mission statement doesn't get much attention once it's created. It's dusted off once a year for the annual report, and may appear in a customer presentation or two, but no one really pays much attention to it.

An impressive exception is Johnson & Johnson's CREDO. It's worth a look. This 300 word mission statement addresses the company's relationship with its four most important constituencies: customers, employees, the community, and stockholders. It does this in plain language, and explains why it says what it says. For example, when it states that costs should be kept low, it specifies that this is not to bolster profits, but to hold prices down.

Here at the beginning of a new year, and in the midst of challenging economic times, it might make sense to exhume your mission statement and think about breathing some new life into it. Right now it may be a toothless lion. But if you develop a meaningful mission statement and give it the ongoing attention it deserves, it can be a compass that will help your company sail through troublesome times without expensive and unproductive zigs and zags.

Unconscious Consumption

Just like a computer, our brains have a limited amount of processing capability. If we had to consciously think about things like tying our shoes or buying our daily pack of chewing gum, that processing capability would be used up very quickly, and we’d end up standing around literally “lost in thought.”

To prevent this, most of us tend to hardwire frequent, less important decisions and processes. We turn them into ‘habits’ or ‘routines.’ Which has major implications for us as marketers. We tend to think of purchasing and usage as conscious decisions, when the truth is they often are not. In many cases, logic may have nothing to do with it.

So what needs to change? We need to recognize the unconscious nature of those consumer purchasing choices, and work on understanding the cues that consumers employ to enable these unconscious decisions.

Consumers won’t be able to articulate why they make these choices. To understand the unconscious behavior and gain a competitive advantage, you have to identify the cues that lead the consumer to (unconsciously) behave the way they do. Insights can be found by observing reactions to varying stimuli such as the packaging size, color or weight, or product cost, or shelf position. For example, coffee is perceived as more robust if packaged in dark colored containers. And the higher cereal is placed on the grocery store shelves, the healthier it is assumed to be.

Ferreting out subliminal cues is going to be expensive and time consuming. But less so than wasting your money on advertising that is trying to appeal to logic where it doesn’t apply. Forget the “voice of the consumer.” The consumer can’t tell you why they’re doing what they’re doing, because they aren’t doing it consciously. They’re going to have to show you, through observation and controlled testing. Good luck!

If you’d like some help in figuring out how to interpret and influence your consumers’ unconscious buying decisions, give Your CMO a call!