Defense or offense? What type of day was it going to be? Flip a coin. Earlier in my tenure there seemed to be a gravitational pull towards the former. Well on that day, I cheated. I picked up the coin, flipped it and stepped on it to keep it where I wanted it to be. Offense. On this particular day, that meant having clandestine conversations with another CEO about acquiring his company.
Coincidentally, he was very familiar with my company and some of its strategies. As we built rapport, he proceeded to disclose to me that prior to my arrival, the company’s secret to customer acquisition and retention was A booth at the “Golden Flamingo” (I hope there is no establishment by that name. But it sounds legit. Right?) specifically assigned to the company and its guests!
I wasn’t totally surprised. I had learned earlier that women had been hired primarily based on their physical appearance as a way to lure male clients to use our services. Yes. things like this still happen!
Look, I love keeping our customers close to the chest in the proverbial sense…not literally.
When I discovered how ingrained these practices were in the company’s operations,
To allay my fears, I reverted to my base engineering nerd instincts.
We needed to quantify the problem – Segment the customers.
This ain’t business school. It’s the real thing.. So segmentation to me is a simple 3 step process.
- Count ‘em
- Group ‘em
- Name ‘em
There is no appendix to a case study to get the numbers. So what we did was just get every available piece of data that we had about our customers, whether they were actual numbers, from unscientific surveys or anecdotal to assess the damage. We looked at
- Who orders (Property manager, maintenance manager, Gender)
- Total revenue (per customer, time of year etc)
- Order characteristics ( size, frequency, patterns)
- Why they buy from us (Price, Quality, Customer Service, Golden Flamingo visits)
- Customer tenure
This is a bit of an oversimplification, but the idea is you start somewhere and begin to fit customers into groups. We started with annual revenue buckets (High, Medium, Low) and monitored the characteristics of the clients in each group. Don’t worry too much about the stragglers. Apply the 80/20 rule. This is what we ended up with.
- Typically, male
- Been customers for 5+ Years
- cWill pay the highest price the boss
- Don’t miss our weekly “business meetings” at the Golden Flamingo…
- The budget is tight. John will do it for $0.05 less than you. Can you match his price?
- Will be customers until John reduces his price again OR next budget season, whichever comes first.
- My facility is the prettiest on the block and I’m proud of it.
- Be here when I want you to be here and you have my business forever
- You can charge me 30% more than John.
This is largely symbolic but incredibly powerful. It gives you quick accessible language that enables your team to identify and build marketing plans for each group. So what are the names for these groups?
- Group 1: Strip Club Mavens
- Group 2: Low Price Warriors
- Group 3: “On time” and “On Fleak”
How did this nightmare resolve itself?
First of all, there are a few ways to digest this information.
- “Sh*t. I could lose 25% of my revenue (the strip club mavens) if I don’t do something”. Duh!!!!
- I need to find more “on fleek” customers. They make us the most money. But everyone else is chasing these guys and they don’t switch easily. I need to replace revenue ASAP.
- Can I expand the pie by re-imagining our customer base?
We lost the mavens. I would LOVE to tell you I made the BOLD leadership choice to move away from that segment. It didn’t happen that way. For the first 18 months or so, I watched this segment erode.
We are still dealing with the repercussions of this customer acquisition strategy. Many prospects still will not talk to us as a result of it. So we’ve had to re-imagine our customer base. We have slowly replaced the mavens by expanding service lines and geographical footprint. More to come on that in future posts.
Top 5 reads on customer segmentation:
A quick and easy overview of how customer segmentation works and what businesses use it for. The key insight here is that segmentation is more than customer bases. Done correctly, it’s a valuable resource allocation tool that maximizes efficiency.
It’s an easy read that simplifies the topic considerably and helps you understand how companies use segmentation. Their data on segmentation and overall satisfaction is definitely interesting and reinforces the importance of segmentation in strategy.
If you’re looking for a comprehensive guide on customer segmentation, this is a great resource.
Key insight: targeting and retargeting segments. Retargeting basically means using tools like cookies to track behavior across segments and send targeted ads once they’ve left the site.
Summary: They break segmentation down in detail, including what kinds of segments to set, questions to consider, as well as tips and tricks. Plus, they have a handy list of tools for each part of the segmentation process and really make it personalized.
Forbes offers a succinct overview of customer segmentation as well as popular models businesses use if you’re looking for some inspiration.
Key insight: Revisiting segments to ensure that they’re still accurate. Customers and demographics evolve over time and so should your segmentation. This way, your customer retention rate will stay consistent across these shifting audiences.
Summary. Like our breakdown above, they offer similar advice on how to approach customer retention and segment accordingly. They break it down pretty simply and offer real-world examples alongside.
For other data nerds like me, you’ll find Qualtrics’ overview on customer segmentation pretty interesting.
Key insight: Their focus is on using direct and indirect research methods to arrive at segmentation, which is pretty interesting.
Summary: A research platform commonly used for surveys, Qualtrics offers a lot of advice on how to use research to build your segments. Questionnaires, social listening, and feedback tools are all great data collection methods for segmentation. Whatever your budget is, there’s likely a recommendation that works for you.
Key insight: the importance of looking beyond superficial demographic data and using behavior as your guiding point.
So now you have a brief idea of segmentation and how it works – but what do you actually need to consider before implementing? Marketo highlights a lot of great insights around deeper segmentation.
Summary: They make a case for using AI and machine learning, which is definitely where the future is heading. Creating micro-segments is another recommendation since that allows for pinpointed targeting and using segmentation data for product development as well.