What the CEO in SME company should know about segmentation to profitably manage sales and offer?

In my last article I was referring to a typical situation, when a sales representative comes to his boss asking for his permission to lower the price in the offer in order to overcome client’s barriers and thus to increase sales. I was emphasizing that the reasons for company’s sales deciline may lie outside the pricing area. The reason for sales decline may be the lack of proper value proposition – discussed in my previous article or lack of adequate segmentation – which I address in this post.

What is a client segment?

Let’s start with an example. Let’s compare car rental for individual clients and for huge corporations. Both cases are significantly different in terms of customers’ profiles.

Let’s assume that our individual client is a student, which needs to get as quickly as possible from one place to another in his town. Ideally he would rent a car for minutes as an alternative to a bus. He will use one of the car sharing brands available in his area and what will matter to him when choosing the brand will be price, availability and simplicity of user experience (simple smartphone application). The value sought in the offer will certainly be affordable price, but also bigger comfort than taking a bus.

Huge corporation may want to rent a car fleet for a longer period of time because it doesn’t want to “freeze” its’ capital and own the vehicles. Long term car rental will represent important value for the company as it will significantly lower its’ entry barrier in building a large car fleet. Another value in the offer will be possibility to transfer all service and administration burden on the supplier.

Although we are talking about the same service category – car rental – in fact those two client groups are so different in terms of their needs and expectations that it would be highly impossible to create one universal offer that would equally match their needs. What will meet the needs of a student, will not satisfy a huge B2B client.

A segment of clients is a homogenous group of clients with similar needs and thus requiring a similar offer.

If the company doesn’t have adequate knowledge about its’ clients, it may create an offer which won’t represent adequate values for potential buyers and as a result – will fail in the market. This in turn may imply actual loss for the company.

 What is a segmentation?

Segmentation is the process which aims at dividing the market into homogenous groups of clients in order to pick those, which we want to target in our strategy.

Commonly the notion of segmentation is also used to describe our knowledge about existing customer segments in the market. While working out our segmentation it is worthwhile remembering that it will serve us to design the entire “go to market” – i.e. strategic and operational assumptions underlying the introduction of our offer into the market.

How to segment the clients?

The effective segmentation should provide us with sufficient knowledge to create value in our offer.

Purely demographical dimensions in B2C such as age, income, place of residence or such as size of the company, industry type or geographical area in  B2B may not be enough to design adequate benefits in the offer. If, on the other hand, we identify behavioral dimensions such as openness to novelties, risk aversity, or even the level of client’s expertise – we may get the levers on which we will be able to design the winning value proposition.

Let’s come back to my example from previous article where I was referring to the segments of the CRM clients. If on top of size of the company and the industry type we will look at client’s awareness – we get the division between experienced and unexperienced clients. Guess what will be additional value required in the proposition geared towards unexperienced clients? Which segment will require from us less effort in the sales process? And which segment will give us better opportunity to keep our sales margin?

Another decision based on segmentation is the sales channels selection.

We usually consider sales channels as our means to reach our potential buyers with our offer. We should not forget, however, that in the customer experience era sales channels are equally responsible for delivering the value promise and an adequate support to the buyers in their buying process. On top of this they should keep satisfactory level of rentability.

In order to reconcile channels’ rentability with client’s expected value we need an advanced knowledge about client’s buying process and his expected values both in the offer as well as in the sales process. These issues should therefore be taken into consideration at the stage of segmentation.

Segmentation is the basic business tool to build proper business and sales strategy.

Knowing the type of benefits, type of relationship and preferred channels expected by each client segment we can select those segments which represent for us highest business potential. This type of knowledge will also help us to decide which segments are not our target group. The right segmentation gives us therefore the basis to define our business strategy priorities.

Properly selected clients are key element of every business model, because without profitable clients the company cannot exits in the long run. However, if we lack proper client knowledge we risk to act blindly – to create irrelevant offers, to invest excessive funds in sales channels, to maintain inefficient sales team structure with inadequate competences.

Clear priorities in the offer, sales and marketing are basis for each manager’s effectiveness. If we feel that our priorities list is too long it may be the early warining sign that we need to rethink our current segmentation. The sooner we do it, the better for our business efficiency.


About the author of the article:

Agnieszka Węglarz is an independent consultant, business strategist and practitioner in B2B as well as lecturer, speaker and blogger. She has over 20 years of professional experience working as a manager in both large corporations and SMEs, where she was responsible for strategy, marketing and business development. She worked for many renown Polish and international brands in telco, IT, finance, food and beverages sectors, as well as in FMCG and media . Her area of expertise is business development in B2B, she works mainly with SME companies.

She uses her long term executive experience and training expertise to assist companies and their managers in building their business development strategy through series of workshops. She specializes in business modelling, segmentation, value proposition, sales and marketing strategies and consultative selling.

She runs a business blog on www.agnieszkaweglarz.com and her own YouTube channel – Biznes Ring by Agnieszka Węglarz. You can contact her by writing to: agnieszka.weglarz@g2m.biz.pl or by directly sending a message via LinkedIN.