BY MARTIN WALES

Knowledge Is Power: How You Can Profit From Customer Segmentation

Think getting new customers is the key to increasing your bottom-line profit? It makes sense and it is a very logical assumption. This belief is familiar to all technology companies, from voice board manufacturers to computer telephony applications developers. There is, however, an alternative that costs you less money and takes less time: getting to know your existing customers better.

Selling people what they want is easy. Selling people you already know what they want is even easier. To sell more to your current clients, you have to group them together based on their needs and their characteristics. Called customer segmentation, these groupings allow you to access a lucrative revenue stream. If you do it right, it will directly increase your cash flow.

Customer segmentation is the process of collecting as much data as you can on each client and then looking for patterns. The patterns reveal tell-tale characteristics of customers who buy additional products or services after purchasing another related item. And, the better you know your current clientele, the better you'll be able to attract and target those new customers you sought in the first place.

Think. Who are your customers? Not just their names -- what are their personal preferences and buying patterns? Most people don't relate to their customers beyond their contact information and their immediate product purchases. You might want to know other products and services that they buy and from whom. What other companies do they trust and associate with? Who are you customers' customers? If they are buying a CT server, for example, they are highly likely to be in the market for software integration services or maybe even voice portal capabilities.

Look for trends or challenges within specific industries where you can assist your clients in addressing them. In the computer telephony industry for example, Alliance Systems did not grow to be a successful corporation because it simply sold "hardware." It grew exponentially because it recognized its customers' growing desire for industrial-grade CT servers, along with the industry trends for a turnkey communication server solution.

At Daedalian Systems Group, Judy Vye, director of business development, believes in customer segmentation. This IT services provider assists companies with their network computer systems to track customer and internal corporate information. She states that they quickly recognized the higher "cost of getting a customer vs. the cost of keeping a customer."

Daedalian consults other companies and it practices what it preaches. They have identified key customer segments by customer employee size. Most are in the mid-market from $5 million or larger in revenues and have greater representation from the financial services and publishing industries.

Vye discovered that when customers needed a software tool for customer relationship management (CRM) and customer segmentation, Daedalian often installed GoldMine Front Office software. Following that, client companies "frequently had additional IT needs in other areas where Daedalian could help."

After further analysis using customer segmentation, Vye discovered that, "Although GoldMine was responsible for a relatively small amount of their initial sales revenue -- the follow-up sales were spectacular." The additional IT requirements of their customers were enormous. In fact, Daedalian earned up to ten times the sales revenue from their clients after the original CRM software purchase. Without customer segmentation and financial tracking, they might have missed many opportunities.

When asked why customer segmentation is important, Vye declared, "Once you've established the relationship within a company, that's the expensive part. Then even though you may be dealing with other people or departments within the same company, you make more sales because you're already a trusted supplier."

Customer segmentation benefits companies in more ways than one, as it also creates increased productivity. "The sales curve is quicker," commented Vye. "You don't have to prove yourself again and again. The sales cycle becomes more efficient."

In addition, customer segmentation gives you feedback from the field to develop new products and services at reduced investment levels. By asking and being aware of your current customers' needs, you increase your success rate for selling them in the future. Customers tell you what they are thinking of buying. You build it or program it, and deliver it to them. No secrets or tricks here -- just good, old-fashioned listening. This new product formulation increases sales and gives you another "door-opener" for new prospects in similar industry verticals.

Knowing as much as you can about your customers leads to many financial and productivity benefits. Analyzing and developing your strategic plans from real client information fosters many business advantages:

• You improve your relationship with clients, which leads to greater loyalty.
• You decrease your marketing costs by better qualifying prospects, and this enables you to only spend time and money on high-quality prospects.
• You decrease the cost of sales by reducing the time involved.
• You increase your frequency of sales through regular contact.
• Your referral rate is likely to increase when you stay close to your clients.
• The information allows you to gather real-time market research and do R&D at lower investment levels for new offerings.
• You increase the profitability you gain from each of your customers.

If you're looking for significant growth, you should start asking, How can I gather customer information and provide company-wide access to it? What specific information should I look for? What CRM software systems or technology exists to do this?" There are many answers. Regardless of what your specific responses are to those questions, you can reap the profits from customer segmentation today, just by focusing on the grouping process and recognizing its importance.

Martin Wales is a business development specialist and the eFounder and Chief Catcher at Customer Catcher.com. He welcomes your e-mail at [email protected]. He is a technology-marketing specialist, speaker, and facilitator focused on maximum results with minimal risk using your existing resources.