July 19, 2012

Using customer segmentation to distinguish gold mines from empty pits

by Mike Karst, Entira

It’s wise to “never assume”— we’ve all learned this lesson the hard way at one time or another in our lives. When we assume we draw conclusions using tiny scraps of evidence without knowing the full story. If luck is in our favor, we assume correctly. But it can easily come back to bite us.

In business, you should never take for granted and assume you know what’s going on with your customers. You have to drill for information, because on the surface you can’t tell the difference between what might be a gold mine and what is just an empty pit. Sure, you can speculate based on basic facts and measurements; but both may be disguised by the same landscape, and only one is a hidden treasure.

Making assumptions is a huge risk and leads to wasted time on futile paths and overlooked opportunities. Gold mines of opportunities. When is the last time you took a look under the surface at your customers and prospects? You might be surprised at what you find.

Segmentation often leads to surprising revelations

We recently completed a segmentation study in the dairy industry that was such an eye opener it turned the standard thinking on its head. All along our client had been categorizing dairy producers by geography or herd size, but in this study we found it’s more meaningful to group them based on how they approach technology and quality control in their operations. The bottom line—progressive dairy farmers, the ones most accepting of new technologies and willing to buy them, come in all shapes, sizes and geographic areas. So while they all may look differently from the outside, what they have in common is their intrinsic beliefs and attitude about quality and performance.

The data is out there, so go get it

What does customer segmentation tell you? It lets you look at your customers through a different lens. What these studies do for companies is show you exactly who’s most likely to buy your products based on their psychographic profile. It’s less about where they live, and more about whether or not they have the mindset and the means to buy what you’re selling.

A good segmentation study isolates who is most likely to buy your products and services (and what influences their purchasing decisions), and who’s likely NOT going to buy no matter what. It also will uncover unmet needs in the market and steer you toward creating a competitive advantage for yourself that you may not have today.

We at Entira view segmentation studies as the most important first step toward increasing sales. The process works like this: Through a combination of targeted qualitative and quantitative research, we’ll glean insight from your customers about attitudinal behaviors. This is how you narrow your target, and really identify to whom you should be selling directly. Then you can customize a plan for that “most likely to buy” segment, and you can see sales increase exponentially.

Not for the faint of heart

Reaping the full benefit from a segmentation study requires discipline. That’s the hardest part. It sometimes requires making some hard choices: You must consciously decide which segments to focus on and which not to support. And it can be really tough to let go. But the best sales organizations do this intuitively—once you see where the greatest potential resides, you naturally want to focus your energy there. Why spend time on a segment that’s never going to buy from you?

One client’s sales to California specialty crop growers increased 15 to 20 percent over four consecutive years after Entira completed a comprehensive segmentation analysis on their behalf. The segmentation project led to a customer targeting program that refocused selling efforts toward the highest potential customers resulting in higher sales and customer satisfaction in all levels of the value chain. The “ah-ha” insights also pointed to a need for a reorganization that more strategically aligned with and supported the customer segments we identified. The information we uncovered was powerful, and the company was successful because it took action on the findings.

You have to be ready and willing to throw out everything you previously knew about your customers and look at them in a new way. All that data is a gold mine of information that can give direction to your overall business strategy, pricing structure, sales plans, branding efforts…the list goes on. But it’s worth nothing if you don’t put it to use. If you’re not willing to do something meaningful with the results, why bother doing the research?

I have the data; so now what?

Making sense and taking action on the data can feel insurmountable. What Entira does differently than most is that we stick around to help incorporate the findings into a concrete action plan and roadmap for implementing the findings into improvements to your sales, marketing and business structure. It’s about taking your company’s limited resources and focusing everything on who’s most likely to buy. Our people are highly professional, but also willing to put on our boots to go where the true foundational insight exists—in the field or in the shop. In the dairy industry study, Entira associates personally interviewed producers responsible for 24 percent of the cows from the country's largest operations. We go straight to the sources where the richest insight resides.

Through the examples illustrated above and many others, we’ve created “a-ha” moments that allowed companies to really see their business potential. Contact me at 901.753.0470 or mkarst@entira.net if you want to learn more about how Entira can help find your gold mines.