June, 2005

Confidential

Best Practices in Developing

Actionable Customer Segmentation
June, 2005

For further information contact:

Scott Wilkerson
Partner
301 941-1824
scott.wilkerson@hawkpartners.com

Page 1

Presentation Objective: Provide Guidance on How To Make

Segmentation Actionable In A Multi-Channel Context

Segmentation provides clear benefits by enabling more efficient and

effective use of sales and marketing resources.
However, HawkPartners experience with Fortune 500 clients suggests
that three out of four customer segmentations are never implemented.
In todays complex B2B business environment, segmentation must be
able to address the needs of multiple sales and marketing channels.

We have done a ton of segmentations in the past, but we can never

seem to agree as an organization what the overall framework should
be. As a result we never seem to get very far down the path of
operationalizing our approach.
Director of Market Research, Fortune 100 Global IT Provider

June, 2005

Page 2

The Current Business Environment Is Driving the Need for More

Efficient Use of Sales and Marketing Resources
Customer segmentation enables improvements in effectiveness
and efficiency
Key Benefits of Segmentation

9 Improved effectiveness and efficiency of marketing

communications through better targeting

9 Enhanced customer coverage through better understanding

of customer preferences

9 More efficient use of scarce sales and marketing resources

9 More effective product launch and development

June, 2005

Page 3

However, the Majority of Customer Segmentations Ultimately

Fail

Most Often Cited Reasons Why Segmentations Fail

1. Sales and marketing cant agree on the objectives, approach
and scope
2. As a result, the resulting segmentation is not considered
actionable
3. and therefore is never operationalized

June, 2005

Page 4

Key Challenge #1: Sales and Marketing Typically Have Different

Segmentation Objectives and Approaches
Marketing Segmentation

Sales Segmentation

Typical
Objective

Enable more efficient targeting for

messaging and other promotional
activities

More efficiently deploy territorybased field sales reps and

improve coverage

Key Defining
Variables

Psychographic/Needs Based
Attitudes about technology
Purchase behavior
Customer needs
Market opportunity
Demographics/Firmographics

Firmographic/Geographic
Account tier/type
Company location
Total sales
Customer value
Number of employees

Multivariate analysis
Multi-dimensional

Cross-tabular analysis
2-3 dimensions

Level of
Analysis

June, 2005

Page 5

Marketing Segmentation Provides Messaging Guidance

Illustrative Marketing Segmentation IT Industry
Share of Market
Segment/Key
Opportunity
Characteristics
Tech Savvy Innovators
41%
Require leading-edge
technology
Corporate culture of
innovation
IT Cost Cutters
36%
Need to cut data center costs
Very price sensitive
Focused on integration
Technophobes
Do not understand complex
technology issues
IT is not a core component of
business
Network Intensive
High number of remote offices
Heavily networked

Messaging Focus
Provide cutting-edge
technology and solutions

Offer best value for the

money

14%

Provide superior technical

support and IT outsourcing

9%

Enable superior network

quality, reliability and reach

Key benefits: Identifies segments with unique needs and target them with unique messages
Key drawbacks: Typically are not able to find segments in internal (sales) databases

June, 2005

Page 6

Sales Segmentation Typically Provides Coverage Guidance

Illustrative Sales Segmentation-- IT Industry
(Primary Coverage Channels In Shaded Blue Area)
Account Type

Share of
Current
Revenue

Channel Preference
Face-To-Face Only

Wiling To Use Tele And Web

Channel

Global Multinationals
(>15,000 employees)

39%

Field sales

Field sales
TeleWeb
Dedicated Extranets

Large Enterprises
(>1,000 employees)

32%

Field sales
Business partners

Field sales
TeleWeb

Mid Market (100-999

employees)

22%

Business partners

TeleWeb

Small/SOHO (<100
employees)

7%

TeleWeb

TeleWeb

Key benefits: Able to find unique segments and cover them with discreet sales resources
Key drawbacks: Segments may not have unique needs, behaviors or requirements
June, 2005

Page 7

Key Challenge #2 & 3: Most Segmentations Are Not Considered

Actionable and Are Never Operationalized
Key Reasons Why Segmentation
Not Actionable
Segments defined by attitudinal or
needs-based variables
Existing customers can not be
accurately categorized in a segment
Resulting segments do not align with
pre-defined customer groups or account
tiers

Key Reasons Why Segmentation Not

Successfully Implemented
Lack of cross functional support
Lack of applicability across
brands/business units and geographies
Time, resources, and leadership
requirements are vastly underestimated
Lack of sufficient communication,
education and training

Last year we spent a large sum on a very sophisticated, state-of-the-art segmentation.

The binder has moved from my bookshelf to a drawer, but the segmentation hasnt gone
anywhere in the organization.
VP Marketing, Fortune 100 Telecom Company

June, 2005

Page 8

Unlocking the Keys to Successful Segmentation Requires

Superior Strategy, Design and Execution
Keys To Success

Gaining
Organizational
Buy-In

Superior Research
Design, Analysis and
Execution

Successful
Implementation

June, 2005

9 Include the needs of sales and marketing

9 Include segmentation as an integral part of
broader Go-to-Market strategy
9 Fully align on objectives and scope before
data collection
9 Gain stakeholder buy-in before final roll out
9 Use data from multiple sources
9 Choose actionable and predictive variables
9 Include customers and prospects
9 Evaluate multiple analytic techniques
9 Ensure that output maps to internally
recognized groups
9 Get comfortable with multiple segmentations!
9 Use targeting models to score databases
9 Use pilots to rapidly demonstrate success
9 Use segmentation to drive Field, Tele and
Web campaigns
9 Measure and monitor success

Page 9

The Segmentation Approach Must Enable the Broader Go-ToMarket Strategy

Key GTM Strategy
Components

Relevant Questions to Be Addressed by

Customer Segmentation

What products and services best meet the needs specific customer segments?

Quantify
Market
Opportunity

How does our value proposition and competitive position vary by segment?

2 Develop
Coverage
& Market
Maps

What is our current revenue, market opportunity, and share by segment?

How does customer buying behavior differ by segment?
Which channels should be used to cover which customer segments?
Which offerings are customer segments most receptive to?
Which marketing messages will resonate most strongly with key segments?

3 Develop
Resource
Allocation
Plan

Which marketing tactics/vehicles should be deployed against which segments?

What is the incremental value to the company of each customer segment?

Measure
Performance
Results

What are the potential opportunities for improving coverage of target

segments?

Which sales and marketing resources should be aligned with which segments?
What are customer coverage needs?

How can we gain share-of-wallet within target segments?

June, 2005

Page 10

Segmentation Should Utilize Customer Data from Both

Survey Research and Internal Data Sources
Potential Data Sources and Segmentation Variables
Customer Survey Research
IT spend by category (current and future)
Breakout of spend by competitor
Buying behavior & channel preferences
Web Data

Decision-making criteria

CRM/Internal Databases

Registration information
(demographics,
firmographics)

Product/brand affinity

Current revenue by
product/service category

Site / content preferences

e-Commerce sales and
transactional data
Online customer survey
data (interests, needs,
satisfaction, etc.)

June, 2005

360o View
Customer
Segmentation

Demographic / firmographic
data (company size,
revenue, location, #
subsidiaries, etc.)
Frequency / type of
interaction with sales force

Call Center Data

Financial Modeling Data

Frequency / type of interaction

with Telesales reps

Account profitability

Tele service usage/history

Cost-to-serve economics

Customer lifetime value

Page 11

Evaluate Multiple Analytic Techniques Choose the One

Most Appropriate for Objectives and Scope
Applicability of Most Commonly Used Analytic Techniques
Most complex

Least complex

Business
Requirements

Simple Cross
Tabulation

Factor/Cluster
Analysis

CART Models

Latent Class
Models

Ability to find
segments in predefined databases
Ability to segment on
multiple dimensions

Ability to incorporate
continuous and
categorical variables
Ability to develop
target algorithm
directly from
segmentation

Most Applicable

June, 2005

Least Applicable

Page 12

The Segmentation Approach Should Enable Mapping of Sales

and Marketing Segments
The resulting solution should enable segmentation based on
customer value, market opportunity, messaging and coverage needs
Case Example: Sales and Marketing Segmentation Map, Share of Market Opportunity
Sales Segments

Marketing
Segments

Global Enterprise
Accounts
Requires
FTF
Coverage

Uses
alternate
channels

Mid Market
Requires
FTF
Coverage

Uses
alternate
channels

Small Business/SOHO
Requires
FTF
Coverage

Uses
alternate
channels

Tech Savvy
Innovators

12%

4%

4%

9%

2%

9%

IT Cost Cutters

4%

4%

1%

5%

1%

7%

Technophobes

3%

1%

5%

3%

1%

5%

Network Intensive

9%

2%

0%

0%

0%

1%

June, 2005

Target
Segment

Page 13

Unique Coverage and Messaging Tactics and Resources

Should be Applied to Each Segment

Marketing Guidance (what

messages to promote)
Global Enterprise
Accounts

Mid Market

Small Business/SOHO

Requires
FTF
Coverage

Self
Integrator

Requires
FTF
Coverage

Self
Integrator

Requires
FTF
Coverage

Self
Integrator

Tech Savvy
Innovators

12%

4%

4%

9%

2%

9%

IT Cost Cutters

4%

4%

1%

5%

1%

7%

Technophobes

3%

1%

5%

3%

1%

5%

Network Intensive

9%

2%

0%

0%

0%

1%

June, 2005

Focus on value for the

money
Target with low cost
offerings
Offer online
promotions/rebates
Sales Guidance (through
which sales channels)
Cover with low cost
TeleWeb channel
Enable online configuration
Provide web-based
technical service

Page 14

Customer Segmentation Can Result in Significant Improvements in

Sales & Marketing ROI
Segmentation Enables More Effective & Efficient
Movement Along the Sales & Marketing Funnel
Awareness
Marketing

Interest

As a Result Of:

Improved response rates

Improved attendance rates

Need
Improved lead yield rates

Lead
Improved lead qualification
Sales

Propose

Improved win ratios

Close

$
June, 2005

Enhanced ROI

Page 15

HawkPartners Approach to Market Segmentation

Phase I: Develop Strategy

& Gain Buy-in

Phase II: Research Design

& Execution

Phase III: Implementation

& Measurement

9 Populate segments with

internal and/or market data

9 Assemble a crossfunctional team

(Sales, Marketing,
Finance, Market
Research)

9 Develop research design,

methodology, and sample
plan
9 Evaluate internal data
availability

9 Educate organization on
segmentation frameworks
and benefits

9 Review/refine GTM
strategy objectives

9 Develop market research

questionnaire(s)

9 Train users on segmentation

applications

9 Align on
segmentation
objectives and
approach

9 Execute primary market

research (CATI, online, or
mail surveys)

9 Select and roll out pilot

programs

9 Gain stakeholder
buy-in

9 Conduct data analysis &

modeling
9 Identify and prioritize
segments

9 Monitor progress and track

results
9 Modify programs based on
pilot results
9 Phase in programs to
additional geos and BUs

9 Develop targeting models

June, 2005

Page 16

Sales & Marketing Managers Should Consider Five Questions to

Assess Their Current Segmentation
Key Questions

1.

Have you achieved sufficient buy-in for your segmentation across functions,
geographies and business units?

2.

Is your segmentation approach tied to your broader Go-to-Market strategy?

3.

Are you fully utilizing multiple sources of customer data including external
market research and internal data to develop your segmentation?

4.

Is your segmentation embedded in your sales & marketing tools, processes

and technology?

5.

Are you able to measure segmentation results that drive top- and bottom-line
performance improvement?

June, 2005

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