Criteria for segmenting business

market
 International standard Industrial classification: goods and
service provider
 Dispersion: Geographically concentrated or dispersed
 Size
 Account status: Global, National, Regional
 Buying processes: tender, internet, decentralized, centralized
 Buying criteria: continuity of buying, product quality, price,
customization, just in time, service support before or after sale
 Propensity to switch: satisfied with current suppliers, dissatisfied
 Share of customer spend in the category: sole supplier, majority,
minority, non supplier
 Geography: City, region, country
 Buying style: risk averse, innovator,
Customer Portfolio
What next?
 Profit laggards – Identify cause of nonprofitability and
control costs
 Revenue laggards – Valuable opportunity to readjust
packaging and positioning of products
 Unprofitable customers
 What makes them unprofitable?
 Any Plan of Action to make them profitable
What to do with them?
More specific suggestions
Fiocca Model : step 1

High Key Non key

difficult difficult
Difficulty in
managing
account
Key Non key
easy easy
Low
High Low
Strategic
importance of
account
Fiocca step 1: Strategic
importance
Strategic importance is related to
 value/volume of the purchases
 potential and prestige of the customer
 customer market leadership
 general desirability in terms of diversification of the
supplier’s markets, providing access to new markets,
improving technological expertise, and the impact on
other relationships
Fiocca step 1: Difficulty of
managing relationship
Difficulty of managing the customer relationship is related
to:
 product characteristics such as novelty and complexity
 account characteristics such as the customer’s needs and
requirements, customer’s buying behaviour , customer’s
power, customer’s technical and commercial competence
and the customer’s preference to do business with a
number of suppliers
 competition for the account which is assessed by
considering the number of competitors, the strength and
weaknesses of competitors and competitors’ position vis à
vis the customer
Fiocca step 2
Assess key easy and key difficult accounts:
 The customer’s business attractiveness
 The strength of the buyer/seller relationship
Fiocca step 2: customers business
attractiveness
 Market factors
 Size of key segments served by customer
 Customers share of key segment
 Customers growth rate
 Customers influence on the market
 Financial and economic factors
 Customer margin
 Barrier to customers entry or exit
 Competition in the customers market
 Customers position and strength
 Vulnerability to substitute
 Technological factors
 Ability to cope with change
 Depth of customers skills
 Types of technological know how
 Socio political factors
 Ability to adapt and fit
Fiocca step 2: Strength of
relationship
 the length of relationship
 the volume or dollar value of purchases
 the importance of the customer (percentage
of customer’s purchases on supplier’s sales)
 personal friendships
 co-operation in product development
 management distance (language and culture)
 geographical distance
Fiocca step 2: strategic options
Customer Portfolio Models
 Campbell and Cunningham (1983)
 Step 1: Focuses on nature and attractiveness of the
customer relationship using customer life cycle stage on
one axis and various customer data on the other.
 Customer life cycle is divided into : Tomorrows
customers, todays special customers, todays regular
customers and yesterdays customers
 The other dimension of analysis, involves sales volume,
use of strategic resources, age of relationship, supplier's
share of customer's purchasers and profitability of
customer to supplier
 Step 2 of analysis focuses on the customer's own
performance as an important aspect of customer
portfolio planning
 The customer's share of its own market is combined
with the customer's demand for the supplier's product
and is used to produce a second two-by-two matrix
classification
Dependent
(Buyer Interdependent
dominated)
Few

No of buyers

Independent Dependent (supplier

dominated)

Many
Many Few
No of Suppliers
 The third, and final, step involves the selection of the
key customers for analysis. Another two-dimensional
grid is proposed for this stage with growth rate of
customer's market (high, medium, low and decline)
on the vertical axis
 And competitive position, (relative share of customers
purchases ) on the horizontal axis
 Companies are placed on the matrix and represented
by a circle that represents their sales volume
Customer Portfolio Models
Shapiro et al’s customer classification matrix

Carriage
High Trade( newly
Passive
acquired
customers)
Net Price

Bargain
Aggressive
Basement
Low

Low Cost to High

serve
How costs vary between customers
Pre-sale costs Production costs Distribution costs Post-sale costs

Geographic location: Order size Shipment Training

close v. distant consolidation

Prospecting Set-up time Preferred Installation

transportation mode

Sampling Scrap rate Back-haul Technical support

opportunity

Human resource : Customization Location: close v. Repairs and

management v. reps distant maintenance

Service: design Order timing Logistics support e.g.

support, applications field inventory
engineering
Supplier Classification Matrix
(Krapfel, Salmond and Spekman,
1991
High

Partner Friend

Interest
Commonality

Rival Acquaintance

Low

High Low
Relationship value
RVi=f(Cj,Qj,Rj,Sj)
 RVi is the value of the relationship to the seller
 Cj is the criticality of the goods purchased by the buyer
 Qj is the quantity of the seller’s output consumed by
this buyer
 Rj is the replaceability of this buyer (i.e. the switching
cost of accessing other buyers)
 Sj is the cost savings resulting from the buyer’s
practices and procedures