Human beings are naturally different and diverse – Sir Ken Robinson
….so why do we group people together and treat them as one?
Doing this leads to failure. Things fall apart when we fail to treat people as the individuals that they are.
The education system is a great example of this.
The education system falters when it doesn’t consider the individual needs of the children. When 30 children are put in a classroom and treated as a whole; as identikit components that all respond to the same stimuli, are motivated in similar ways, and all have the same learning style, the results are inevitable.
Children suffer, become unhappy, become disillusioned with learning, and don’t progress through school (and life) as their potential should allow.
The outcome is a malfunctioning education system that fails to fulfil the needs to all those children that pass through it.
(for those interested in the education system this is a great, thought provoking talk to watch )
When we sit back and reflect, this is obvious.
If you are a parent of two children or more you will understand this. Do they behave in the same manner?
If you have brothers and sisters are their personalities, behaviours, motivations the same as yours?
If people aren’t alike when they share the same parents why would anyone expect people to be alike – have the same beliefs, motivations, needs – that aren’t even from the same family?
Extending upon this, the differences in people widens as we develop as people; as different experiences affect our attitudes, our beliefs, our world views. We become individuals to an even greater extent that those of a young age.
Why then do b2b service providers (and many other businesses) group their customers together, provide them with a “standard” service, and expect them to all respond in the same way.
Thus it’s clear why so many b2b service providers falter when they fail to treat customers as the individuals that they are.
Customers become unhappy and develop a feeling that the provider doesn’t know them or care about them. The outcome is inevitable: customers move on.
Segments of One
Having only one customer segment won’t do. In fact, the exact opposite is what the best service providers are aiming for: customer segments of one.
That’s right: having only one customer per customer segment as opposed to having one customer segment comprising all your customers.
Segments of one are how small businesses establish themselves and find growth. With only a few customers they are able to treat each one on an individual basis: to know each customers name, what their likes/dislikes are, what problems they need solving.
As businesses grow, customer understanding, and hence segmentation, becomes a diseconomy of scale: Customer intimacy is more difficult as you grow and the early advantage of segments of one is almost always lost.
The challenge for businesses is to ensure this diseconomy of scale doesn’t result in unhappy and lost customers as providers become more distant from understanding customer needs. Although segments of one is idealistic and unachievable for most, it nonetheless should be a guiding light for all.
Today I’m asking you to consider how well you segment your customers. Or, in other words, how well you recognise customers as the individuals that they are.
When we consider customer segmentation there are two elements to consider: Quality of segments, and quantity of segments.
Quality of segments: Is your customer segmentation based on Value Segments?
Value Segments are a form of segmentation that demonstrate a deep understanding of customers, enabling providers to differentiate customer experiences, differentiate retention and happiness strategies, and target marketing communications.
Most businesses don’t use Value Segments. They use superficial segments that don’t actually do much: Think segmentation by region, industry, size of customer, or the other worthless segments many businesses use.
Consider what segmenting by industry gives you. Just because one of your customers is in the media sector and one the hospitality sector, does it mean that they have different needs and behaviours?
Thus, is your customer segmentation based on superficial or Value Segments? If not, hopefully this post has convinced you that you’ve got some work to do to implement Value Segments.
Read this post to understand how segmentation should be done to create maximum value for your business.
Quantity of Value Segments: What is your Segments /Customers Ratio?
The Segments / Customers Ratio is a calculation that reveals how well you segment your customers, as determined by the quantity of Value Segments you use. In fact, I’d go as far as to say it reveals a lot about how well you actually know your customers.
Simply divide the number of customers you have with the number of Value Segments you have. So, if you have 500 customers and you use 100 Value Segments your ratio is 20%.
Higher ratios suggest greater customer understanding and, assuming you’re using the segments as they are intended , the higher the likelihood that your customers are happy with you given that you will be treating them according to the specific needs of the Value Segment they sit in.
As a guide, any ratio above 60% will put you in the upper quarter of b2b service providers. A ratio below 25% means you are behind in the game.
You want to shine in the market? Target yourself with a Segments / Customers ratio of 60% or more.
How well do you segment?
How content are you with your level of segmentation, and hence customer understanding?
Are you currently improving your segmentation or is it something that has been off your radar?
Hopefully this post has helped you in appreciating the value of a strong segmentation focus. In upcoming posts I’ll talk about various methods that will help to improve segmentation capabilities.
This is has been a long post, about twice as long as the usual, so thank you for getting this far. I hope it’s been of value to you. If so, I’d love to hear your thoughts on it in the comments below.