#5-7: Segment your Market; Optimize Customer Lifetime Value (CLV); and Manage the Customer

Segment Your Market to Maximize Revenue Potential

While segmentation has been a key strategy for tech companies at least since Geoffrey Moore’s seminal classic “Crossing the Chasm” was first published in 1991, many companies never fully grasp its importance, or even when they fail to apply segmentation with discipline and rigor.  While the number of tech Unicorns (companies with a valuation of $1 billion or hire) waxes and wanes along with economic and market cycles, organizing the segment effectively can help companies grow and prosper even during recessionary times. 

Everyone surely knows that the term TAM, or total available market, has led to many failed business models and companies.  Simply sizing a TAM to be in the $billions (with or without defensible data) and hypothesizing that all one needs to do is get 5% of say a $2 billion TAM and, bingo, the company can scale to $100 million, is a recipe for disaster.

A much better approach is to prove out a company’s product-market fit and realize a sufficient number of customer sales and successful implementations to determine one’s ideal customer profile (ICP). In some businesses, ICP’s can be successfully expanded segment by segment (either by vertical industry and/or business size, such as SMB to global enterprise).

Segmentation is also critical to demand generation allocation models (i.e., how much to invest for each discrete segment), as well as for maximizing marketing’s impact. All customers and markets are not equal in terms of attractiveness and potential long-term value. Of course, most know this, but it surprises me that many companies still treat unique segment opportunities as if they are nearly equal. In all markets, whether developing or established, there are always buyer personas, new technology adoption curves, and market segments that are more likely to adopt your particular product or service, and certain ones that are also willing to pay more for your solution if you can solve the most painful customer problems. Why not focus more of your dollars, programs and efforts on the higher value customers and more repeatable segments?   Whenever you conduct a TAM analysis or refresh an existing one, you also need to confirm your ICP to ensure you focus on the best and most profitable segments and customer opportunities.

Another key aspect of segmentation is to balance the marketing investment between acquisition, conversion, retention, cross-sell and upsell activities. Your place in the technology life cycle adoption curve (e.g., early market or mainstream), and how much revenue you can realize from existing customers versus new prospects, should also influence how much you allocate to each segment. The questions about optimizing the marketing mix (e.g., how much for outbound vs. inbound marketing channels, trade shows vs. webinars, PPC, email and content marketing vs. telemarketing, etc.) should always come after prioritizing customer segments according to relative attractiveness and propensity to buy. Which segments include customers more likely to buy, remain loyal, and be open to cross sell and upsell opportunities? Which segments have the best win/loss percentage? For new companies and/or new products, this decision can be more difficult to ascertain, but when companies have achieved a critical mass in several segments or industries, historical sales and trend analysis can lead to more predictive insights and productive allocation of sales and marketing resources. Sticking to a sound market and customer segmentation strategy, or revising one that is no longer working, is worth the time it takes to get it right, and it certainly increases your odds of exiting any slow growth curve revved up, versus still being stuck in neutral.

Strategy #6: Intensify Customer Focus  

Optimize Customer Lifetime Value (CLV)

In their classic book from 1983, “The Discipline of Market Leaders,” authors Michael Treacy and Fred Wiersema described three basic “value disciplines” that can create customer value and provide a competitive advantage: operational excellence, product leadership, and customer intimacy. For a long time since the book’s publication, many companies successfully adopted a customer intimacy strategy by “continually shaping products and services tailored to specific customer needs.”

But in the perpetual era of customer empowerment, a customer-focused approach alone is no longer enough. If your firm is unwilling or unable to fully embrace this philosophy, it may become increasingly harder to compete effectively, never mind thrive. Due to this fundamental change in the balance of power, which has shifted irretrievably to the customer, marketing is well-positioned to lead the company’s shift to becoming customer obsessed, or at a minimum, play a key role.  Marketing has traditionally led cross-functional strategies and tactics around the customer lifecycle, from contact to acquisition, to communications, cross-sell and retention. But leading an organizational shift to customer obsession is a much bigger consideration than who leads the charge. It’s the new business imperative defining what all functions in a company should do about it, both from a philosophical and operational perspective.

In order to thrive, companies must abandon the outdated customer approach where workgroups and functions focus solely on their view of the customer and silo-based strategies and replace disconnected endeavors with a more holistic and customer-obsessed approach.  In this new era, serving the customer’s needs should permeate the company’s culture and operations.  Customer connections, knowledge and insights should be readily accessible and shared across the entire enterprise in a seamless, cross-functional manner. It’s clear that the most successful companies today and in the future will fully embrace the philosophy and practice of customer obsession. They are not satisfied by merely focusing on the customer but relentlessly adapting their customer engagement strategies, investment priorities, products, services, business processes and policies to ensure that they create more net promoters, engender fewer detractors, and maximize CLV.

Meanwhile, those in denial of this customer-in-control reality may risk falling behind faster than they can run the latest retention, churn, Annual Recurring Revenue (ARR) and/or Net Recurring Revenue (NRR) numbers. If not maniacally focused on customers, by the time many companies fully analyze customer satisfaction and retention numbers, it’s quite possible their customers will have already defected in droves, or have strong leaning in such a direction.

In order to optimize CLV, it’s critical to establish, drive and orchestrate a cross-functional team that documents the current state or “as is” processes and imagines a much more coordinated approach to manages every customer touch point and interaction, from initial outreach and contact to contracting, implementation, ongoing communications, account service, support and planning, upsell, cross-sell and retention motions.

Strategy #7: Enhance Customer Value

Managing the Customer

The ability to seamlessly manage customers across the entire lifecycle and thereby maximize customer value remains an elusive goal for most organizations. There are many reasons for this: companies have established artificial customer service boundaries and silos that require multiple departments to service a single customer; different customer specialists are required to receive, then fulfill a given service request; or they simply don’t have the right software, automation technology and business processes to match customer need and service ability at the precise moment of interaction.

As a result, many organizations are only realizing a fraction of potential customer wallet share, experiencing high rates of churn and spending far too much time and money delivering repetitive information that only frustrates the customer. From the customer’s perspective, they experience doing business with disparate individuals, departments and companies, rather than a single cohesive organization. Too often, customers hear the dreaded phrase, “I am going to have to transfer you to another department,” or “I am sorry, I am not empowered to do that, you are going to have to speak to someone who is…can you call back later when they are available?” When customers interact with the company, too often they are nearly starting from scratch with every interaction, unable to benefit from the context provided during prior interactions.

With social media’s ubiquity and pervasiveness, a plethora of review sites, communities of interest and crowdsourced sources, customers can easily communicate their every experience, and unfortunately, negative experiences are more frequently broadcast, so it’s more critical than ever to manage the customer across the entire lifecycle. Savvy companies are breaking down the artificial and historic boundaries between marketing, sales, implementation, success, service and support, so that in any conversation or interaction with the customer, they can provide contextual and tailored responses and services, rapidly triage and resolve problems, or proactively address a potential future issue without the machinations required when these functions operate across organizational silos and resort to hand offs from one department to another.

In reality, many phases of the customer lifecycle do not happen within such a compressed time frame. They occur over time and across different channels, but the impact is the same. A customer calling for service, interacting with a chat agent, or participating in a customer portal represents an opportunity to deepen the customer attachment and ultimately sell additional value-added products and services. The onboarding or initial set up process is the right time to ensure initial value expectations are met, which in turn can deflect future service and support calls and interactions, lowering the cost of servicing and satisfying the customer.

By aligning organizational capability to customer needs and seamlessly managing the customer across the entire lifecycle, companies can improve operational efficiency, enhance brand advocacy and loyalty, increase customer retention, create net promoters and, most importantly, build customer lifetime value. To achieve this level of customer centricity requires executive sponsorship, a new model of organizational collaboration and the right level of operational agility to both serve and fulfill customer needs, and in so doing, maximize customer value in every interaction.