An actionable guide for customer segmentation that will help your business achieve customer-centricity at scale.
In my previous article, “How to Build a Customer Success Framework in 2022” under ‘Practices’, I had touched upon how to focus on not just the top X% of your clients but also those accounts that are small today but have the potential to grow in the near future. In this article, we will cover the ‘why’ and ‘how’ of it.
Customer segmentation is the process of breaking your consumers into groups based on common discipline.
For example, suppose you run a B2B SaaS firm. In that case, you may categorize clients depending on the size of their organization, the user's position within it, their geography, and a variety of other factors.
Then, in order to maximize outcomes, you may connect with those diverse groups in a different and more relevant way.
Let's look at a basic example: user segmentation by location. After segmentation, cultural context may be used to generate more successful marketing tactics. For example, put all of your Indian users together and offer them exclusive deals around Diwali or any other Indian event. Then, during other significant holidays for different segments, launch similar advertisements.
Customer Segmentation especially in the SaaS industry, helps organizations prioritize business results and KPIs in a more qualitative way.
B2B software companies have been relying on the classic ‘Enterprise/Mid-Market/SMB’ segmentation for years, which worked well for the long-term (multi-year) on-premise license deals. However, for the SaaS model, this segmentation approach doesn’t give insights that might be helpful for the next annual renewal and identifying key expansion opportunities early on as the client’s business evolves.
For example - how do we identify and segment those ‘fast growing’ SMB clients that are going to hit the Mid-Market tier in let’s say next 6-9 months or a Mid-Market client reaching Enterprise level in the next 12-15 months? And how do we nurture them in a timely manner during this growth phase by delivering additional value aligned with their KPIs and creating a win-win proposition?
As another scenario - how do we proactively address the situation where we know that a current ‘Enterprise’ client may reduce spending with us next year simply because their relevant business unit is in the decline phase because of internal re-org and other external factors.
It might also be a case of clients not getting enough value from the product - a classic case of mismatched expectations during pre-sales, poor onboarding, or a product roadmap not aligned to their evolving needs. As a side note - I had written another article on ‘customer-centric onboarding’ to prevent this situation.
From my experience, it’s more helpful to have ‘actionable’ segmentation based on not just clients’ current status but also their future potential - by assessing how much is their spend as a share of their current and future wallet (budget) potential.
Here is the 2X2 framework, a customer segmentation technique - showing the four segments with easy-to-remember action-based names (Grow, Manage, Re-Evaluate and Protect) and it also helps to track where the majority of focus should be for the CS team (using the 80:20 principle).
Here are some best practices for each of these segments.
So with this in-depth understanding of client’s business, their industry trends, and domain knowledge - the CSM will be able to demonstrate not only ‘thought leadership’ (that strategic clients expect from a good partner) but also offer only those solutions that will directly impact client’s business KPIs - rather than just pushing the tool and following up on adoption without understanding the big picture of why and how this product adoption will help clients.
Interestingly, sometimes it also brings a ‘moment of truth’ for CSM to reflect on in case of adoption issues - if our solution was really that important for their business (as we thought during onboarding) then why is adoption not taking off or dropping now? Is our solution still solving big pain points/objectives based on what I now know about their business?
Hope this helps to look at your clients with an ‘actionable’ lens and elevate your client engagement level from a ‘tool’ to a trusted business partnership!