Royalty, Aristocracts And Commoners. Is This How You Segment For Customer Success?

by Nov 28, 2018Foundations

Customer Success is an investment in the future of your customers and by extension your company. Customer success resources are never unlimited so targeting and getting a good return on the investment made by your CS team should be a goal of every company.

How it usually goes

At some point then, most likely once you get past a certain size or number of customers, hard choices will start to present themselves and the vexing question of customer segmentation will swing into view. This will be swiftly followed by the head scratching about how best to do it!

For the uninitiated segmentation is simply the process of dividing your customer base into groups based on some criteria (for example, size, vertical, geography).

Not always but often the segmentation conversation starts like this.

“Right, we need to segment our customers. It’s crazy that we treat them as if they are all the same and by the way we can’t really afford to keep doing so.”

We know that every company has customers on a continuum, actually multiple continua (who knew that was the plural?), and can’t indefinitely justify expending an untargeted amount of customer success effort on each and every one. So, what’s the strategy.

I’ve been in these conversations a few times and it’s not at all uncommon for people to aim straight at the answer.

“How should we segment then?”

Is a common enough starting point and someone will surely ask it.

“Revenue is the obvious way. We should expend more effort on our most valuable customers and less on our least valuable”

Someone will almost certainly opine.

“We can’t do that – what if they are small and have huge expansion potential.”

Someone will probably object.

“It should be to do with need.”

Might be quietly (or loudly) offered up and so on.

Eventually – hopefully – someone will ask the smart question.

“Why do we want to segment our customers”

Which seems totally obvious, so they may attract a few quizzical looks, but in fact it’s exactly the right high level question because it leads to the next level questions and that’s where things start to get a good bit clearer.

In my opinion the only right answer to this high level question is “because we want to treat them differently.” If the answer is anything else then segmentation is complexity for the sake of it. If your segmentation strategy doesn’t result in differences in the way you treat the customer in each segment then what’s it for?

So, this is the right question, and the right answer, because it leads so naturally to the follow up questions you need if you are going to define a segmentation strategy that works.

These are just some of those questions:

Why would we want to treat our customers differently?

You have to ask yourself this question. The answers will be extremely revealing. Moreover you have to get past your first order thinking and dive down into the real detail.

Much of what you discuss will depend on the characteristics of your product, your customers, switching costs in your industry and so on.

  • It could be for example that your renewal rate is very strong across all customer types but expansion revenues are very low. If your acquisition costs are high then expansion is likely to be a strategic imperative and therefore you may want to treat accounts with the highest expansion potential differently from those with none.
  • Conversely if you are in an industry where the costs of switching are low, churn rates are high and much competition exists your focus may be skewed to those customers with the highest existing ARR to secure the bulk of your revenues whilst leaving the smallest customers with less support.
  • If you are one of those rare companies where good outcomes with your product depend on in depth knowledge of your customer’s industry you may want to support your customers with staff from your company who have the necessary expertise to get deep.
  • You might find yourself in a demand driven environment – perhaps your largest customers are simply more demanding, on your smallest (I’ve seen both) – and you find yourself reacting to this demand rather than determining effort levels based on criteria you decide and simply know you need to change to a more thoughtful model.
  • You may have reached a level of sophistication where you have a clear set of customer success metrics (perhaps on a success dashboard) and a clear set of targeted interventions designed to drive the value realisation needed to push those metrics in the right direction. You may therefore want your investment on a customer by customer basis to be directly informed by this information perhaps with a light layer of relationship management on top.
  • You may have reasons that don’t appear in the list above. What’s vital is that you understand why you would want to treat your customers differently because this is why you would want to segment. This will of course then all directly inform how you then go on to segment.

Do we have the ability to treat customers differently today?

If the answer to this question is no then whatever you’ve answered above you’re not ready to segment. Don’t be surprised if you find yourself in this position: it takes thought, planning, preparation and almost certainly the building out of tools, skills, process and artefacts before you can confidently say yes to this question. The good news is with clarity around why you want to segment you can swiftly identify the differences in service you’ll deliver to each segment allowing you to make the necessary changes using a clear plan rather than in an organic ‘feels right’ manner.

If the answer is yes then the next question is does that ability align to why we want to segment? Not much good segmenting along an axis you can choose, for example time spent with customers based on their size, if what’s needed to make them successful is deep domain expertise in the first 6 months after go-live. If you are in this position, by design or by accident, re-work or additional investment may be needed but again this can be done with clarity on the required end state.

What would happen if we didn’t segment?

As it’ll take time and effort to do all of this work and almost certainly mean short term disruption (again at a cost) as you change account ownership to fit with your newly segmented customer base make sure you’re going to get the benefit. While segmenting may seem like the right thing to do, nonetheless do the thought exercise – “what happens if we simply carry on as a we are?” It may be you decide segmentation and the associated costs is an organisational overhead you don’t need today. Perhaps the effort would be better spent elsewhere, and therefore the exercise can be delayed.

What could go wrong if we go ahead?

Always a great question – imagine yourself in the future post implementation of the segmentation model and changes required to support that strategic shift. Try to think of all the things that might not be working as expected, or could have gone wrong. Use the output of those conversations to refine and if necessary re-factor your strategy before you start to implement the changes.

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