One of the best ways to accelerate revenue growth is to focus sales efforts on the right customers – the ones with the greatest potential for more business. Market segmentation and customer segmentation are standard practice for seasoned revenue leaders. Strategies are built to exploit market segments where the company has the best opportunity to win. But all too often, the segmentation exercise stops short at the level of defining segments as industries or markets such as retail, health care or financial. However, this approach to segmentation is usually not granular enough. To truly accelerate revenue growth, Marketing and Sales leaders require micro-segmentation.
What is micro-segmentation? First, it still begins with classically defined market segments. But it goes a step further, to identify viable opportunities with current customers and potential customers within those segments. For example, knowing a company has identified sales potential in the financial services market of $10 billion is great for the executive team and interesting to the Board of Directors and shareholders when the company touts this potential in the annual report. However, the Chief Revenue Officer is the one who is tasked with figuring out how to actually monetize this opportunity. Micro-segmentation is the answer.
The holy grail of micro-segmentation is to leverage known buyer profiles to systematically identify additional buyers in the market. Micro-segmentation relies on both qualitative and quantitative attributes, but the best segmentation models utilize qualitative attributes to help inform quantitative segmentation scoring models.
Consider the example of a large health care company entering a new market. The company had identified over 25,000 potential buyers in its new market. At this point, the company began developing marketing tactics and sales force design efforts to reach all 25,000 buyers in the market. This led to a trial and error approach that was very inefficient and highly dependent on front-line sales representatives calling on all the targets in their individual territories. This is a very slow way to learn. Essentially the company was utilizing scarce sales and marketing investment to profile the market. As expected, the returns were subpar.
The company decided to try micro-segmentation as a means to improve their success. The company employed a scoring model, illustrated below.
To their surprise, the scoring model indicated that 21,000 of the buyers had less than a 4 percent probability of buying the product. Sales and Marketing redirected their efforts on buyers who exhibited greater than a 30 percent probability of buying the product. This gave the sales force the ability to focus on the roughly 4,000 buyers – a far easier task than calling on all 25,000! For this company, not surprisingly, micro-segmentation led to faster growth and higher revenue, while doing so at a lower level of investment.
Successfully using micro-segmentation improves speed-to-market, leads to faster growth, and maximizes sales investment efficiency. In highly competitive markets, micro-segmentation can also greatly enhance the probability of success. In order to effectively utilize micro-segmentation, market insights are required along with some form of descriptive buyer level data. For most markets this data is readily available.
Getting Started. When should you conduct micro-segmentation, and how can you get started? In general, you cannot afford to wait. With the speed of change in nearly all markets, the advantages of micro-segmentation make it a necessity to meet and exceed your revenue growth goals. Here are some initial action steps you should take:
The return on the costs of doing micro-segmentation work, when done correctly, can be significant – easily 5 to 10x the investment. Focusing marketing and sales efforts on the right customers directly impacts nearly every aspect of the sales force and results in higher win rates, shorter sales cycles, and bigger deals.
If you have not conducted micro-segmentation before, consider commissioning an internal project to get started. This work is typically done by a sales strategy, planning, enablement or operations team. But not all companies have sufficient resources in these roles. If you are resource constrained, consider investing in a new sales strategy role to manage this effort or consider bringing in an outside firm to help you do it correctly the first time while developing the internal capabilities to manage it for you on an ongoing basis.
Want to learn more? Please visit our website.
Contact an Alexander Group leader.