A segmentation strategy is the first step for a company to generate value offers that meet specific needs of different types of customers by identifying customer groups that have specific needs that are similar among different groups. To achieve this, the companies relate segmentation with changes in processes, practices and technology. However, they often forget the organizational component as a fundamental element for the success of an effective segmentation.
In a segmentation strategy it is useless (or almost useless) to define variables, create offers and modify processes assuming that the organization has the ability to “auto-adjust” and execute the strategy. The organization is the most relevant element where segmentation is concerned, it is what makes it executable, and where the all of the specific weight of the potential benefits derived from implementing this strategy will fall.
DEFINING THE ORGANIZATION
Let’s start by defining what we mean by organization: The group of individuals who interact day to day to achieve the objectives of the company and which make thousands of decisions and a myriad of interactions, thus forming the workplace culture. Thus, an organization is not only the organizational chart, but also roles, functions, profiles, competencies and capabilities that must be designed around the strategy.
CHRONICLE OF A DEATH FORETOLD: WHEN THE STRATEGY AND THE ORGANIZATION ARE NOT ALIGNED
More specifically, in this article we will focus on the problems being experienced in a commercial organization. Customer segmentation strategies, the generation and execution of offers, and the flawless execution of the sales process are key business strategies. However, their success is repeatedly thwarted by the lack of organizational alignment. Below, we will delve into the situations resulting from this misalignment:
1. NOT HAVING A CLEAR IDEA OF THE MAGNITUDE OF THE MARKET POTENTIAL OR WHERE IT IS:
The CEO of an industrial equipment company commented that they spent whole months trying to understand the needs of their customers and based on that, create groups of customers (segments) to serve them differentially. The problem was that when they tried to treat them differencially, they realized the following:
a. The sales force was not configured to meet different customer segments, it was set up to sell products.
b. Greater growth opportunities were identified in some new customer segments, to which they should offer other types of services that were not included in the the sales force priorities because it was not trained for nor had that approach.
c. In areas where income came predominantly from very large customers, there was potential to penetrate a market of clients from a different line of business. Thus, with adjustments to the current offer (product-service) they could obtain greater growth than with the existing customers.
All this as a result of assuming that when launching a new segment strategy the sales force is ready to service them and to identify the market potential under the current configuration, training and management models.
2. PARTIAL SUCCESS OF THE STRATEGY:
Thrilled with the addition of a new product line exclusively for clients in their premium segment, the sales force of a consumer goods company promotes a new strategy of bundling* the new products with the current ones. Sales are positively affected and business managers are
congratulated, before reviewing the quarterly results that showed that they had not reached profitability projections. Further analysis showed
an increase in sales expenses, caused because a single customer was visited by up to 3 different vendors (the one who sells product A, the one who sells B, and the one that brings both). Although there was a benefit in income, lack of alignment prevented this is from becomming a profit.
3. TOTAL FAILURE:
During the launch of an intensive campaign for the activation of points of sale of low socioeconomic status in the modern channel (supermarkets) at the national level, Key Account Executives conduct the negotiations and agree to the deployment plan. Beyond the communication problems in the negotiations and plans for each location, the configuration of supervisors and promoters “clashed” with the plan, they needed to create a consolidating entity for the execution, which was assumed could be replaced with the daily interaction of supervisors and promoters… The result: stores that had not been activated, stores activated twice, furthermore, the stores were not all from the same chain, which leads to upset customers and a failed strategy in every way.
In our experience, these failures can be avoided by including the organization front as a component that supports an integral solution, reflecting the impact or change that involves modifying the process in the organization, based on the following Integral Model:
For a better understanding of the implementation of the Integrated Model, here we will set out a real case applying it to a successful implementation of segmentation strategies.
ALIGNMENT OF THE INTEGRAL MODEL TO CUSTOMER SEGMENTATION – SUCCESS CASE
PROBLEM
Company A, a B2B industry, generated an analysis of its customers, its industry and how to obtain a competitive advantage over its competitors
through better customer service. They found that their current, productoriented, business model lead to redundancies in processes and functions.
Additionally, customers did not perceive that the attention they received from Company A satisfied their needs. By understanding the need to change the focus of the company, the managing committee decided to invite Sintec to carry out a Segmentation Design project.
SOLUTION
The first phase of the project was to understand the different types of customers. With this knowledge, similarities were found between groups in terms of industries, types of products and service requirements. Six client segments were clearly defined, and thus over 30,000 customers existing in the catalog were grouped according to the description of each segment.
APPLYING THE INTEGRAL MODEL – STRATEGY
Having defined in detail the characteristics of each customer segment, we proceeded to define the strategic intent for each. This definition consisted in what Company A was going to offer each of the segments in terms of: Service, Negotiation, Portfolio, Delivery and Development.
The strategic intent was defined in detail, considering the frequency and types of visits to each customer segment, business conditions, focus on
basic and ancillary products, delivery times and conditions, and level of development of personalized customer solutions, focusing on the real needs of each customer segment.
Additionally, it was decided to shift the focus of the sales force from being product oriented to market oriented. The vendors, who catered to clients from different segments and were specialized in selling basic or ancillary products, became specialized advisers, serving customers in a particular segment, supporting the purchase of basic and ancillary products, as well as post-sale services.
APPLYING THE INTEGRAL MODEL – PROCESSES
To ensure the implementation of the new strategy set for each segment, the business processes were redesigned. The proposed processes for the sales force and their supervisors detailed the activities for each salesperson in the different segments, from the research required to attack the market, to price quotes, negotiation, execution of the sale and follow-up.
To support business processes, processes were also designed for support areas. Similarly, the processes for customer technical support, sales support and product specialists were generated.
All of the business and support processes were accompanied by indicators to ensure compliance and monitor performance, and as required by the followup meetings, to ensure communication between areas.
APPLYING THE INTEGRAL MODEL – ORGANIZATION
In order to execute the processes in the best possible manner, a restructuring of organization was needed in both the 49 branches throughout the country and the Staff areas.
Structure:
First, the new roles and responsibilities of each of the functions were identified, making clear who owns the process, what their activities are, and how they should interact with other areas. This facilitated, for example, the process of finding and follow-up of new customers, where a salesperson that found a new customer that was not in his segment, would direct it to the indicated resource; a procedure clearly described at the time that the interactions between the sales force of different segments were stated.
Additionally, the segmented sales force came under coordinators and managers specialized for each type of client, focusing the specific market
knowledge on a small group of people. Thus, each set of salespeople could better develop and utilize its experience and knowledge of the segment to better serve its customers. Coordinators and managers, being exposed to only one industry, could understand the problems and needs of their customers in a more detailed manner, allowing better training of their salespeople.
Processes designed for Staff areas were also assigned to specialists responsible for each segment. By devoting efforts to a specific group of
customers, they were able to support and propose solutions according to specific customer needs, not the general needs of the company.
Based on the strategic intent of each segment, we modeled the optimal number of specialized vendors required per segment and in the more than 49 branches throughout Mexico. Additionally, the Staff area was restructured from the Director level to executives and assistants. Thus, the sales force was supported by a team specialized in generating solutions, promotions,
packages and financing, tailored according to each segment.
Competencies:
The change in activities, roles and functions means that new skills are required. Therefore, plans for technical and market training were defined so that, for example, a salesperson who had never attended a customer from a certain segment would have the knowledge and capabilities to address his needs successfully. Additionally, manuals were created which described the before and after of the processes operated by each job description so there would be no confusion as to how to proceed based on the new processes.
Management:
In order for the segmentation to be executed as designed, the performance indicators of the entire business structure had to be modified to measure objectives based on the strategy in terms of volume, profitability and segmentspecific segmentspecific surveys. In addition, all managerial and financial indicators were designed to be focused on the market, thus measurements were generated such as profitability on the segment-customer level, instead of profitability by product type.
Result
In B2B industries such as Company A, in-depth knowledge of the operation is a critical factor in the purchasing decisions. Consequently, the combination of these differentiating components – deep knowledge of customers and company-wide focus on the market – was critical to keeping current customers and attracting new ones. The new organizational structure allowed the proper execution of the segmented processes that led
Company A to strengthen its leadership position with a level of service never before seen in the industry.
THE LESSON OF THE DAY:
The benefits brought about by implementing a segmentation strategy are obtained when the organization is aligned, configuring organization charts, roles, functions, competencies and indicators based on segmentation. In these days of intense competition in constant growth, customer segmentation is necessary for a business to ensure adequate service to the different markets.
However, it is clear that an analytical and theoretical exercise is not enough, the correct alignment of the organization is needed through:
- The adaptation of organizational charts, roles and functions.
- The formation of the appropriate skills in people.
- The definition and implementation of appropriate management mechanisms such as indicators, incentives and monitoring mechanisms.
Horacio Gómez, Sintec
horacio.gomez@sicweb.wpengine.com
About Sintec
Sintec is the leading consulting firm focused on generating profitable growth and developing competitive advantages through the design and execution of holistic and innovative Customer and Operations Strategies. Sintec provides a thorough and unique methodology for the development of organizational competencies, based on three key elements: Organization, Processes and IT. Furthermore, Sintec has successfully carried out more than 300 projects on Commercial Strategies, Operations and IT issues with more than 100 companies in 14 countries throughout Latin America. Our track record of more than 25 years makes Sintec the most experienced consulting firm in this area of expertise in the region.
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