I interviewed Sanjay Desai who discussed Customer Segmentation.
It's great to speaking with you today again Sanjay for our next interview this topic today is Customer Segmentation. Before we start can you provide a brief background of yourself?
I am Sanjay Desai, a focused supply chain professional who started the journey with UniLever in Mumbai as Warehouse Blue Collar Worker during 1983. Over last 34 years, worked my way up in diverse organisations/ multiple geographies and handled end to end functions in Supply chain. Worked for some of the best Fortune 500 MNC;s like UniLever, AVENTIS, Exxon-Mobil, Apple Computers, Dell Global, SH Johnson, Thermo Fisher Scientific and finally HUNTSMAN as Director Supply chain GrAPAC. I left Huntsman in Dec 2016 and embarked next phase of my career as a Free Lance SCM professional. Very happy and honored to talk to you today Dustin, thanks a lot.
Whats is Customer segmentation?
Customer Segmentation (as the name suggests) is a process of subdividing the Customers or market/s into specific Category of groups, so these groups can be serviced deferentially creating appropriate value to the customer at the same time investing right amount of resources. A company can use Customer Segmentation as the principal guideline for allocating their resources like product development, marketing support, service programs and delivery efficiency.
How does it work / what are the elements to address in this process?
This is not easy or simple as it sounds. It requires a lot of change management. The first step is to seek alignment with highest leadership within the organisation before we start climbing this platform. It requires a uniform stakeholder buy-in globally since this will have substantial impacts to downstream execution operation and Customer behaviors in future. It requires a detailed step by step collaborative project planning by cross functional groups like Product Mgmt, Supply Chain, Sales and IT.
In a very broad sense…
We need to divide the Customers markets into measurable Segments based on a few agreed parameters like Revenue realized, Profit Margin, Cost to serve, Global importance to the customer/s as well as Long term relationship with the customer/s.
Determine the potential of each customer / segment by analyzing these parameters with the costs and effort associated serving those segments. Plot and record this data as we will take key decision based on these factual findings.
Based on what data tells us, we need to design an IT enabled solution so we have ability to execute day to day operations at Customer or order level as required.
Why is segmentation necessary? Can we not treat all customers on one standard service?
I suppose most industries (excepting a few great MNC’s) could be doing that today which means we are over providing a service level to a set of customers and under providing a service to a deserving set of customers which means, we are doing an injustice to another segment which is more deserving.
Imagine a Mil $ Key Customer account is treated in the same vein as a customer who buys a couple of 100’s of $ each year. Isn’t is unfair to the Key Account? Yes it is.
This process is a great tool to identify Customers who are Key Global accounts, Customers who are loyal to us over many years (relationship) customers who buy Millions of $ and then there are customers who buy very little in $ terms as well as customers who buy from us only once or twice a year. As an enterprise, we need to differentiate and serve the customers based on their relative value and importance to our organisation as well as adding value to Customers so they continue to buy from us over a sustained period.
A segmented approach provides that execution platform to the Organisation.Customer Segmentation is most effective when a company tailors their product/ services offerings to Customers which have a relative high value to the organisation.
Benefits of Segmentation: ROI to Enterprise.
Yes Dustin, there are benefits which are quantifiable / measurable.
The biggest advantage is our Customer facing front end (Sales and Marketing) is synchronized with back end (Supply chain / Operations) in terms of Promise made to Customer is matched by fulfillment performance.
Delivery performance and fulfillment costs are optimized to the relative value that we get from our target Customers
Segmented approach helps Organisation to push those “One Timer” Customers to change their behavior and forces them to form tactical partnerships which results in higher revenue potential for Organisation
Segmentation ensures that “Expedited and Rush” orders are properly channelized thru an ‘approval” mechanism which results in overall reduction in the “stress” and “noise” in delivery performance. More often Expedited and Rush order create stress and noise in operations.
It helps to develop a focused sales organisation effort at more profitable customer segment and ultimately increase customer satisfaction and revenue potential in a controlled manner.
Would this approach hold true in next 5 years of eCommerce / Technological disruption?
Great question. It will actually help Organisations to balance their Working Capital costs v/s Customer Service bench marking the relative value of Customer segment to the Organisation. Note that eCommerce or technology is an enabler of business. The backend principles of balancing Working Capital, optimizing Physical delivery costs will always be there, regardless of the medium that we use to conduct business.
Asia being the epicentre of growth in the next couple of decades, the last mile delivery performance will take lot of prominence. And with many companies competing for market share of the limited Pie (in Asia), what will separate Organisations from each other is their end to end value chain performance (not just supply chain performance) NOW is the right time that we should think of our Customers like our employees. All Organisations have a yearly performance review system for employees, where-by Merit / Bonus adjustments are determined in a differentiated manner based on employee performance ratings. When we segment our own employees based on their performance for pay, why not Customers. Our employees are relatively more critical to organisation with their value…Ultimately it is the employees who build processes, strategies which draw customers to buy from us and not other way round. It is high time we start segmenting our customers now and service them accordingly.
Thanks Dustin…Was a great call today..
About Sanjay Desai
Strategic SCM Transformation, Manufacturing Planning, Inventory Mgmt, Network optimization, Service Segmentation & P&L