June, 2005 Confidential

Best Practices in Developing Actionable Customer Segmentation

June, 2005

For further information contact: Scott Wilkerson Partner 301 941-1824 scott.wilkerson@hawkpartners.com

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Presentation Objective: Provide Guidance on How To Make Segmentation Actionable In A Multi-Channel Context

Segmentation provides clear benefits by enabling more efficient and effective use of sales and marketing resources. However, HawkPartners experience with Fortune 500 clients suggests that three out of four customer segmentations are never implemented. In todays complex B2B business environment, segmentation must be able to address the needs of multiple sales and marketing channels.

We have done a ton of segmentations in the past, but we can never seem to agree as an organization what the overall framework should be. As a result we never seem to get very far down the path of operationalizing our approach. Director of Market Research, Fortune 100 Global IT Provider

June, 2005

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The Current Business Environment Is Driving the Need for More Efficient Use of Sales and Marketing Resources
Customer segmentation enables improvements in effectiveness and efficiency Key Benefits of Segmentation

9 Improved effectiveness and efficiency of marketing

communications through better targeting

9 Enhanced customer coverage through better understanding

of customer preferences

9 More efficient use of scarce sales and marketing resources 9 More effective product launch and development

June, 2005

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However, the Majority of Customer Segmentations Ultimately Fail

Most Often Cited Reasons Why Segmentations Fail 1. Sales and marketing cant agree on the objectives, approach and scope 2. As a result, the resulting segmentation is not considered actionable 3. and therefore is never operationalized

June, 2005

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Key Challenge #1: Sales and Marketing Typically Have Different Segmentation Objectives and Approaches
Marketing Segmentation Typical Objective Enable more efficient targeting for messaging and other promotional activities Psychographic/Needs Based Attitudes about technology Purchase behavior Customer needs Market opportunity Demographics/Firmographics Multivariate analysis Multi-dimensional Sales Segmentation More efficiently deploy territorybased field sales reps and improve coverage Firmographic/Geographic Account tier/type Company location Total sales Customer value Number of employees Cross-tabular analysis 2-3 dimensions

Key Defining Variables

Level of Analysis

June, 2005

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Marketing Segmentation Provides Messaging Guidance

Illustrative Marketing Segmentation IT Industry
Share of Market Segment/Key Opportunity Characteristics Tech Savvy Innovators 41% Require leading-edge technology Corporate culture of innovation IT Cost Cutters 36% Need to cut data center costs Very price sensitive Focused on integration Technophobes Do not understand complex technology issues IT is not a core component of business Network Intensive High number of remote offices Heavily networked 14% Messaging Focus Provide cutting-edge technology and solutions

Offer best value for the money

Provide superior technical support and IT outsourcing

9%

Enable superior network quality, reliability and reach

Key benefits: Identifies segments with unique needs and target them with unique messages Key drawbacks: Typically are not able to find segments in internal (sales) databases

June, 2005

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Sales Segmentation Typically Provides Coverage Guidance

Illustrative Sales Segmentation-- IT Industry (Primary Coverage Channels In Shaded Blue Area)
Account Type Share of Current Revenue 39% Channel Preference Face-To-Face Only Field sales Wiling To Use Tele And Web Channel Field sales TeleWeb Dedicated Extranets Field sales TeleWeb

Global Multinationals (>15,000 employees)

Large Enterprises (>1,000 employees)

32%

Field sales Business partners

Mid Market (100-999 employees)

22%

Business partners

TeleWeb

Small/SOHO (<100 employees)

7%

TeleWeb

TeleWeb

Key benefits: Able to find unique segments and cover them with discreet sales resources Key drawbacks: Segments may not have unique needs, behaviors or requirements
June, 2005 Page 7

Key Challenge #2 & 3: Most Segmentations Are Not Considered Actionable and Are Never Operationalized
Key Reasons Why Segmentation Not Actionable Segments defined by attitudinal or needs-based variables Existing customers can not be accurately categorized in a segment Resulting segments do not align with pre-defined customer groups or account tiers Key Reasons Why Segmentation Not Successfully Implemented Lack of cross functional support Lack of applicability across brands/business units and geographies Time, resources, and leadership requirements are vastly underestimated Lack of sufficient communication, education and training

Last year we spent a large sum on a very sophisticated, state-of-the-art segmentation. The binder has moved from my bookshelf to a drawer, but the segmentation hasnt gone anywhere in the organization. VP Marketing, Fortune 100 Telecom Company

June, 2005

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Unlocking the Keys to Successful Segmentation Requires Superior Strategy, Design and Execution
Keys To Success 9 Include the needs of sales and marketing 9 Include segmentation as an integral part of broader Go-to-Market strategy 9 Fully align on objectives and scope before data collection 9 Gain stakeholder buy-in before final roll out 9 Use data from multiple sources 9 Choose actionable and predictive variables 9 Include customers and prospects 9 Evaluate multiple analytic techniques 9 Ensure that output maps to internally recognized groups 9 Get comfortable with multiple segmentations! 9 Use targeting models to score databases 9 Use pilots to rapidly demonstrate success 9 Use segmentation to drive Field, Tele and Web campaigns 9 Measure and monitor success

Gaining Organizational Buy-In

Superior Research Design, Analysis and Execution

Successful Implementation

June, 2005

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The Segmentation Approach Must Enable the Broader Go-ToMarket Strategy

Key GTM Strategy Components
1 Quantify Market Opportunity 2 Develop Coverage & Market Maps 3 Develop Resource Allocation Plan 4 Measure Performance Results

Relevant Questions to Be Addressed by Customer Segmentation

What products and services best meet the needs specific customer segments? How does our value proposition and competitive position vary by segment? What is our current revenue, market opportunity, and share by segment? How does customer buying behavior differ by segment? Which channels should be used to cover which customer segments? Which offerings are customer segments most receptive to? Which marketing messages will resonate most strongly with key segments? Which sales and marketing resources should be aligned with which segments? What are customer coverage needs? Which marketing tactics/vehicles should be deployed against which segments? What is the incremental value to the company of each customer segment? What are the potential opportunities for improving coverage of target segments? How can we gain share-of-wallet within target segments?

June, 2005

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Segmentation Should Utilize Customer Data from Both Survey Research and Internal Data Sources
Potential Data Sources and Segmentation Variables
Customer Survey Research IT spend by category (current and future) Breakout of spend by competitor Buying behavior & channel preferences Web Data Registration information (demographics, firmographics) Site / content preferences e-Commerce sales and transactional data Online customer survey data (interests, needs, satisfaction, etc.) Call Center Data Frequency / type of interaction with Telesales reps Tele service usage/history Decision-making criteria Product/brand affinity CRM/Internal Databases Current revenue by product/service category Demographic / firmographic data (company size, revenue, location, # subsidiaries, etc.) Frequency / type of interaction with sales force

360o View Customer Segmentation

Financial Modeling Data Account profitability Customer lifetime value Cost-to-serve economics

June, 2005

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Evaluate Multiple Analytic Techniques Choose the One Most Appropriate for Objectives and Scope
Applicability of Most Commonly Used Analytic Techniques
Least complex Most complex

Business Requirements Ability to find segments in predefined databases Ability to segment on multiple dimensions

Simple Cross Tabulation

Factor/Cluster Analysis

CART Models

Latent Class Models

Ability to incorporate continuous and categorical variables Ability to develop target algorithm directly from segmentation

Most Applicable

Least Applicable

June, 2005

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The Segmentation Approach Should Enable Mapping of Sales and Marketing Segments
The resulting solution should enable segmentation based on customer value, market opportunity, messaging and coverage needs
Case Example: Sales and Marketing Segmentation Map, Share of Market Opportunity
Sales Segments Global Enterprise Accounts Requires FTF Coverage 12% Uses alternate channels 4% Mid Market Requires FTF Coverage 4% Uses alternate channels 9% Small Business/SOHO Requires FTF Coverage 2% Uses alternate channels 9%

Marketing Segments Tech Savvy Innovators

Target Segment

IT Cost Cutters

4%

4%

1%

5%

1%

7%

Technophobes

3%

1%

5%

3%

1%

5%

Network Intensive

9%

2%

0%

0%

0%

1%

June, 2005

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Unique Coverage and Messaging Tactics and Resources Should be Applied to Each Segment

Marketing Guidance (what messages to promote)

Global Enterprise Accounts Requires FTF Coverage Self Integrator Mid Market Requires FTF Coverage Self Integrator Small Business/SOHO Requires FTF Coverage Self Integrator

Focus on value for the money Target with low cost offerings Offer online promotions/rebates Sales Guidance (through which sales channels) Cover with low cost TeleWeb channel Enable online configuration Provide web-based technical service

Tech Savvy Innovators

12%

4%

4%

9%

2%

9%

IT Cost Cutters

4%

4%

1%

5%

1%

7%

Technophobes

3%

1%

5%

3%

1%

5%

Network Intensive

9%

2%

0%

0%

0%

1%

June, 2005

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Customer Segmentation Can Result in Significant Improvements in Sales & Marketing ROI
Segmentation Enables More Effective & Efficient Movement Along the Sales & Marketing Funnel Awareness
Marketing

As a Result Of:

Improved response rates

Interest Need

Improved attendance rates

Improved lead yield rates

Lead
Improved lead qualification Sales

Propose Close

Improved win ratios

$
June, 2005

Enhanced ROI

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HawkPartners Approach to Market Segmentation

Phase I: Develop Strategy & Gain Buy-in

Phase II: Research Design & Execution

Phase III: Implementation & Measurement

9 Assemble a crossfunctional team (Sales, Marketing, Finance, Market Research) 9 Review/refine GTM strategy objectives 9 Align on segmentation objectives and approach 9 Gain stakeholder buy-in

9 Develop research design, methodology, and sample plan 9 Evaluate internal data availability 9 Develop market research questionnaire(s) 9 Execute primary market research (CATI, online, or mail surveys) 9 Conduct data analysis & modeling 9 Identify and prioritize segments 9 Develop targeting models

9 Populate segments with internal and/or market data 9 Educate organization on segmentation frameworks and benefits 9 Train users on segmentation applications 9 Select and roll out pilot programs 9 Monitor progress and track results 9 Modify programs based on pilot results 9 Phase in programs to additional geos and BUs

June, 2005

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Sales & Marketing Managers Should Consider Five Questions to Assess Their Current Segmentation
Key Questions

1. 2. 3. 4. 5.

Have you achieved sufficient buy-in for your segmentation across functions, geographies and business units? Is your segmentation approach tied to your broader Go-to-Market strategy? Are you fully utilizing multiple sources of customer data including external market research and internal data to develop your segmentation? Is your segmentation embedded in your sales & marketing tools, processes and technology? Are you able to measure segmentation results that drive top- and bottom-line performance improvement?

June, 2005

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