Our current customer segmentation frameworks are similar to what may be called stereotyping of people. If it is not a good idea to do so in social settings, then it should not be so in business either
Unless you are in business under a rock, you should recognise the need for customer-centricity. It is the idea that you need to serve customers to make money in business. But, you say, there are thousands of books and articles written about the topic: What is the need to revisit it?
BY NICK VAIDYA
Like the common Indian folklore of ten blind men and an elephant, customer-centricity too is a proverbial elephant, in this instance. It is a word riddled with misunderstandings, half-truths and misperceptions. It means different things to different people. To some, it means keeping customers happy, while to others, it means to have a business focus. If you were to conduct a survey, I am quite sure you will come up with a litany of different answers, most of them at least partially correct, just as the elephant as defined by blind men—a wall, rope, pillar, and so on.
It is essential to understand it correctly, however. As business leaders, our actions are influenced by our understanding of ‘The Customer’ and that impacts the business outcomes.
Who our customers are depends upon what we do as a business and vice versa. Both collectively depend upon what is happening in the marketplace, which is continuously evolving. As such, it behoves us to always be assessing what we do and whom we define as our customer. Yet, the very definition is misleading. We tend to think of ‘customer’ as a monolith, when, in fact, “customer” is a heterogeneous group of people who buy or are likely to buy from us. This monolith mindset is dangerous.
That is why we have segments, you’d say. But, no matter how many “segments” we create, unfortunately, we will tend to define them using commonly available parlance and attributes. So, maybe we end up with multiple monoliths. That does not solve the problem, though. Even if customers look the same on the surface, they are not all the same. Unfortunately, our current segmentation frameworks are similar to what may be called stereotyping of people. If it is not a good idea to do so in social settings, then it should not be so in business either. The customer archetypes, as defined by such an approach, can often look unreal when we must recognise that customers are real people.
The best way to look at customers is by the value they bring. Why can we not look at customers as an investment portfolio instead, defined simply by their value? We may be able to identify their common traits, or we may fail to do so. That in itself should not make a difference. What is important is that we need a portfolio of customers to hedge ourselves against risk and prepare for growth in the VUCA (volatility, uncertainty, complexity and ambiguity) world that we live in, as I have written before. Segmentation as a framework is beneficial indeed, but just because we have hammers and screwdrivers does not mean everything has to be nails and screws. Great investments are great investments. That we define and understand them should be an after the fact.
In a recent conversation with Peter Fader and Sarah Toms, Professors at the Wharton School of Business, we talked about the central thesis of their work “The Customer Centricity Playbook”. It is a simple yet powerful idea: Segmentation based on customer lifetime value, rather than known attributes. It can be hard to do, no doubt. But that should not be a deterrent.
In one engagement with a Fortune 500 client, we created a customer segmentation framework using CLV (customer lifetime value). As expected, it was hard to define them. Instead of abandoning the idea, we decided to use qualitative research to develop an understanding of these groups and monitored them long term as a portfolio. It was valuable to track the movement of the group over time and focus resources accordingly. I wish I had access to this playbook at that time in the past because it is a delight to have such a robust set of tools and methodologies in giving shape to the marketing strategy of companies.
Often, companies form easily identifiable segments and measure their comparative value. That does not mean that all the biggest spenders are in the highest value segment. It’s like putting the horse before the cart, only because it may be easier to do so. A lot of value gets left on the table that way. Wouldn’t you instead find out who are the most spending customers now and in the future? Fader’s and Tom’s book helps you move in that direction. It is a little book with tremendous value, with some memorable example of how culture change can be achieved to make organisations genuinely customer-centric.
NICK VAIDYA is an Executive Search, Culture, & Strategy Advisor, Speaker, & CEO Coach at Allen Austin. This article first appeared in ForbesIndia. Photo by Leo Foureaux on Unsplash.
