1:00 AM 11th November 2023
Managing Risk In A B2B Company Should Include Customer Segmentation
Image by Gerd Altmann from Pixabay
Business-to-business, or B2B, refers to commerce between two businesses rather than between a business and an individual consumer.
According to PwC, on average, it costs six times more to acquire a new customer than to get further business from an existing customer. That’s why customer retention is important to any business.
Your ’best’ and most profitable customers are your most valuable asset and deserve to be nurtured. Your mid-profitable and lower-level profitable accounts are the potential best customers of the future. However, a fact of business life is that you should focus your attention on your most profitable customers. Relationship management is a significant cost to your business and should be segmented to get the best returns.
Customer segmentation is an effective way to identify and manage risks associated with different customer segments.
Image by helpsg from Pixabay
Factors to determine customer attractiveness include growth, stability, strategic fit, prompt payers, ease of doing business, customers who see value in a broad product offering, opportunity for cross-selling, and status/reference value. Some accounts will have strategic value to the company overall or may be a key account in the market that gives credibility and access to a wider customer population.
There are a number of criteria that can be applied, but the key measures are profitability and scale. Large accounts that have low profitability may provide volume that drives buying power and economies of scale that add to the overall profitability of the customer base. Small accounts may be profitable at a basic level but consume disproportionate amounts of management and administration time.
Segmenting accounts into three categories and delivering the appropriate level of service is the most efficient way of managing customer relationship management.
‘A’ customers are high-profitability accounts with high customer attractiveness and a need to be looked after well. ‘A’ customers need ‘relationship management.’
Image by helpsg from Pixabay
‘B’ customers have medium profitability and attractiveness and need to be nurtured, but not at the expense of ‘A’ customers. ‘B’ customers should receive ‘account management.’
‘C’ customers are your least profitable accounts, and sometimes the cost of managing them wipes out any net profit. ‘C’ customers receive ‘responsive management.’
If you provide the same level of service to ‘A’ customers as you do to ‘B’ or ‘C’ customers, you run the danger of retention risk from under-delivering for ‘A’ customers and the expense risk from over-delivering on ‘B’ and ‘C’ customers.
‘B’ and ‘C’ customers and the strategically valuable ‘A’ customer have entirely different needs, expectations, and priorities. As a result, it is paramount to invest time, effort, and attention into growing and retaining ‘A’ customers.
Image by Pete Linforth from Pixabay
These ‘A’ customers are looking for someone to partner with their business and know their business intimately. They want a strategic partner that adds value to their business. This is a close relationship where the customers almost feel the relationship manager is one of their team and consider them to be adding real value to their business.
‘B’ customers should receive account management from a professional who oversees the transactional relationship between the company and customer. Account managers might have several clients whom they meet regularly to discuss the needs of their company, invoice issues, and responding to customer queries. Account managers also suggest products for their clients to purchase and ensure they renew contracts and increase sales.
‘C’ customers receive responsive management. This isn’t a named individual, but support from a team in a call centre or online. The customers have someone to turn to but shouldn’t expect visits or individual support.
Giving the right support to the right customer is sound business practice.
Ian Garner is a retired Fellow of the Chartered Management Institute (FCMI) and a Fellow of the Institute of Directors (FIoD).
Ian is a board member of Maggie’s Yorkshire. Maggie’s provides emotional and practical cancer support and information in centres across the UK and online, with their centre in Leeds based at St James’s Hospital.
He is the founder and director of Practical Solutions Management, a strategic consulting practice, and is skilled in developing strategy and providing strategic direction, specialising in business growth and leadership.