Client segmentation is something that everyone has been told to do and in recent years many firms have had a go at it (often reluctantly).
Here are some reasons firms do it, which in my view entirely miss the point:
- Their compliance person told them the regulator said they had to do it
- Other advisers had created ‘A’, ‘B’ and ‘C’ services so they thought they should too (but they are still not sure why)
- To create a method for upselling more clients to a higher level service (like Coke do when you go to the movies – apparently everyone buys the middle sized Coke)
- To do less review meetings for smaller clients and more frequent review meetings for larger clients. They believe this differentiates their service when it actually does nothing of the sort.
- To provide a low touch or no touch service to their thousands of bottom end clients who don’t even justify an annual review meeting.
These reasons miss the point entirely because they are not concerned with the following three issues:
- Understanding the clients needs more deeply
- Improving quality of service for the client
- Increasing business pricing power and profitability as a resuls
What is the point of segmenting your clients?
It is about identifying who you really work with and this is often much more targeted than you think. Businesses often look at the exception rather than the rule when asked who they work with. Just because you get a few exceptions each year doesn’t mean you work with anyone. Look at the bulk of your current clients to find your current target markets; you might be surprised to find you already have a niche or two.
Once you know who you work with you can spend time understanding their needs better, so you can offer a service that is totally focused on them (not some generic stereotype).
If you have designed a service offering that really addresses the needs of your targets you can become the killer provider to those target segments in your area.
This leads to a direct improvement in your pricing power and also to increased referral rates because you are the go to player.
As you narrow the field of clients you work with a funny thing happens; your back office processes become more streamlined and consistent. Your back office team become skilled in dealing with the issues your target market faces, which improves service outcomes for clients.
If you put all of these things together you see a direct improvement in business profitability. It really is that simple.
If your bottom line hasn’t improved as a result of your client segmentation efforts then you have probably done it incorrectly and it needs some work.
If you would like to address some of these issues click here to look at the free webinar I did for Bright Talk on Monday 8th April. You can still log in and catch it here if you want to know how to fix your segmentation issues and improve your businesses bottom line performance.
Here is the video