The Power of Categorising Customers

Dave Abraham writes ....

Every customer and prospect is important, and should be treated appropriately. However, that doesn't mean that everyone should be treated equally - appropriate categorisation helps both you, your organisation, and the customer.

People often focus on segmenting their marketing database by industry sector - which is a good idea, but only if you've done the following categorisation first. It may seem simple and obvious, but if you haven't already done this, if you're going to do 1 thing this week, consider this:

Categorise all your contacts - customer or prospect?

• Are they a current existing customer? (i.e. they've spent money with you, probably in the last 12 months)
• Are they an ex-customer? (i.e. they've spent money with you in the past, but not recently)
• Are they a prospect? (i.e. they haven't spent any money with you let)

For example, research typically shows that it takes 5 times as much effort to win a new customer, than to get an order for the same value from a current or previous customer. Similar research shows that the majority (most research suggests between 60% and 70% of all lost customers) of customers that cease buying from a supplier, switch to a new supplier because of perceived indifference from their current supplier.

Current and ex-customers will typically need very different sales or marketing messages, or support if they call your helpline, than prospects. Existing customers already have experience of you, and have demonstrated a willingness to spend money on your products/services. You need to treat them like an insider, thanking them, reminding them why you are better than any alternatives (because otherwise they may take you for granted), and giving them insights. They have spent money with you, so they're not expecting everything for free. And they will likely trust you to tell you more about their actual needs and challenges, in order to make sure that their needs are met. There is a level of trust that you should build over time - it is in yours and the customers interests, and you're starting from a position where you have already traded with each other.

Prospects, in contrast, need something very different. They haven't yet spent any money with you, and they don't know how good or not you are. They may already have an existing supplier, and whilst they may have issues with their existing supplier, they also know what works and what doesn't, and sometimes it is "better the devil you know". It is often a risk to change, even if things are not perfect as they are at the moment - whether changing from "an old way of doing things", or from an existing supplier. So with prospects, they need quite a different kind of convincing to make their first purchase from you, and therefore they will have very different questions, and need quite different answers and information. They need to be convinced to make the first purchase, because the "do nothing" option is usually the easiest option for the prospect.

So make sure that you don't send the same e-mailshots to your existing customers as to your prospects. Nurture your existing customers with messages of interest and appropriate to them, to engage them more and build a deeper relationship.

And nurture your prospects to build trust and your credibility as the go to people that are a safe way of achieving their objectives.

Should you nurture with automated marketing, or with a phone call or visit by a sales person or other person from your team? Read on to look at categorisation by importance

Also, remember that the type of person that is successful in selling to or engaging with an existing customer is often very different from the person that is great at engaging with a prospect. It is worth considering having dedicated Account Managers for your existing customers (especially your key customers), who will give continuity and build deep, strong, trusting relationships with your customers. It is quite a different type of person with different personality traits and skill set that is successful at new business sales (often referred to as "hunters" as compared to "farmers" who are good at account management). So not all sales people are the same, so play them to their strengths, to match your customer types.

• Categorising Customers
• The Power of Focus
• Trailing 12 month graphs

Categorise by level of impact on your business

Once you've split your customers into the 3 types - existing customer, ex-customer, or prospect, the following is very simple, but surprisingly effective.

Many SME's find that 70%-80% of their revenues come from 20%-30% of their customers. Whether this applies to you or not, it's worth knowing whether it does or not, and who your "key" customers are.

I suggest that you categorise you produce a list of your customers, ranked by their revenue to you:

• Category A - those customers that make up the top 80% of your revenue
• Category B - those customers that make up the next 10% of your revenue
• Category C - those customers that make up the final 10% of your revenue

Equally, you may well find that that your Category C customers find your service useful, but do not want you to be over-attentive. Make sure that the sales and service is appropriate. Don't over-service them, they should still get a good service, but you should automate your sales and support wherever appropriate. And it's worthwhile to automate because you've got lots of these customers. These customers will probably appreciate the efficiency, as they may have many more important things to get on with, as long as you keep doing a good job for them efficiently. The one thing to note is that some of your Cat C customers may have potential to be a Cat A customer. In these cases, and only these cases, you should flag these as "Cat C, potential Cat A", and for a focused period of time you should put a co-ordinated focused effort into them to see whether they have potential to become a Category A customer. If after a few months, and a good sales process they are still at Cat C, then you'll know that that is the level at which they should be managed.

Ideally, each person in your team should recognise the name each of your Category A customers, so that when you get an e-mail, phone call, or meet at a conference, etc, you know they are a Cat A customer. You will almost certainly know your top 10 customers by name, but by once you get above 20-30 Cat A customers, you are less likely to know all of them off the top of your head. And above 100 it will be very had to know. It will also be very hard for every customer facing person in your team to know, which can tend to lead to treating all customers the same - which results in not making key customers feel special enough, and over-servicing small customers. So a system can help put this information at their fingertips. It needs nothing more than "Existing Cat A customer" or "Existing Cat C customer" to guide the person to do a good job for all customers, and still to be able to know to go the extra mile for a Cat A customer.

How to apply Categories to your prospects?
As an SME, there are probably many organisations out in the market that are not your customers. However assuming that you want to win new customers, you will have a pipeline of prospects.

You have more opportunities than you have time to properly sell to. Or you may be wanting to generate more opportunities. Given whan we've discussed so far, you can see that it will most efficient to spend time aiming to win customers that will become Category A customers. The main time when this doesn't apply is if you have automated everything necessary to sell to and service Category C customers, so that you can grow by significantly expanding your Cat C customer base.

So I suggest that every prospect/new business opportunity that you work on, that you categorise a to be a "Potential Cat A", Cat B, or Cat C.

To do this, you need to know just 2 numbers. Go back to the categorised list of customers, and make a note of how much revenue the bottom Cat A customer paid you in the last year, and how much the bottom Cat B customer paid you. The lowest amount that a Cat A customer paid you is a key number. Make sure that for every prospective customer, you categorise whether the opportunity with them is above that number. If it is, then it's a Category A prospect, otherwise it's either a Cat B or Cat C prospect as appropriate.

By now it will be obvious to you - make sure that you, and everyone in your team, knows to go the extra mile for all the Cat A prospects. This will give you the best chance of winning them, and should also reflect how you're going to treat that customer once they have bought from you.

This includes in your marketing - you may even decide to send market messages to your key customers less than other prospects, so long as there is a correponding increased contact by the sales team to give these prospects more effort.

And your customer services/support team - if they know within moments of getting a call/e-mail that it's from a Cat A prospect, then they can subtly put the extra effort in, which may not be justified for a smaller prospect.

With these very simple characterisations you can ensure that you deliver good service to every one of your customers, but that you focus your team's resources to ensure that your best customers get the personalised service that you would expect in their shoes.