Contrasting customer segmentation and customer tiering

Many sales leaders describe their customer segmentation strategy by discussing how larger customers get more resources.  While this is a viable approach, it’s more akin to customer tiering as opposed to segmentation.  Segmentation and tiering have commonalities but should be seen as distinct strategies.

Customer segmentation

Segmentation is the process of creating homogeneous customer groupings.  This allows sales leaders to customize sales strategies and deploy specific resources to improve customer outcomes.  It is particularly important when customers are varied or sellers require specialization — e.g., knowledge of regulations, familiarity with market dynamics, technical aptitude, etc.  The most common customer segments are by vertical, product, geography or customer-type.

Customer tiering

Tiering is the process of leveling service and support. The goal is to ensure profitable sales growth by allocating the appropriate investment into each customer relationship. It is essentially a prioritization strategy.  It ensures a sales organization does not over- or under-invest in specific relationships.  Over-investing drives up the cost of sales, while under-investing puts sales growth at risk.

Customer tiers — e.g., inside, field, named or strategic — dictate the level and nature of sales interactions.  Inside customers receive a relatively low-level of touch with minimal personalization.  This structure is very cost-effective but can limit growth.  Strategic customers receive a high-level of touch and personalization.  Plus, the sales organization dedicates one or more sellers to the customer.  This is the ultimate, white-glove treatment.  However, it is also the most expensive approach.

Segmentation and tiering are important and should be used together

The most effective sales leaders take this approach to improve seller coverage modeling and ensure profitable sales growth.  Moreover, this is a continual process that needs validation and inspection as strategies or priorities change.  As an example, when a sales organization is rapidly growing, it’s natural to see customers continually ratchet up to the next service tier.  If a sales organization is anticipating a downturn, the sales leader can use customer tiering to reduce the cost of sales and improve efficiency.

Developing an effective tiered customer segment is challenging.  To be most effective, sales leaders should take a balanced approach.  Decisions should be influenced by paired drivers — top-line sales growth v. bottom-line profitability, effectiveness v. efficiency, etc.  The ultimate balance is in pushing for sales growth while managing the cost of sales.

While these aren’t easy decisions, sales leaders must be mindful of both the balance and trade-offs.