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Revisiting Customer Segmentation and Tiering

by Dave Egloff  |  July 7, 2020  |  Submit a Comment

Back in March 2019, I wrote a blog called Contrasting customer segmentation and customer tiering and said that “if a sales organization is anticipating a downturn, the sales leader can use customer tiering to reduce the cost of sales and improve efficiency.”  Since then, we certainly have faced some financial pressures and uncertainty.  In fact, reducing costs and improving efficiency are key strategies as this pandemic continues to impact B2B sales.

Please enjoy revisiting this content.  I suspect as many organizations begin planning, these topics will be even more important than last year.

*** Edited republish of the March 2019 blog ***

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

  • Customer segmentation is the process of creating homogeneous customer groupings so sales leaders can customize sales execution and better deploy sales resources. Segmentation 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 is the process of leveling service and support, so the appropriate investment is made into each customer to ensure profitable sales growth. It is essentially a prioritization strategy.  Tiering 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.

Tiers — e.g., inside, field, named or strategic — dictate the level and nature of sales interactions.  Inside sellers tend to deliver relatively low-level of touch with minimal personalization.  This structure is very cost-effective but may limit growth.  Strategic account sellers deliver a high-level of touch and personalization – i.e., “white-glove treatment.”  However, it is also the most expensive approach.

Clearly, both segmentation and tiering are important in improving coverage models and ensuring profitable sales growth.  Moreover, this is a continual process that needs validation and inspection as strategies or priorities change.  Admittedly, properly tiering customers is challenging.  To be most effective, sales leaders should balance pushing for sales growth with managing the cost of sales.

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Category: sales-operations  sales-strategy-and-design  sales-strategy-and-operations  

Dave Egloff
Senior Director
1 years at Gartner
20 years IT Industry

Dave Egloff is a Senior Director, Analyst in the Gartner for Sales Leaders practice. His current work focuses on key initiatives in sales strategy, sales operations and sales compensation. Read Full Bio

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