ECS NOTE: To learn more about Customer Stratification, the focus of this article, be sure to sign up for ECS’s upcoming webinar which will take place on September 10th!
I have had the good fortune and privilege of spending twenty-plus years leading small, medium, and large teams with growth and profitability responsibility. Every year except for one (2008-09, AKA the “great recession”) my teams have been able to deliver double-digit growth on the top line, bottom line and have achieved customer retention scores ranging from 96% – 98%.
From time to time, colleagues ask, “How do your teams keep producing double-digit growth?” My answer: “customer stratification”. Some are surprised by my reply, as stratification in the past has been widely considered a manufacturing and distribution tool. However, I find it to be not only applicable, but highly effective for all industries and sectors.
My teams, mostly in the service sector, were at first skeptical when I introduced the concept and idea. However, with good training and persistence, they began to see the immediate value in a stratification exercise.
I always kick-off customer stratification training with this analogy. When you are virtually introduced to any individual, where is the first place you want to visit to learn more? The answer is, most commonly, “LinkedIn”. If you are like me, you want to see their picture, if you share any common connections, past companies and roles they have been a part of over the years, where they went to school, and so on.
This same concept of doing background research applies to your customers.
I would suggest before contacting a valued customer to check-in, review their customer stratification score. Stratification scores are determined by customer behavior meeting the criteria or thresholds established for each driver. The culmination of the score will dictate what bucket your customers will fall into: Opportunistic, Core, Marginal, and Service Drain Customers.
The output of this exercise, Customer Stratification, quickly provides many valuable insights, such as customer grading, buying patterns, year-over-year spend, margins, accounts receivable, voice of customer score, and an endless number of drivers that can be tracked and incrementally improved upon.
Whether it is a CEO, VP of Sales, Inside Sales or Sales Consultants, who would not want to be armed with this information, set a productive agenda with clients, and incrementally change client behavior that will meet your ideal customer requirements? (I don’t think many would decline this offer of valuable information and data.)
If I have not yet convinced you that there is a need to stratify your customers, here are four additional reasons:
- Stratification enables you to evaluate the variation between your customers: COVID-19 has had a generational impact on the business environment – I like to refer to this as “52-card pickup!” Many of your customers have transformed either for the better, or in some cases sadly for the worse during the pandemic. I suggest tapping into the customer stratification data starting before the pandemic, so you can measure and evaluate the variation of values between your customers post COVID-19. This data will be of great strategic importance to align and target the market and sales needs of your customers in the reshaped business environment.
- Stratification allows you to optimize your sales force: Once there is alignment between your marketing and sales campaigns, it is imperative to target your ideal customer. The data you obtain from the customer stratification will provide insights and guidelines and assist in optimizing your sales force. For example, how many times when you are reviewing a sales pipeline does the sales consultant have leads or markets that are not your ideal customer (and you need to identify this issue quickly and accurately)? Have you ever noticed that a sales consultant only sells product A, but never closes product B? Sales Managers can quickly ascertain sales consultant opportunities and optimize their performance quickly.
- Stratification flags customer buying patterns: For B2B and B2C businesses that rely on recurring buying patterns, incorporating “no-buy” thresholds will quickly flag customers outside of the thresholds to direct inside and outside sales forces to quickly reach out to valued customers inquiring about the change in their buying pattern. How many times do your valued customer leave for your competition without any indication? Establishing this driver will have an immediate impact on the revenue and profit, but more importantly ensures your client is satisfied with your product or service.
- Stratification determines customer loyalty: Customer stratification has four components: revenue, profitability, cost to serve and loyalty. In most organizations, loyalty is an after-thought (but shouldn’t be!). Often, leaders tend to focus on the other three areas of revenue, profitability, and cost to serve. Loyalty drivers that ARE important to examine include: years of patronage, net promoter score, voice of customer scoring, or customer retention percentage or dollars. Loyalty is a leading indicator about the future health of the organization and should not be taken lightly.
The bottom line is customer stratification was the “secret sauce” for my teams over the years and was a vital component of delivering our promises to our valued customers.
Stratification is very dynamic. It is simple for the team to drive KPI (Key Performance Indicators) and provides all the empirical data a leadership team could ask for, but most importantly, organizations discover who their ideal or perfect customer really is. By knowing who your ideal customer is, and by leveraging customer stratification to its fullest, you are able to create a pivot point that will help your organization accelerate both growth and profitability from this day forward!
Want to connect with ECS’s resident Customer Stratification expert, Chris Lee, and find out more? First, be sure to sign up for ECS’s upcoming Customer Stratification webinar on September 10th, where Chris will be joined by ECS’s Rob Williamson and the pair will dive into the topic in much more depth. But in the meantime, feel free to reach Chris via email (firstname.lastname@example.org) or connect with him on LinkedIn.