Customer-centric Growth by Lincoln Murphy

Logical Customer Segmentation: The Key to Scaling Customer Success

logical-customer-segmentation-the-key-to-scaling-customer-successCustomers that pay more need more human interaction, right?

Customers that pay less don’t deserve as much human interaction, right?

Customers that we give more human interaction should pay more, right?

Segmenting customers based on how much they pay us is one of those traps that a lot of Customer Success organizations fall into, mostly because it seems logical and it’s what the industry has been doing for a long time.

But that doesn’t mean it’s right. Let’s explore a bit, shall we?

Appropriate Customer Segmentation

Each customer segment will have its own Appropriate Experience (AX) – even if they share the same Required Outcome – and this will tell you the type and level of coverage (humans – required skills, characteristics, etc. – plus technology).

Required Outcome + Appropriate Experience is, of course, what makes up the customer’s Desired Outcome.

This means that segmentation should actually be logical (take a step back and really think about it) and done from the customer point of view (think: Experience Segmentation) rather than from an internal-focused view (i.e. ARR, revenue potential, etc.).

It’s not about what a customer pays us… it’s about the customer’s Appropriate Experience.

It’s easy to just assume that those things would be correlated, but that’s not always true; and that assumption can cost you dearly, in revenue, profit, and ultimately, customers.

Don’t Over-deliver. Don’t Under-deliver. Just Deliver.

Some high-revenue customers paying the same amount will have very different Appropriate Experiences and if you don’t know this, you’ll normalize across all customers paying us that same amount.

But, one segment of customers within that same “revenue band” may have an Appropriate Experience that requires much less coverage by humans, resulting in a super profitable segment if you understood this.

By not knowing this, however, we inadvertently take what could be a very profitable segment and over-deliver, costing us more in the process and – worst case – actually driving the customer away because the experience is inappropriate for them.

When Appropriate Experience isn’t Economically Feasible

On the flip side, this thinking could lead to us under-delivering for some customer segments when we should actually not be doing business with them at all since they’re a bad fit.

Customers that don’t pay enough to get an Appropriate Experience; don’t give them an inappropriate experience because that’s all that’s economically feasible… don’t sign them in the first place!

If you can’t provide them with their Appropriate Experience in an economically feasible way for you, either get them to pay more so you can (sometimes we just don’t ask for enough money), or, if they can’t pay more, don’t sign them because they’re a bad fit (lacking Experience Fit) right now.

Maybe at some point in the future, you can provide them with an Appropriate Experience in an economically feasible way or, after being in-market for some time, they’ll trust that you can help them and will pay more for the privilege.

But providing a customer segment with an experience that is inappropriate because that’s all they can afford is not actually helping the customer succeed… in fact, you’re punishing them when you should simply walk away from that engagement until you can provide them with an appropriate experience.

Appropriate Experience Discovery process

Before trying to figure out all of the logical segments that may exist across your customer base or Total Addressable Market, start with one and discover the Appropriate Experience for them.

After that, you’ll start to see how important Appropriate Experience is to the customer, why it’s not going to be the same across all customer segments, and other logical segments will begin to appear. So do this:

  1. Start with your Ideal Customer
  2. Create a hypothesis based on the characteristics of your Ideal Customer
  3. Interview Customers and Prospects that fit your Ideal Customer Profile
  4. Observe them in their daily routines
  5. Ask about their goals
  6. Ask about experiences with other vendors that they thought were right on
  7. Ask about adjacent products/services they use and research the experience those vendors offer
  8. Come out with a more solid Appropriate Experience hypothesis
  9. Create a Customer Success Management process for that hypothesis
  10. Run it by some of your trusted customers to see if you’re on the right track or
  11. Start testing it with customers

Once you’re comfortable you have the process down, start doing this with your other logical Customer Segments.

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