How to Develop and Optimize Customer Segmentation for Customer Success

Tek Experts -

6 min read

Customer segmentation is the process of categorizing customers based on objective and subjective criteria. It helps develop the most efficient engagement models for different types of customers based on who they are and what they do. 

Success Coaching recently hosted a roundtable about customer segmentation that featured Tek Experts’ Head of Global Customer Success, David Mangham, as well as other influential customer success leaders. They discussed how to develop these customer segments and what to consider when developing your segmentation strategy.

Here are the key takeaways.

Why is customer segmentation critical to customer success?

Customer segmentation is foundational for any customer success leader building out a successful customer success strategy. It ensures teams produce desired business outcomes by appropriately allocating resources among customers.

Every customer is important, but each one requires a different level of engagement. Segmentation enables you to provide the right amount and type of engagement with varying types of customers, increasing customer satisfaction and renewals.

If your team is using the same resources for a customer paying $5K a year versus a customer paying $500K a year, you are likely losing money on the less invested customer. That’s not to say those lower investment customers aren’t just as important, but they likely don’t require the same type or amount of engagement as higher investment customers.

“Every customer is important, but not every customer is equal.”

– David Mangham, Head of Global Customer Success, Tek Experts

How to develop a customer segmentation strategy

All companies are unique, so what works for another company might not work for yours. Additionally, customer segments should adapt. As your business and customers evolve, your segments will too.  To develop customer segments, it’s crucial to perform an audit of your current customers and evaluate their goals as well as your own.

Start simple by segmenting based on just a few elements, like revenue and stage in the customer journey. As you become more sophisticated, your segmentation criteria can become more complex.

Here are some questions to ask when developing a customer segmentation strategy:

  • How does my business define success?
  • What products and services are we providing to each of our customers?
  • What are my business’s goals?
  • What are my customers’ goals?

What criteria should customer segments be based on?

“Customer segmentation is about getting the right resources aligned with the right customers at the right time.”

– David Mangham, Head of Global Customer Success, Tek Experts

Customers can be segmented based on both objective and subjective factors, also known as static and dynamic segmentation. To start, align with your leadership to determine what they consider top-tier versus bottom-tier criteria based on their business objectives.

Understand that segmentation should be flexible, and customers will likely fluctuate throughout their customer journey. For instance, onboarding often requires a higher level of engagement compared to post-adoption, so a new customer might start in a higher segment and then switch to a segment with less engagement once they’re more familiar with your products and services.

Additionally, if a customer has poor health, meaning they are a high churn risk, they should move to a more engaging segment until their health has improved. It’s important to track customers’ movement across segments, especially in relation to customer satisfaction and renewal potential. This will give you a better understanding of what’s driving poor retention, how frequently customers are becoming dissatisfied, and what must be done to improve customer retention.

To gain a deeper understanding of our customer base, let’s explore some of the objective and subjective criteria for segmentation.

Subjective criteria:

  • Upsell potential
  • Churn risk
  • Overall account health
  • Customer journey stage

Objective criteria:

  • Annual recurring revenue (ARR)
  • Company size
  • Industry
  • Geography

How to assign resources to customer segments

A customer segmentation strategy is not just about determining the customer segments. It’s also about determining the resources available to address each of the segments and how you should be engaging with them. Different segments require different resources, but it’s crucial you are assigning resources to all customer segments, not just your largest investors.

Aligning a Customer Success Manager (CSM) with mid-tier customers is critical to improving the customer experience. Mid-tier customers often only hear from a sales representative, which means there’s no one to ensure that they are getting the most out of their current products and/or services. Engaging with a CSM who is interested in helping them realize the full value of their purchase and achieve their business goals increases their chance of renewal and long-term brand loyalty.

How to successfully implement customer segmentation

Implementing customer segmentation should be treated as a change management activity. It’s important to fully communicate the new segmentations with your CSMs and ensure they understand and are comfortable with the segmentations being put in place and the value it provides both the customers and the business. Outline what is changing and what is staying the same with the new segmentation.

Your CSMs know your customers best, so be sure to listen to their feedback and have them assist you in communicating these changes to the customers by supporting collateral development and messaging. This will ensure they can appropriately communicate engagement changes and it will make your CSMs feel part of the new segmentation process. These changes should be communicated to customers and CSMs in person or on the phone and should never be communicated via email.

It’s also important that CSMs assigned to lower customer tiers understand the value they provide to the business and are empowered to continue growing their careers. CSMs can sometimes feel discouraged if they are not supporting your top-tier customers. However, supporting mid and low-tier customers is just as crucial. Since your CSMs are your main point of contact with customers, their satisfaction directly affects your customers’ satisfaction.

Understanding the value of all customer tiers brings us to a final point for implementation. Be highly conscious of what you name your tiers and be sure CSMs do not refer to it as segmentation when speaking with customers. “Segmentation” can have a negative connotation, due to the misconception that some customer segments are more important than others.

Additionally, it’s important to remember that segmentation is not about organizing customers based on importance. It’s about organizing customers based on the required amount and types of engagement. This is something that can be misconstrued when using certain labels, therefore ambiguous labels are recommended. This eliminates customer dissatisfaction that can be associated with being labeled a “Bronze Customer” versus a “Platinum Customer”.

How to cost-effectively engage with all customer segments

“When you’re able to allocate resources properly and not in reaction mode, you can start engaging with underrepresented segments of customers.”

– David Mangham, Head of Global Customer Success, Tek Experts

Many businesses are turning to AI and automated customer success solutions, specifically for those lower-tier customers. However, digital customer success tends to be transactional versus engaging. No customer segment should be completely digital. Instead, a tech touch should be implemented across all customer segments in instances where a CSM is not required.

Your customers’ time is extremely valuable, so it’s crucial that your touch points provide ample value, whether that engagement is a tech or human touch. A human touch will often provide more personalized value than a tech touch because they’re able to engage the customer in deeper conversations about how they’re using the product and what they are trying to achieve with it.

To afford a live CSM for all customer tiers, it may require a pooled CSM for lower tiers. Or, for more personal engagement with customers, outsourcing your customer success is a great solution.

By utilizing a partner to deliver customer success, you can achieve the following:

  • Save time and money – A partner can support 5X more accounts for the same cost and assumes responsibility for recruiting, training, managing, and retaining talent. This enables you to focus resources on other core business priorities.
  • Increase revenue – A partner provides human engagement to all customer tiers while you focus on strategic accounts or other business priorities, increasing the number of opportunities for up-selling, cross-selling, and helping customers realize the full value of your products and/or services.
  • Reduce churn – While you maintain focus on top-tier accounts, a customer success partner can focus on engaging other customer segments and addressing complex issues with technical expertise and empathy.
  • Improve agility – Given the current tech talent shortage and the weakening economy, a partner provides flexibility to quickly adjust the size of your customer success teams to current and future market conditions.
  • Build deeper customer relationships – A partner with global language capabilities that match your customers’ needs can provide a more personalized customer experience without the need for you to open a new site or source talent in your customers’ regions.

Cost-effectively scale your customer success

Customer segmentation is crucial to providing the right engagement at the right time, and human-to-human interaction is critical across all customer tiers. Interested in learning more about how to cost-effectively grow your customer success team to increase renewals and revenue growth?

Check out this webinar on how to drive revenue with human and tech touch customer success models.

Contact a customer success expert, today.

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