Segmentation
What is Segmentation? Segmentation is about defining which products and customers should be targeted for growth and which should be treated more opportunistically. It is an effective tool for implementing your company strategy, and advisable to involve the CEO in the process. Customer & Product segmentation also benefits the company by providing a more structured
What is Segmentation?
Segmentation is about defining which products and customers should be targeted for growth and which should be treated more opportunistically. It is an effective tool for implementing your company strategy, and advisable to involve the CEO in the process.
Customer & Product segmentation also benefits the company by providing a more structured framework for rationalizing the product/service portfolio. A service that is spiraling out of control has a negative impact on the EBIT and working capital.
How does it work?
You categorize your customers or products as A, B, or C, whereby A represents the most profitable customers or products and C the least profitable ones. Typically, 20% of your customers and products account for 80% of your profit.
For the long tail of less profitable customers and products in the ABC segmentation, you can make a distinction in terms of customer service and lead times, for instance. Focusing your efforts accordingly will automatically lead to more profit.
The Results of Good Segmentation:
Customer Service Level
By maintaining focus and not firefighting all the time, the overall service level can be improved. Moreover, those customers who really contribute to the business will get real value for money.
Inventory
ABC segmentation of products based on their strategic and operational fit allows non-profitable items to be defined and eliminated, resulting in a less complex product portfolio and less inventory.
Working Capital Requirement
A good segmentation process is also a business development instrument. It makes it easier for Sales to counter customers’ questions about discounts when they can link price to a certain service level.
Solventure can segment customers based on a calculation model that is accurate for 80 to 90% of the customers based on 10 to 20% of the parameters.
On demand webinar
In this webinar Prof. Dr. Bram Desmet, Managing Director of Solventure will talk about “Customer Product Segmentation as an essential part of your S&OP process”.
Download Vision Paper
Customer Product Segmentation