The Importance of Customer Segmentation

• Use clean data to grow market share.

• By better understanding a customer’s complete profile through consistent and robust onboarding, a distributor will uncover new sales opportunities.

• Clean data has much wider implications, including making an acquisition target more attractive and speeding up the M&A integration process.

Clean, well-defined and trusted customer data is integral to a distributor’s sales growth, but many companies don’t understand why they need it, how they can obtain it and in what ways it can improve both their top and bottom lines. While this isn’t a new problem — distribution has long struggled with collecting robust customer information — the pandemic certainly exacerbated it. Many companies welcomed new customers making one-off purchases of personal protection equipment like masks, or JanSan products like hand sanitizer, but if they didn’t capture the right customer information — for instance those customers’ NAICS (North American Industry Classification System) or SIC (Standard Industrial Classification) codes — they’ve limited their ability to increase their wallet share once the COVID-driven sales dry up. 

Not all is lost, though, if a distributor can cleanse its customer data and adopt new processes to optimize the customer onboarding process. Taking the time to revamp your customer onboarding and data maintenance practices is well worth it and will equip you to overcome the obstacles in the way of revenue growth and profitability. The distributors that pursue this goal are the ones that will better endear themselves to their customers and differentiate from their competitors.

How important is customer data?

The key to understanding the importance of customer data begins by asking yourself two simple questions: What do you know about your customers? And (more importantly) do you trust the current customer data in your system?

Distributors often have just enough customer data to transact business — and this is where the rise of COVID-related product sales made things worse. Yes, a company is likely to capture such data points as company name, addresses (both shipping and billing), phone number, website (URL) and billing information, but often this is where the info gathering stops. Digging a few layers deeper can yield more robust customer data, which can provide your business with the means to effectively segment and analyze your customers and their performance. 

Here’s an example:

Customer Name: Pentair Valves & Controls LLC

NAICS_2: 33

NAICS_2_Descrip: Manufacturing

NAICS_4: 3329

NAICS_4_Descrip: Other Fabricated Metal Product Manufacturing

NAICS_6: 332911

NAICS_6_Descrip: Industrial Valve Manufacturing 

By doing so, you’re able to apply a recognized industry standard data (NAICS/SIC) for each of your customers — and therein lies the golden opportunity. When a distributor can apply an industry code to customers, it can better understand the full suite of products it might need for their business. With the right marketing, or perhaps a targeted sales call to that customer, a distributor can expand that relationship by increasing wallet share and creating stickiness with that customer by proactively identifying a need and offering a solution to match.

And, cleansing customer data does much more than grow established relationships. A distributor can also use that data to gain solid leads on new customers. The concept of “rinse and repeat” — on both new and current accounts — begins with a crucial first step in the distributor-customer relationship.

Onboarding with customer data

Some distributors aren’t aware that they need to obtain more customer data. Some are, but they haven’t put in the time and effort needed to accomplish this when bringing new customers into their system. Many companies are already collecting critical customer data without taking advantage of the attributes associated. Case in point, Dun & Bradstreet provides extensive firmagraphical data that can be utilized for detailed customer-level analysis. For example: Industry Served, Square Footage of the facility, Number of Employees, etc. 

Once a distributor sees the value of it, they can see how valuable clean customer data can be. For example, you can determine which industries you are doing well in but also other industries to target with a marketing campaign. 

At this point, it’s time to rethink the onboarding process for a new customer. When onboarding a new account, it’s essential to have the right process in place. Assess your onboarding practices and find out who’s in charge of managing the data from input through its entire lifecycle of updates.

The fact that many distributors have never looked at connecting their customer data to the market data before, or that they don’t have the right people in place to properly onboard the customer isn’t surprising. Distributors tend to hyper-focus on sales, so if a sale goes through and the product cost is paid, the data derived from that transaction is often an afterthought. 

But with additional customer data, an analytics team can slice and dice those customer profiles in different ways. This is powerful information because if you understand your customer mix, you can strategize how you want to target those customers. That could mean a certain pricing structure for a certain industry, providing targeted incentives or tailoring a marketing campaign to their potential needs.

One key data point is determining the number of employees each of your customers has, which can help determine their annual revenue. It’s an established practice for distributors to apply a multiplier to the amount of employees of their customers to estimate their size and potential sales opportunity. These estimates, when compared to your sales, can uncover where you’re connecting and where you’re missing. 

This isn’t about gaining an “easy button” that, when pressed, will guarantee an extra X amount of dollars you can generate from this particular customer. Instead, it will arm you with the tools you need to have a productive conversation with your customers around identifying their needs and offering solutions to match.

This will yield a better relationship and, ultimately, more sales. For example: After doing a product-level wallet share anlaysis, you’ve learned that you have customers who are buying large quantities of your fuses, but are not buying the expected accompanying fuse holders. Naturally, it begs the question: Why?

What customer segment will this target?

Distributors segment their customers into how much they spend, and the data cleanse discussed here is designed to unlock revenue potential for customers in the middle of the pack — what we’ll call the sweet spot for discovering increased wallet share. See the example below: 

Companies are likely to have the information they need on their best customers and largest accounts, which often have dedicated salespeople calling on them regularly and providing the service they demand as one of the distributor’s “whales.” But for the accounts that don’t warrant sending your regional sales professional — and we work with distributors whose customer lists are upward of 20,000 accounts — you’re likely to know much less about that customer if you don’t have dependable data. Those distributors that do have it are turning this information into revenue opportunities by arming their sales teams with information.

Let’s say you’re analyzing your middle-tier customers who don’t have a dedicated account representative and you uncover an account that is classified as a turbine manufacturing facility with an employee count much larger than you would think, based on your sales. You also uncover that you have many other customers that have that same profile, but you are capturing a much larger amount of their business. Why?

Now, when you call on that customer, it automatically becomes a stronger prospect for products they weren’t buying from you. Your sales professional can feel confident going in and providing a good service for those types of companies because you’re already selling to similar businesses.

Your customer list is filled with prospects like this — customers who might buy some products from you but aren’t aware of your full range of SKUs. The data will bring you closer to your customer base and open a new world of sales opportunities.

Other key benefits

The benefits of clean data go beyond increasing your wallet share of customers, growing the company’s top line and improving profitability.

Operating with clean and properly segmented data will also aid in the M&A integration process. For a seller, it will make your business that much more attractive in the eyes of an acquirer. The more you know about your customers, the more value a buyer can extract from the business post-sale.

What’s more, the integration process will be that much smoother if the acquired joins the new company with clean and trusted customer data in its system(s). This will minimize the amount of time it takes to combine the data sets of joining companies, which otherwise would require a lot of dedicated time and resources to make sure the data is accurate, complete and free from duplicate customer records. Simply put, if your data set is clean and you acquire someone else whose data set is clean, the integration process will be easier, faster and will minimize customer facing issues that show up when you have “bad data.” 

Next steps

Generally speaking, applying customer segmentation to your data won’t immediately equate to sales growth, which could be one reason more distributors haven’t moved in this direction. They want sales right now, every day. The lifeblood of any distributorship is constant income flow, and that’s especially true when an outside salesperson is calling on a customer. Go for the low-hanging fruit and close the deal. However, putting in the effort strategically will generate dollars long term for your company.

Companies, understandably, don’t want to spend money on something that’s not quickly providing that ROI, but this is an area where the stronger distributors have either already moved or are moving. Analytics is becoming table stakes for any business operating in a competitive landscape. 

Creating an analytically minded company with the right people in place to foster good segmented data is ultimately what will keep you ahead of the competition. More and more distributors are taking analytics seriously right now. The ones that don’t will be at a competitive disadvantage.

Not everyone is comfortable moving forward on their own. For those that aren’t — yet still want to tap into the immense power of clean customer data — MDM Analytics is here to help.

We regularly work with clients and their data to ensure that the right connections are made between a company’s transactional data and our trusted market data, which offers end-user demand by product and industry segments throughout North America. Give us a call so we can show you how to harness the power of your existing customer data, target new prospects and onboard customers so that you’re optimizing your revenue-generating opportunities.

Donnie Williamson is analytics manager for MDM Analytics. Learn more about how MDM Analytics can help your company by calling (888) 742-5060 or emailing analytics@mdm.com.