As many successful companies have learned, it’s not wise to set a one-price-fits-all pricing strategy. Instead, those organizations that have mastered Revenue Management have put in place a well-designed customer segmentation strategy that recognizes that all customers are not the same – and should not pay the same price.
Customer segmentation can drive tens, if not hundreds, of millions of dollars in incremental revenue each year to your shareholders. All you need to embark on a customer segmentation strategy is analysis, gain control, and performance measurement.
- Analysis: Companies can’t simply analyze data. They must first organize it by meaningful customer segments, making certain to include all business intelligence-related activities and to use predictive analytics to make forecasts and drive decisions across Marketing, Sales, Operations, Revenue Management and Pricing. If your analysis isn’t conducted by customer segments, the result could be too few sales to one customer segment or too many to another. With a customer segmentation approach to analysis, your company can avoid the common mistakes of promoting a customer segment that doesn’t need it (thereby diluting revenues) or overestimating the responsiveness in demand to changes in pricing (causing you to lower prices unnecessarily, again diluting revenues).
- Gain Control: Companies that don’t exert control over pricing and sales volumes by customer segments will find themselves at the mercy of customers. A successful Revenue Management strategy means having enough control to sell the right product or service to the right customer at the right time for the right price. Without proper control of pricing and sales by customer segment, your company may end up selling too little to one customer segment and too much to another. To exert control, be prepared to make changes. That’s because taking proper control over customer segments often involves changing your business processes and predicting and/or forecasting demand and price response at the customer segment level.
- Performance Measurement: Measuring the performance of your customer segments is critical to a successful Revenue Management strategy. While it may seem overwhelming to measure performance, simply setting benchmarks and measuring against them, is a quick way to understand the impact of customer segmentation and drive accountability within your organization.
A well-defined customer segmentation strategy is essential for any company, and utilizing analysis, control and measurement will help that pricing strategy reach its full potential.