In our playbook for distributors to SURGE ahead using customer stratification, we outlined ways distributors could segment customers to boost profitability — particularly to mitigate the impacts of the COVID-19 pandemic. We believe it is a foundational analytics practice for any distributor. And its applications in the pursuit of profitable growth are almost endless.
Customer stratification is more than a sales application. It can positively impact performance in almost every functional area. And when results are shared throughout your organization and among your customer base, customer stratification can forge incredible buy-in and incentive alignment among management, sales teams and customers.
Here are just a few benefits of customer stratification for distributors, some obvious and some less so:
1. Prioritization-Driven Execution
One of the most underrated benefits of customer stratification is that it improves your ability to prioritize. This conserves your most precious asset — your time. Customer stratification helps you narrow your focus so you can quickly identify and act on your most burning priorities. With it, you can identify:
- Who your core customers are
- Customers that warrant more (or less) handholding
- Trends that are most concerning
- Customers that require immediate attention due to risk or opportunity
- Specific strategies to deploy for any given customer
- Customer segments that need strategic focus
- Salespeople who need coaching
- Product categories/brands/products exhibiting leakage among core customers
- …and more.
2. Strategic Cross-Department Coordination
Cross-department alignment is a lesser-known benefit of customer stratification. Once you understand which customers drive performance, insights from those customers can inform the actions and decisions in nearly every functional department that interfaces with their buying patterns. It’s far more important to cater to core customers that are more reliable, as opposed to “average” customers that tend to be less predictable. With alignment through shared insights, various departments can better serve core customers, by:
- Reserving scarce product inventory for core customers
- Considering the impact on core customers before cutting back on suppliers/brands/products
- Tying stock/non-stock decisions to core customer demand
- Scheduling/optimizing/rebalancing truck routes based on core customer needs
- Basing inventory management and planning on core customer needs
- Driving marketing and sales campaigns using core customer insights.
3. Customer Incentive Alignment
Once you’ve segmented your customers, it’s easier to recast customer policies and incentives to reward high-value customers (dedicated sales coverage, free shipping, discounts, special orders, etc.), much the way airlines do with preferred customers. Formalized policies based on customer performance will also help you avoid the appearance of subjective decision making, which could otherwise come across as favoritism.
Ultimately, performance-based policies help ensure higher customer satisfaction and loyalty among your most valued customers. Additionally, with concrete metrics and benchmarks (targets), conversations can shift toward bringing non-core customers more in line with core customers by offering incentives in exchange for meeting future targets.
4. Performance Benchmarking Across the Board
Customer stratification offers the ultimate in benchmarking. Your core customers are typically your smartest customers — they generate their sales volume for a reason. You can use their general product mix and overall performance not only as a leading indicator for market trends, but also as a benchmark when performing “gap analyses” or account reviews with other customers. In addition, you can layer in core customer performance as an extra lens when benchmarking:
- Salespeople vs. one another
- Customer segments vs. one another
- Product categories vs. one another.
5. Proactive Risk Analysis and Mitigation
Another lesser-known benefit of customer stratification is that it can help pinpoint risks before they become crippling. Core customers can be your canary in a coal mine, particularly as you delve into key segments of your business. You don’t need to analyze your entire customer base to arrive at useful insights.
Looking at core customer analytics, you might see slippage in a particular customer segment that needs attention. Or you might find a slowdown in purchases by core customers in certain product categories or among certain vendors that could indicate your pricing is off. Or it may be that a competitor is proactively poaching core customers within a product category or vendor.
The applications don’t stop there. With customer stratification, you can also improve sales management, optimize your pricing and gain buy-in both internally and externally. In NAW’s book, Customer Stratification: Best Practices for Boosting Profitability, the authors outline how real distributors have put this method into practice, the success they’ve found and how you can do the same.
