Segmentation and Service Selling

by | Oct 5, 2022 | Growth

Segments

What is segmentation? My friend Michael Chase of Tekcess International has an excellent definition of “segment,” which I adapted for this article.

In the B2B space, a market segment is a group of potential customers with unique but common needs. Once you sell your product, you are in the service space. There, a customer segment is a group whose behavior differs from all other customers.

In B2B, customer needs are not as straightforward as they appear. This means that properly segmenting prospects and customers requires collecting and analyzing a great deal of information.

An Example of Segmentation

You are the CEO of a large shipyard that builds container ships. At your last off-site meeting, you agreed that you should try getting shipbuilding contracts from the U.S. Navy. After all, they buy ships, and you make them, so why not pursue that business?

As you think more about naval ships, you realize several major ship categories will lead to you making big decisions.

  • Naval ships have two major sub-sets – they float on the water or they submerge.
  • If submerged, they carry ballistic missiles or launch torpedoes and mines.
  • If they are surface ships, they engage in combat or they are logistics, or they may do both.
  • If they engage in combat, they may launch fixed-wing aircraft or not.
  • If they launch fixed-wing planes, they may use a catapult or they launch vertical take-off aircraft.
  • And this can go on to form quite an extensive list.

After you perform the complete ship type analysis, you may focus on trying to build container ships for the U.S. Navy. You went from wanting to sell ships to the Navy to trying to sell container ships to the Navy. You can also do the same analysis for many other industry vertical segments.

Selling to Current Customers

The above analogy is essential when selling services to current customers.

Some companies buy spare parts from the OEM and expect their employees to do the hands-on work. Other businesses are only comfortable when the OEM performs all the work on the equipment they make. Others fix equipment themselves but need the OEM to perform calibrations and some required checks. Some multi-plant companies leave their decision of how the equipment will be supported up to plant management.

If you don’t take the time and make an effort to create a set of sub-segments and then place each asset into one of them, you will be missing out on revenue opportunities. Here are a few examples.

Getting a PO Processed Is a Pain

I was working with a company that manufactures laboratory equipment for the petroleum industry. They were ready to offer service contracts, so they engaged me.

Part of my methodology is to interview randomly chosen customers. One of my standard questions is, “How many tests, parts, etc., do you handle every month?”

One of the laboratory managers I interviewed told me 10,000.

That was an enormous number, so I asked, “How many instruments do you have?”

He said 10, but he only used nine instruments and kept one as a spare. That made sense to me.

I then asked him whether he would purchase a comprehensive service contract from the OEM, and he answered in the affirmative.

He answered my why question, “It is a pain for me to write a PO request, hand carry it to purchasing, then beg to get a PO number so I can open a field service order.” He further elaborated that the process can take him a whole workday spread over a week, saying, “It drains me!”

That was a 10-unit contract because of the internal hassle of getting a purchase order.

Downtime Is Costly, Especially with an Uncertain Repair Start Time

In some industries, and with smaller OEMs, service engineers are not promised a specific arrival time. They give warranty and contract customers priority and time. However, material customers may not only have to wait, but the wait time can vary based on priority service calls. Even though that procedure is common in the industry, it may not work for all customers.

The opportunity here is for the salesperson on the account to present service contracts with a predictable response time while the initial equipment order is being negotiated. Since the priority response is common in the industry, there is minimal risk of losing the sale. However, there is both financial upside and a way to create more value for the customer before buyer remorse.

“I Buy a Service Contract to Protect My Bonus”

In some companies, not exceeding the budget is the only thing that matters to a manager. In others, it is achieving operational goals. In both cases, their bonus is based solely on achieving these outcomes.

Therefore, if your product can directly influence those outcomes, your customer may be very amenable to purchasing your premium support package. And don’t feel guilty — that is exactly the decision the management wants its managers to make.

A customer once explained this to me over a nice lunch his company paid for. His company was considered a key national infrastructure facility, and he had a remarkably high uptime requirement. His bonus would disappear if his data network were unavailable for more than 15 minutes during any calendar year.

“I buy the best equipment from the best companies, and then I buy the best service contract. If you create another service, I would immediately buy it too,” he said. “My management wants me to do anything I can to achieve my bonus because it is important to our business.”

Who Should Broach the Service Product Discussion?

These three examples show that unique behavior is usually the common factor in the service space. We cannot learn about service buying behavior without hearing from the decision maker.

Sometimes, the salesperson or account manager is the best person to identify this unique behavior; sometimes, it is someone from the service organization.

In the interest of economy, I recommend that the sales team broach the service product discussion during the sales process. They may not sell a service, but they may pick up that the end-user has some issue that puts them into a unique segment. All they have to do is put a note in the CRM system or drop an email to the service seller to save until it is time to start the service-selling process.

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About Middlesex Consulting

Middlesex Consulting helps our B2B product manufacturing clients grow their service revenue and profitability by applying the methodologies and techniques associated with Customer Value Creation and Customer Experience professions to assist its clients in designing and commercializing new services and the associated business transformations. Contact Sam here.

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