GE Capital The merits of investing in segmentation: What to expect, what to do

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1 GE Capital The merits of investing in segmentation: What to expect, what to do viewpoint

2 The merits of investing in segmentation: What to expect, what to do CFOs are tasked by management to grow revenue and increase efficiency. One way to meet those two requirements: Focus resources on high-growth market segments where you are likely to win. It s called segmentation, and it s a proven methodology that has been very successful at GE Capital. Why are so many companies using segmentation today? Because they are seeking any advantage they can create in categories that are becoming more specialized and competitive as they mature. Market (or customer) segmentation is the gateway to a value proposition that differentiates your products, services and delivery. It identifies growth opportunities by revealing underrecognized and unmet customer needs, and it increases the efficiency and impact of sales and marketing. At GE Capital, segmentation shows us where to invest our resources and where not to focus. It enables us to understand the products, services, marketing messages and delivery channels that are most likely to appeal to our customers. Segmentation is a powerful way to focus one s business activities, says Richard Kelly, Global Market Research Director, GE Capital. Consider the value of telling one s employees, Our products will now be aligned with the needs of defined customer segments. Our customer communications will now be sharper and more targeted. Our distribution channels will be more efficient. Our selling strategies will employ greater price sensitivity, and generate greater margins, because we are now competitively advantaged. Often, after we identify our target segments, we craft a unique new value proposition and even new products for each segment. Other times, segmentation doesn t change the value propositions or products; rather, it simply allows our sales and marketing teams to deliver the right messages to the right customers at the right times. The merits of investing in segmentation: What to expect, what to do viewpoint 2

3 One example of segmentation at GE Capital At GE Capital, we employ a formal segmentation process to gain an understanding of our customers core needs and value hierarchy. In our Latin American Fleet Financing business, for instance, we divide customers into three segments based on the level of service they need. One segment seeks only financing from us and wants to manage fleet operations themselves; the other two segments need financing plus different levels of operational assistance versus a complete solution. The foundation for successful segmentation It s understanding deeply rooted customer needs and what drives them, such as customer pain points and hot buttons. These insights help create a go-to-market strategy which is not only customer-centric, but also data-driven that is, scientific. Multiple benefits of market segmentation The insights gleaned from an effective market GE Capital s Segmentation Roadmap A. B. C. D. E. Project kickoff & objective setting Survey development, fielding & analysis Segment selection & profiling Develop & execute go-to-market plan Measure & refine segmentation initiative can be used to inform and enhance multiple business activities, including: Product development Helps you design and position products that are well aligned with the needs of customers in your target segments. Customer communications Allows for more pinpoint media selection, the creation of successful advertising messages, and more effective direct communication via social media. Sales tools Provides information that allows the sales force to approach customers in a way that speaks directly to their needs; informs the creation of customized sales presentations, including application of the value propositions that mean the most to each customer. Distribution Allows selection of distribution channels that are consistent with segment buying patterns. Pricing Informs the creation of more precise guidelines for price discrimination by levels of price sensitivity in each segment. Identification of new business opportunities May uncover unmet wants or needs that provide new opportunities. Value setting Helps quantify customers perceived value of your offering, a critical component to creating a market strategy. Operational alignment Justifies shifting resources into more promising and strategic customer segments (and exiting underperforming segments). A proven, successful roadmap Segmentation is too critical an initiative to engage in without a formal and repeatable methodology. At GE Capital, we ve codified the segmentation process into a proven, successful road map, which can be easily applied to all size businesses. Our Segmentation Road Map comprises five steps: A. Project kickoff and objective setting: Eliciting buy-in, support and input from the critical stakeholders in the business sales team, marketing, finance, IT and operations and setting definitive objectives for the initiative. B. Survey development, fielding and analysis: Discussing and hypothesizing customer segments and needs, then designing your customer survey to test and verify your hypothesis. C. Segment selection and profiling: Returning to the company s cross-functional team to create final segments, develop deep profiles of each customer type, and selecting the businesses priority segments based on the survey s findings. D. Go-to-market plan: Creating an actionable plan that delivers the right mix of products and value propositions through the most effective channels to priority customers. E. Measurement and refinement: Testing and refining the segmentation action plan to ensure that we are delivering products and services in a manner that customers wish to receive them based on predefined key performance indicators such as winloss ratios, sales growth and customer satisfaction. The foundation for successful segmentation is gaining an understanding of customer pain points and hot buttons. The merits of investing in segmentation: What to expect, what to do viewpoint 3

4 Everyone must get on the bus and understand when it s their turn to take the wheel. Richard Kelly, Global Market Research Director, GE Capital Everyone plays a role and involvement by business leaders is critical Business Business CMO Customer s Team Strategic Mktg. Initiatives Commercial/Sales Dedicated & HQ Function s Winning hearts and minds No activity contributes more to the ultimate success of customer segmentation than rallying the troops that is, getting your leadership and your employees aligned and engaged right up front. The market research process can lead to a paradigm shift: a new understanding of what the market expects from you that demands a new business strategy. The entire organization must understand why this new way of going to market is crucial to the company s success. Survey Develop Project kickoff development, Segment & execute A. & objective B. C. selection D. E. fielding, go-to-market setting & profiling & analysis plan M easure & refine Champion Champion Champion Champion Champion Execution Execution Customer segmentation cannot be successful if it is viewed as a silo activity that sits in marketing, says Richard Kelly. Everyone must get on the bus and understand what the destination is, how long the journey will take, and, critically, when it s their turn to take the wheel. Employee adoption is driven from the C-suite. Senior management needs to be educated and sold on the value of segmentation. Our segmentation teams work with top management to create a solid, financially driven business case. Once leadership has embraced the initiative, the segmentation team socializes the strategy with heads of functional areas and business units. From there, education and buy-in trickles down the organization, right through to the front lines that is, the sales force. The s is key Building a strong foundation for a customer segmentation project is not just about having the right process; it s also about having the right people. Key among these is the s a staff member, new hire or outside consultant who is tasked with driving customer insights and the resulting segmentation. The s must exhibit a special, and rather rare, combination of two skill sets, says Kelly. They are: Technical skills The s must have superior analytical and data-mining skills, as well as sufficient technical expertise to lead the process, build an IT infrastructure that captures feedback, and develop survey instruments and tools to gain the customer insights that inform segmentation. One such tool is text mining, which actively gathers the voice of the customer by analyzing Internet traffic blogs, chat boards, etc. for specific themes and topics. The merits of investing in segmentation: What to expect, what to do viewpoint 4

5 Influencing skills The s must exhibit excellent leadership skills in order to establish credibility for the effort, gain buy-in and adoption from business leaders, and drive enthusiastic ownership through cross-functional team leaders. In this regard, the s is a coach who helps teams crystallize customer insights, then drive action planning and go-to-market strategy. This ensures that the entire team feels and takes ownership of a strategy that they are proud of and excited about. Success by segmentation No organization can be all things to all people. By employing a formal segmentation process, you can identify the market segments with the greatest potential, focus (increasingly limited) resources and marketing efforts and realize the resulting business advantages. Typical questions for the s to address Why are we doing this and why is this important for the organization? What is this going to mean to individuals and departments? How will our value proposition be communicated? What kind of conversation should our salespeople be having with customers? What kind of tools do we need to effectively diagnose a customer s segment? How do we align service and support with our new segmentation strategy? GE Capital is an extension of GE s rich heritage of building and supporting growth. Investing in the sectors we know best, we can provide more than just financing: We bring insight, knowledge and expertise to every loan. And as a result, businesses that finance with GE Capital benefit from the global know-how and expertise of GE. gecapital.com 2012 General Electric Capital Corporation. All rights reserved. This publication provides general information and should not be used or taken as business, financial, tax, accounting, legal or other advice. It has been prepared without regard to the circumstances and objectives of anyone who may review it; therefore, you should not rely on this publication in place of expert advice or the exercise of your independent judgment. The views expressed in this publication reflect those of the authors and contributors and not necessarily the views of General Electric Capital Corporation or any of its affiliates (together, GE ). GE does not guarantee that the information contained in this publication is reliable, accurate, complete or current, and GE assumes no responsibility to update or amend the publication. GE makes no representation or warranties of any kind whatsoever regarding the contents of this publication, and accepts no liability of any kind for any loss or harm arising from the use of the information contained in this publication. GE, General Electric Company, General Electric, General Electric Capital Corporation, the GE Logo, and various other marks and logos used in this publication are registered trademarks, trade names and service marks of General Electric Company. You may not use, reproduce, or redistribute this publication, any part of this publication, or any trademark or trade name without the written permission of GE. The merits of investing in segmentation: What to expect, what to do viewpoint 5