Using the Practice Axis for Duplicate Marketing
Customer Base Segmentation
Your company has been in business for 30 years. It has hundreds of customers. How do you get more just like them? The common approach to customer segmentation is by vertical market, annual revenue, location and size.
Alpha Co. provides products and services to contractors. It has customers in three markets: plumbing, electrical and HVAC (Heating, Ventilating & Air Conditioning). It has found that the best measure of a contractor’s size is the number of service vehicles in use. All contractors operate in the metropolitan area.
So, Alpha Co. can segment their customers by revenue and fleet size for each vertical market to determine the most profitable vertical.
After the analysis, they determine that their best market is plumbing with fleets of 30 to 40 vehicles.
They locate a plumbing contractor market report that lists the number of vehicles in their fleets and create a list with those having between 30 and 40 vehicles.
Now, they have a list of new potential “duplicate” customers.
Right? Not so fast!
Markets are Three-Dimensional
Most marketing presentations that I have seen over the years are “two-dimensional” (see Fig.1).
They represent market groups versus size based on a chosen value (numbers, revenue, et al. – see Fig. 1). The dimension that is missing in these charts is business practices.
Alpha Co. provides plumbing products to multiple vertical contractor markets. One department specializes in new hospital plumbing that requires ASSE (The American Society of Inspectors of Plumbing and Sanitary Engineers) certification.
Other markets include LEED certified office buildings and residential.
Residential construction requires compliance with local building codes. with local building codes.
TAM, SAM, SOM and the Practice Axis
There are many methods to describe “SOM” of the prospects that a company can reach.
One method is to break the market into two sub-groups.
The Total Available Market (TAM) is the total market demand for a product or service.
The Serviceable Available Market (SAM) is a subset of the TAM targeted by your products and services which is within your geographical reach.
The Serviceable Obtainable Market (SOM) is a subset of the SAM that you can capture.
SOM prospects duplicate your customer base.
Alpha Co. products and services have ASSE 6000 Certification for Medical Gas Systems. Identifying plumbing contractors with 30 to 40 vehicles will only provide the SAM. The best place to start looking for SOM prospects is a list of ASSE certified plumbing contractors.
Duplicating customer bases requires that their business practices are taken into consideration.
If Alpha Co. plots their customer bases using only two criteria (vertical market/fleet size) on a graph’s X- and Y- axes, they will have a nice view of their customer segmentation.
To determine “duplicate prospects” their business practices must be taken into consideration.
The third dimension needed to identify the SOM is the “Practice Axis” (see Fig. 2).
In the Beginning Organic Growth is Random
When a new business is formed, the customer base grows “randomly”. Most new businesses start small and are opportunistic. Revenue is good. Over time, they develop new capabilities to remain competitive in their market. They join associations, obtain certifications and secure licenses to meet customer requirements.
But, is all revenue profitable?
If you have special requirements for 1% of your customers, do you want duplicates to grow? Probably not.
A 100% growth in duplicate customer revenue will only translate into a 1% growth in total revenue.
A more strategic path to growth is duplicating your customers that are the 80% of the 80/20 rule.
Beta Co. provides educational software to 100 colleges. They have been in business for 20 years.
Beta Co. segments their markets by number of students enrolled and the States where they are located.
After review, Beta Co. found that their ideal market is colleges with between 500 and 1,000 students. Beta Co. purchases a report containing colleges in the United States and their respective number of students. Beta Co. has built a list of colleges that are duplicates of their current customers.
Right? Not exactly!
Beta Co.’s software program must generate specialized financial reports for each college’s accreditation body. The individual accreditation reports change frequently and must be reviewed annually.
Beta Co. provides services to colleges in 22 States with 15 different accrediting bodies. Each State has their own reporting requirements.
After mapping their colleges by size, State and accreditation – Beta Co. finds that 80% of their colleges are in 5 States with one of 5 major accreditations.
Beta Co. realizes that they can reduce internal costs by focusing on the colleges that fit their top 5 States and accreditations.
Other practices can be added for analysis. Do these colleges have single campuses or multiple? Do they receive federal funding?
Sales and Duplicate Marketing
As companies grow their salesforce, they seek certain educational backgrounds, skills and levels of experience. Often, a new salesperson is sought with market specific knowledge.
Over time, leads come in through marketing and are sent to salespeople. However, are the leads suited for their individual skills?
High-performing salespeople form a niche or “brand” of their own. They are specialists – not generalists. Some specialize in large accounts – others find safety in numbers of small accounts. Some specialize in vertical accounts. Many have been in a market niche for several years and have key contacts.
The challenge for marketing is delivering leads to these salespeople that can benefit from their talents.
Creating a new “shotgun” marketing program in the hopes of finding new customers is a waste of marketing dollars, internal resources and sales productivity.
It is better for marketing to focus on new technologies, expanding products and new services for their core business – plus, obtaining market research to identify duplicate prospects.
Organic Growth by Osmosis
Non-core accounts can be turned over to inside sales or junior associates. These accounts provide an excellent environment for identifying internal resources which can develop into sales stars. Some small accounts might be lost. However, many small accounts can require more maintenance than large revenue generators.
Focusing on your core base and duplicate prospects will lead to revenue growth. By osmosis, the cost-of-sales will be lower and profits will increase.