CLIENT SEGMENTATION:HOW, WHEN AND WHY?
- 1. COMMERCIAL CREDIT CCR world Could segmentation There may be a way to reduce wasted resources and work for you? finances chasing undesirable clients, while also targeting Article Briefing those customers that it may be worth investing in Column By Gustavo Sousa CLIENT SEGMENTATION: HOW, WHEN AND WHY? H istorically, organisations have for a database are, in no particular order: payments (ratios) through financial used segmentation in various That the database is up to date – in and book analyses of its data as at different departments, such as other words, that the company that today, using investigated reports; marketing departments, where it is used provides the database has the appropriate however, this data is usually 12 to 18 to try and define or locate new target mechanisms to permanently maintain all months old. clients. the fields of each record as up to date The goal has to be to establish their In the sales department, segmentation as possible, which is associated with future situation, months in advance, in is usually applied to differentiate large- the following: order to determine whether or not they volume clients, who are treated differently That the information provided is are suitable for your portfolio and the and receive different sales conditions accurate, which depends on the level of commercial risk you wish to from the others, and to identify clients information sources from which the assume, avoiding unpleasant surprises that consume certain products or services data is obtained, in order to prevent due to default. in order to ‘cross-sell’ or ‘up-sell’ to high average rates of returns, non- You must also take into account that increase sales. productive calls and visits and to gain many companies that appear in the In the financial department, based maximum advantage from its use. Companies Registry are not active; on my years of experience dealing with Once the database has been they are companies that, in the current the managers of these departments, requested, the first variable usually economic situation, have been forced to segmentation is based on the level of used to measure its efficiency is the close and, for various reasons, have not risk, the volume of risk, payment returns rate. After this, the company been cancelled by the registrars. schedules and so on, for each client, in order to monitor, control and accept, or not, commercial risks. The goal has to be to establish their future A client’s journey along the sales situation, months in advance, in order to ‘pipeline’, from its identification by the marketing or sales department, its determine whether or not they are suitable consideration as an asset of the for your portfolio company, and its ongoing relations with the company, its loyalty, is where in may measure the number of ‘hits’, In most cases, these inactive the majority of cases, potential client contracted clients, response method companies continue to appear in these databases are required. In the early indices, and so on. databases, with the consequent wasted stages these can be either internal or However, what should really be resources from contacting them. purchased from independent companies asked beforehand is ‘do they contain that specialise in supplying these types information on potential clients that I Saving finances and resources of services. really want to approach?’ and ‘are they If a client with a high risk of payment clients that I want to have as an asset default is not of interest to the What kind of database? on my balance sheet?’. company, how much marketing and Companies need to grow on a yearly You have to remember that no client sales efforts, both in terms of finance basis, in terms of sales or client volume, transaction is signed today with and resources, could be saved if you and they therefore usually resort to immediate payment. In reality, many could make a prior segmentation obtaining a database to identify new months may go by between the order based on the levels of default risk business opportunities. being placed and the payment being probability? In general, apart from the normal collected, depending on the sector, Clearly, you could make significant segmentations by, for example, product or service. savings in every department, as the activity, sales, geographic location or Solvency can be established from investment would be oriented towards employees, the two main requirements the perspective of a company’s capturing only those potential clients 16 www.CCRWorld.net June 2010
- 2. COMMERCIAL CREDIT CCR world that are of financial interest as assets to months in advance and with an From investment in databases, the company. extremely high, empirical and truly given the exceptionally low returns rate In the current economic and financial demonstrable level of reliability and – no hits are lost due to out-of-date climate, companies are operating in a accuracy. data. changeable and precarious environment, Moreover, they are affordable By only approaching profitable clients given the high levels of delinquency instruments within reach of all types of you remove between 30% and 40% and its domino effect, and this problem companies, due to their ease of access of records with high levels of default is one of the main reasons for the and handling and their low cost. probability. disappearance of companies, and If, in addition to using databases By eliminating inactive companies. especially self-employed individuals, in segmented using the aforementioned By reducing the number of Spain. It is therefore vital to take two criteria, you use the suitable channels delinquent clients and the associated types of action: and means to approach current or costs. Ensure that all marketing and potential clients, offering each of By reducing the percentage of the commercial actions are directed towards them, in a personalised manner, the portfolio with risk of delinquency. clients that do not have present or product that suits their needs, this By reducing the usual tension future default risks, at least during the will undoubtedly give you some very between the risks and sales areas next 12 months – you can leave the powerful tools with which to ensure you caused by the acceptance or rejection rest for the competition!. This will achieve your goals, regardless of the of transactions. prevent adding potentially dangerous department in which the activity is Increases and benefits have been clients to your portfolio. carried out. found in the following areas: Carry out periodic and preventive I could mention numerous success From the efficiency of hits resulting analyses of your client databases in case studies, from large utilities, from sales and marketing actions. order to take preventive measures, multinationals and financial institutions Lower financial costs and increased months in advance, against possible to SMEs and self-employed individuals, cashflows. future payment defaults. in all types of business sectors in which In sales. these types of services are requested: From motivation of the sales network. Where to find information For carrying out marketing and sales From transactions accepted by the Do these tools exist? Can this be done? actions aimed solely at truly profitable risk department. Reality or fiction? The answers is, yes, targets. In the client they do exist. There are databases To establish periodic monitoring of portfolio. drawn up from personal interviews with the credit quality of existing clients, Why not put it the managers directly responsible for providing clear warning signs of default into practice? companies in Spain, in which the months before the problem occurs, CCRW data provided is compared, updated thereby enabling action to prevent it and verified. The results have been genuinely Gustavo Sousa is These include tools such as Predictive successful and quantifiable. Reductions regional manager Delinquency Rating, which indicates the and savings have been made in the for Iberinform Internacional, SAU company’s probability of default, 12 following areas: E-mail: gsousa@iberinform.es June 2010 www.CCRWorld.net 17