How Finance Can Help Create a Winning Customer Segmentation Strategy

Part 3 in the Series: The 8-Ball of Customer Portfolio Segmentation for Finance

Like winning a game of pool, breaking into your data and coming up with your winning strategy for using customer segmentation to drive increased cash flow, collaboration and profitability is not a game for the faint of heart. The complexities behind segmenting your customer portfolio effectively are many, yet finance has a leading role to play.

Now that you've committed, as a finance leader, to the benefits of customer segmentation and learned the potential pitfalls of segmenting your customer base, it's time to return to your pool table to win the game.

The stakes are high, so here are some guidelines for increasing your odds of winning once you set out to navigate your winning segmentation strategy.

1. Define Your Goals

Ultimately, the most important task you can perform when you seek to create and align your customer portfolio segmentation strategy is to ensure that it also aligns with your corporate strategy.
Abigail Lutte, Dun & Bradstreet

What do you seek to get out of effectively segmenting your customer portfolio? It may seem obvious. You're a pool shark. You want to win. You want to create value. But the term "value" can translate into entirely different scenarios depending upon whom you ask. Finance may understand this subtle dynamic more than anyone. Ultimately, the most important task you can perform when you seek to create and align your customer portfolio segmentation strategy is to ensure that it also aligns with your corporate strategy. Whether that strategy is to claim larger chunks of market share by being a loss leader, to grow through M&A, to increase free cash flow to invest in product development or to increase profit margins, your customer segmentation strategy should reflect and enable those efforts across the board.


Defining your goals boils down to having clear corporate vision as a management team. Why? Think of a road trip you've taken as a group without a map. You might ultimately get to your final destination, but the odds are that getting there, if you do make it, will be a rocky, convoluted process. Jason Karaian writes in The Chief Financial Officer that, "The lure of near unlimited information to inform decision-making is powerful, but CFOs must beware of drowning their organizations in data, blindly following spurious correlations, or blunting a company's creative drive." Identifying goals appropriately ensures that you are steering your ship toward land and away from the sirens.

2. Create a Cross-Functional Segmentation Execution Plan

It's not quite time to begin knocking your data around with your pool cue yet. After understanding and aligning on your vision for the future, the best next step is to seek input from cross-functional colleagues on the best methods to go about segmenting your customer base effectively. This step goes beyond aligning on organizational goals to diving deep into individual functional goals and data sources.

Perhaps the most difficult step in the process, seeking cross-functional input from the beginning will ultimately add windfalls to your segmentation efforts.

What should this input look like? Here are a few questions to ask your management colleagues to get started:

  • What are your top priorities this year?
  • What 2-3 metrics are you using to define success in your group?
  • Which data sources do you rely on to make your strategic decisions?
  • How does the data you're using flow in and among systems, people and processes?
  • How are you segmenting your customer data today?
  • What's worked? What hasn't?
  • What key attributes should be carried across the organization to align with corporate goals?
  • How can we create a single source of the truth that remains up to date?
  • What are the gaps today, and how can they be addressed?

Gathering this input may be overwhelming. You might hear that your sales teams are segmenting their data by renewal date, that your marketing colleagues are segmenting by industry to drive product awareness, that your operations group is segmenting by inventory requirements. Listen carefully for common themes and assess whether or not these themes align with your corporate strategy. If you decide as a management collective that your top priority is to grow your profit margins, listen to whether your colleagues' current efforts support that corporate priority. For example, if you hear that your manufacturing team prioritizes efforts based upon factors such as order recency, it may raise a red flag and lead you to ask, together, how keeping the profit margin focus could inform all activities in the organization through segmentation. The manufacturing team instead might prioritize order fulfillment based on account size or cost structure, rather than recency.

Ultimately, the goal is to align on how segmentation will inform the rest of your business strategy and to pick the attributes that best reflect that strategy.

3. Size Up Your Data

Once you've defined your criteria, it's time to rope together your data. This can also be a challenging step to take, depending on your organization's master data management maturity. You may have decided as a management team that your segmentation efforts should be universally focused on account size, industry, payment behavior and product usage. (If you've gotten this far, congratulations! It's not easy.) The next step is to find out how to make all of this data universally consistent and available to all functional areas.

The pool shark knows where each ball is on the table and has a mental map of its final destination. You need to go beneath the surface of what your data is telling you and find out what your data's dirty secrets are, in order to diagnose and fix any potential issues and problems by implementing appropriate technology and controls. This may seem like ERP 101, but in fact it can prove extremely difficult if even one of your key data sources is managed by human hands, isn't universally available or clean, and doesn't flow through multiple systems. Once you've spotted and diagnosed your key issues, it's time to move on to the next step.

4. Choose the Right Tools

Picture trying to play pool with a pencil. It might work, but it won't work well or easily. Finance is arguably more familiar with the organization's systems and tools than most teams. Ultimately, finance must look far beyond legacy issues such as depreciation rates and up-front investment to corporate strategy. If you've decided that your goal for a given year is to increase profit margins, you need systems and tools to help dissect and deliver the data that will help you accomplish this goal. Making the investment in these tools may require a heavy management input of time and resources, but getting this right is critical to business success.

Winning a game of pool isn't easy, and neither is implementing a solid segmentation strategy. Yet, taking the plunge is a worthy endeavor-especially in the modern business landscape where all eyes, and all bets, are on the finance arm of the organization.

Next, we'll examine what it takes to track your success and how you can rally around a reporting system as a management team.