All distributors segment their customers for pricing. The most common approach is to first segment customers by industry, then to further segment based on customer volume or potential. Our opinion is that distributors make two basic mistakes in their segmentation:
Placing too much value on segmentation by industry
We’ve seen distributors that have as many as 25 different industry groups. While this may be interesting for the marketing department, it’s of little value for pricing! What’s better is:
- Focus first on segmenting customers by their sales then
- Selectively segment by industry
You are better off to have fewer industry groups that represent your key customer segments and make sure those are accurate.
Failing to keep up with maintenance
Over time, customer assignments tend to migrate to the lowest margin customer type. As your sales people would say: “all my customer are competitive and all have great potential”. Instead, you’ll make more profit if once a quarter you review how your customers are assigned and make sure medium and small customers pay more.