The concept of innovative customer segmentation (ICS) with differentiated value propositions opens up completely new possibilities for identifying strategically relevant customer segments and for precisely determining the threshold levels per customer segment. With this approach, it is possible to effectively counter commoditization tendencies and achieve stronger customer loyalty.
Our market research in recent months has confirmed that responsible managers have only vague ideas about the threshold levels of strategically relevant customer segments – even though the precise knowledge of these levels forms the basis for an effective differentiation strategy. Instead, internal discussions focus on customer satisfaction, which we know is not a reliable indicator for a sustainable future success of the company.
I’d love to. I would describe the threshold level as follows:
- In order to design tailored and attractive value propositions for your customer segments, you first need to understand the key customer value of your customer segments
- For this purpose, we use an “observation grid” consisting of 7 value criteria. This grid is based on the expectations of the customer(s) in terms of product portfolio, time, price, quality, service, relationship and image. These value criteria thus extend the perspective beyond product and price
- The first step is to identify and of course understand the threshold level, i.e. the minimum expectation in all 7 value criteria for each customer segment. This brings us to a first intermediate result: Offers that do not meet the threshold level are rejected
- The second step is to identify in which customer segments and within which of the 7 criteria there are possible additional expectations or additional potentials that go beyond the threshold level. A possible result: Offers that meet these additional expectations differ from the competition in a positive way
- An offer that exceeds the threshold level only makes sense if there is a potential which is appreciated by the customer. Otherwise, resources are wasted because effort is invested in something the customer does not need or value.
The minimum expectation of delivery time in a customer segment is 5 days, i.e. any supplier requiring more than 5 days does not meet the threshold level and is eliminated. Now, it might happen that it would be an added value for this customer if the supplier reduced the delivery time to 3 days – in this case there is an additional potential or expectation. In another customer segment it may be that a reduction of the delivery time to 3 days is not required or expected by the customer. In other words, 5 days is perfectly acceptable for the client. In another customer segment, the minimum expectation, that is, the threshold level, of the delivery time is 3 days.
Threshold level and additional potential therefore differ from customer segment to customer segment. In one segment you differentiate yourself (positively) with a delivery time of 3 days, in another segment you just meet the threshold level.
Robert A. Sedlák is Senior Executive Consultant, Chairman and CEO at SEDLÁK & PARTNER International Consulting. Since 1987, he has been working as an independent management consultant for DAX-listed companies as well as for medium-sized businesses. One of his consulting focuses is the topic of “Foresighted Self-Renewal”. This method, developed with leading organizational scientists of the Newer Systems Theory, enables organizations to recognize signals for change early on and to use them specifically for a self-renewal process. In addition, it deals intensively with the question of how organizational and personal learning processes can be optimally interlinked within the framework of change processes.
Since 2013, Robert A. Sedlák has been a guest professor at the East China Normal University (ECNU) Shanghai and, for over 25 years, has been a member of the Bundesverband Deutscher Unternehmensberater BDU e.V. (Federal Association of German Management Consultants). He is also a CMC certified management consultant.