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How to Segment Customers for Better Pricing Decisions

How to Segment Customers for Better Pricing Decisions

June 23, 2010

If you've begun implementing a strategic pricing plan at your company, how do you segment your customer base? If you're using the same method you use for marketing, you may be missing out, according to Evergreen Consulting's Brent Grover. Grover recently talked about strategic pricing in a two-part MDM Webcast series.

"Using the SIC code or the NAICS code is great for analyzing sales, but we're talking about managing the pricing side of the business," Grover says.

Instead, Grover suggests implementing a matrix approach to customer segmentation that looks at three different characteristics of each customer:

  • Industry served
  • Company size
  • Price sensitivity

"The sweet spot in the center of these three overlapping circles is where we're headed to try and come up with the right price for this item for this customer," Grover says.

The most difficult part of this matrix is determining price sensitivity, and Grover says you won't be able to make perfect predictions. But, taking the time to consider each of these pieces and implement pricing based on them can contribute to a significant increase - Grover suggests 150 to 200 basis points - to your margins.

Access the full webcast series, including Part 1: How to Tune your ERP System for Strategic Pricing and Part 2: How to Implement Strategic Pricing with your Sales Team from the MDM Downloadable Webcasts page.

Related Articles from MDM:

Pricing for Profitability
The Art of Executing Strategic Pricing
First Steps in Strategic Pricing

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