Objective: To maximize the ability to provide the most locally ideal solutions to best match individual customers' unique needs.

To effectively provide the customer with added value, along with the products and services it offers, an organization must know its markets and understand its customers' needs. Given that data, they can determine how to organize the sales force to most effectively meet the needs of the customer. Market segmentation becomes important when different customers or customer groups require specialized added values that are not compatible with other markets. Thus, the choice of options to align needs and solutions becomes even more critical. The seller has a variety of options to explore and define, including the customers' industry, size, geographical location, technology needs, complexity, regulatory requirements and, quite possibly, the products and/or services purchased.

Method: Distributing decision-making authority as close to the point of contact with customers as possible.

Critical Component: Identify the environmental and competitive forces that drive differences in customers' needs and organize to match those forces by geography, technology, complexity, or regulatory requirements.

Geography

To fill a gap between the high and low-end customers serviced by Global Services and Commercial Markets, AT&T established its Middle Market in January 1995 to service customers who spend between $5,000 and $85,000 per month on AT&T services. The Middle Market organization consists of four sales regions with 27 branches. While a Vice President of Sales and a Financial Specialist operate at the regional level, AT&T has transferred the bulk of its support capabilities to the local branch level. Branch personnel are expected to have a complete understanding of how products can be applied to the customer's business, and how to help the customer increase revenue, reduce costs, and deal with constant business challenges. Due to the aggressive approach in the marketplace and the frequency of customer contact, Account Executives and local management have been given considerable autonomy in pricing. As the organizational focus has changed from centralized to decentralized, 90% of the pricing decisions are managed in the field, eliminating the need for approval from headquarters.

Technology

Another approach to segmenting markets is by the customers technological needs. IBM's customer base encompasses a wide range of customers, with multiple industries and different sizes represented. Each of these companies has different information technology requirements, and the old "one-size-fits-all" approach cannot begin to address each customer's needs.

IBM's industry specific focus allows the Client Representatives to fully understand the customer's business and how to access the applications that are the leading edge in the industry to which the representative is assigned. These representatives have access to "specialist organizations" that provide whatever technical and/or technical/sales support is necessary to take care of each customer. The role of the Sales Specialist is to sell IBM products in areas requiring a specific expertise. They are organized geographically by specialty but segmented more by technology than by industry. Support may be provided by a Hardware Specialist, a Network Computing Specialist, or a Software Specialist, among others. These are technical salespeople responsible for identifying opportunities and meeting sales and product goals.

Complexity

More complex customers may require total systems and technical or senior level contacts. To add value to the customer's business, GE ICS has organized Local Customer Teams that work within their specialties to fully research and understand a customer's business and to solve complex customer problems, including productivity issues. Currently, GE ICS has established approximately 20 Local Customer Teams throughout the Americas composed of 30 to 70 people. Each LCT is run by an advisory board of seven individuals. Basic sales operations and technical functions are represented: thus, an LCT could have an account manager from sales, a representative from distribution, and a representative from OEM sales. There are only two management level functions: a business development leader and an engineering manager. The LCT teams also select two individuals from the technical ranks (field engineers and application engineers), and one who holds an "at large" position that does not fit into any of the other categories. Within the team framework, the advisory board is responsible for establishing the sales strategies and tactical plans, allocating and positioning its resources to best meet the marketplace challenges.

Regulatory

Federal and state regulatory laws regarding medical/healthcare products and environmental issues can greatly impact a company's ability to do business. Literally, every state over the last several years has taken a different approach to healthcare. This boils down to addressing the differences in the way healthcare is managed on a state-by-state basis. Recognizing this, Allegiance has blazed a trail toward truly understanding those differences, and as a result, is prepared to deploy the resources in one state or region differently than in another state or region. For example, the state of California became a front-runner in the area of managed cost. As a result, considerable pressure was placed on the hospitals and healthcare entities in that state to provide a product for less money. Regional segmentation driven by regulatory requirements around managed healthcare provided the opportunity for Allegiance to help these healthcare systems adopt alternative methods that could reduce or remove the cost of the product. Again from a state government standpoint, environmental issues around waste in California created a need for reduced packaging. By deploying resources to deal with regional needs driven by regulatory laws, Allegiance is able to understand those individual needs and appropriately help its customers with their struggles.

Critical Component: Develop a system to manage complexity and share resources and information with minimal internal competitive interference.

One of the core problems facing organizations who have national accounts that must be negotiated and managed at a corporate level, but serviced at a local level, is superimposing a centralized sales function on an established decentralized sales force. In many cases, sellers lack the resources and capabilities that enable customers to make favorable purchase decisions, customize their orders, or resolve problems without the help of a facilitator (the salesperson). However, to be effective that salesperson must have the authority to make decisions in real time without the burden of obtaining centralized approval. Without a cooperative culture across all decision points that affect the customer, the added expense of maintaining a national account may negate the value of that customer.

Consistency takes on new meaning in differentiating itself from competitors as Boise Cascade Office Products implements its integrated national network, servicing its larger national accounts with one centrally negotiated contract for all office supplies. BCOP's National Accounts generated 28% of net sales in the United States in 1996. The challenge accepted and met by this World Class sales organization is to gain support from the local field representatives who must abide by the contractual agreements reached with corporate decision-makers in the national accounts. Approximately 20 National Account Managers in the field work in conjunction with the local representatives. In keeping with their commitment to a customer-driven culture, BCOP's philosophy "Consider It Done" takes tangible shape as field representatives in geographic territories accept the responsibility of carrying out the service, product, and pricing agreements set by the National Account Managers. While it may not be convenient or profitable at the local level, this cooperation allows for effective management of an account that is profitable to the company as a whole.

Continuity of the relationship between sales and the customer is important. Sometimes a sales generalist is needed and, at other times, the services of diverse specialists can best serve customers' needs. When faced with rapid technological change, the availability of specialist resources for complex solutions is a key support component. AT&T Middle Market employs two types of sales representatives. The Universal Account Executive is a generalist whose efforts are supported when necessary by the Data Networking Account Executive, whose focus is more on selling high end products.

Critical Component: Maximize resources invested in high potential segments and minimize efforts spent in low potential segments.

Market segmentation involves more than organizing just to sell; it also involves organizing to sell profitably. A significant goal of market segmentation is to determine if it is worth the investment of resources to pursue a segment that does not make money or at least break even for the seller. A decision may be made to restructure for that segment, abandon the segment, or even to bring in a competitor who can provide the product or service. The World Class sales organizations recognize that successful segmentation includes drawing upon their competitive advantages, and getting out of those segments that cannot afford or justify the added value built into the product or service.

IBM employs a combination of face-to-face coverage and tele-coverage to maximize its resources and to minimize efforts where customers have indicated a preference for less personal contact. It now has over 600 inside Client and Specialist Sales Representatives who can duplicate its field representative efforts over the telephone. These tele-sales reps can do everything the field rep can do, including answer technical questions. Furthermore, a tele-sales center rep can make 20 to 40 customer contacts daily, while a field sales rep may be able to make two or three calls, according to industry standards. This reallocation of talent has significantly increased productivity in a high potential segment.