Case Study: Customer Segmentation

Company: $300-million B2B direct manufacturer onf industrial supplies

Situation: Lab Safety Supply, a leading direct distributor of safety and MRO products, had been conducting sophisticated scoring analysis on its customer base for years in order to determine mailing strategies. However, aside from the standard RFM (Recency, Frequency, Monetary Value) segmentation, there was little insight into customer behavior. The company had spun off several sub-branded catalogs, however there was no research on branding. Also, Lab Safety had seen a steady migration of its customers to the web, however, little was known about the cannibalization of sales or which customers had a higher propensity to buy via electronic means and what role the direct marketing efforts played in spiking e-commerce sales. Finally, Lab Safety was preparing to implement a CRM system, Onyx, but did not have a segmentation strategy or methodology to treat any of its customers differently.

Solution: A comprehensive program that combined quantitative research, qualitative research (focus groups), and database analysis. Step one was a pre-survey focus group to round out the questionnaire, followed by a telephone and e-mail survey to 1,500 Lab Safety customers and prospects. This research was followed by three focus groups to validate the segments identified in the survey and database analysis to determine Customer Lifetime Value, product purchase history and e-commerce migration patterns. The results were insightful and led to an enhancement of the business model and provided the foundation for Lab Safety’s CRM strategy:

• The customer segmentation yielded four primary groups which were identified by their product purchase history, industry and demand for certain services. These customers were placed on a spectrum comprised of two descriptors: “High Tech” customers wanted efficient electronic communications for their MRO purchases, while “High Touch” customers wanted more hand-holding during the ordering and fulfillment process.
• The segmentation identified that Lab Safety’s safety customers as the most loyal and least high tech of all the segments; however, they were the segment with the least opportunity for all MRO purchases.
• The Lab Safety brand could not be adequately leveraged in all product categories; however, customers did identify it as a brand of quality. Lab Safety Supply should be a sub-brand with increased resources going to build awareness for the most profitable product brands.
• Lab Safety’s CRM strategy should include a range of customer service strategies to adequately address the most profitable segments. Customer Service Representatives should be assigned to loyal safety customers under a new account management strategy, while e-commerce enhancements could address the needs of “High-Tech, High Touch” customers who demanded more expedient and personalized services, but also less human intervention.