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A popular way to segment customers is by revenue or profit generated, with "A-list" customers receiving more perks and personal service than "lower" categories. There are right and wrong ways to do this.

Doing it right means cultivating customers so they all feel appreciated, by developing or improving products to meet each customer segments' needs. Result: pleased customers and higher profit.

Doing it wrong creates risk of sub-standard service for "unimportant" customers, making them feel unappreciated and resentful. Result: missed profit opportunities and disgruntled customers.

Brand Image

When deciding how to service each customer segment, remember that every point of contact with a customer reflects on the brand, regardless of customer "importance." Over time, this has an impact on brand image and company reputation.

With the Internet so prevalent today, each individual has more power to voice his/her opinion than in times past, which directly impacts brand image and goodwill associated with the name. Each mistreated customer has the means to tell the world of her/his experience on Web sites that allow reviews (such as bizrate.com and Amazon.com) and online discussion forums.

An Example of Bad Service From the Customer Viewpoint

The way each of my credit card issuers treats me is a prime example. I always pay my bill in full (often early) and belong to the "cash back" rebate programs, so I imagine I'm in a similar customer segment for each and would expect to be treated similarly by these three competitors.

Not the case. Two of the companies make me feel like a valued customer. The third made me feel so unappreciated I closed the account. How the three companies handle "suspicious" activity on my account demonstrates the varying degrees of service:

- Discover card has a fraud specialist (or customer service representative) call me in person to ask that I review recent transactions with her/him.

- Citibank's computer calls me with an alert, asking that I call a number or go online to verify transactions through a computerized process.

- Advanta locks the account and sends a letter informing me they have done so. In my experience, the letter arrived a week after the incident and I was not notified by telephone (I called them when the "offending" vendor notified me of the decline). I asked customer service to allow future charges from that vendor, but they could not do so. Presumably, this meant an account freeze each time my authorized vendor attempted to process a legitimate charge.

All three of my card companies require that I take some sort of action to verify suspicious charges, which is to be expected. The approach, however, leaves a very different impression. Citibank and Discover both apologize for the inconvenience of transaction verifications and -- while I have to go through an extra step with Citibank -- both fall within my subjective definition of quality customer service. Advanta, however, does not apologize for the hardships of declined transactions and a frozen account.

To be fair, I do not know that my negative experience would have been handled differently if I were in a more profitably customer segment. It could have been result of badly trained customer service representatives, or perhaps this is standard procedure on all accounts.

Tips for Segmenting Customers Without Sacrificing Service

Customer segmentation is a good thing. It helps you recognize how customers are different and it should draw your attention to needs of different segments, prompting you to better meet those needs. Some ideas on successful segmentation:

- Segment by need rather than profit or revenue. A low-profit customer today could be high-profit tomorrow if you offer products and services that fill her/his needs.

- Look for ways some customer segments can effectively be more "self-service," which cuts costs for the company while meeting customer service needs.

- Build in ways to create exceptions in automated customer service processes, so as not to alienate those with special situations (in my example, by allowing a way to preauthorize account activity).

- If offering promotions, rewards, or other incentives to some segments but not others, "spell it out" for customer service representatives and structure your Web site and promotional mailings accordingly. By taking steps to assure customers receive consistent information across all channels of communication, you avoid customers being exposed to offers for which they do not qualify.

There are ways to segment customers without lowering customer service. By doing so effectively, you nurture business growth and reputation.