One of the least appreciated dimensions of successful sales performance is the ability to analyze, differentiate and segment prospective customers effectively, I argue in the most recent issue of 1to1 Magazine. As I noted, "It is through rigorous segmentation that companies determine how best to deploy their limited sales resources, and how to maximize the return on these investments." 
Hill-Rom, the $1.1 billion Batesville, Indiana-based medical equipment manufacturer, shows how companies can dramatically enhance their sales performance by concentrating on this factor. Three years ago, the company, which has long held a strong position in the market for patient beds, specialty mattresses and other patient products, secured its market standing and drove new growth. Ernest Waaser, the company's new CEO, set demanding sales goals while simultaneously insisting that sales costs be reduced by 2 percent (as a percentage of revenue) within two years.
While there were multiple elements to the company's overall business strategy (including higher investments in product innovation), one of the most notable aspects of the sales strategy was the decision to rethink the customer segmentation model. "The first thing you have to do [when redesigning a sales strategy] is to smartly segment your customers," says Michael Pekkarinen, director at Boston-based Mercer Consulting, which advised Hill-Rom on its sales transformation efforts. "You have to understand them- how and why they buy. Otherwise, you'll just build a half-baked model."
The existing model was based on the size of the health care facility, particularly the number of beds and medical specialties. When the company reexamined its assumptions, however, it learned that facility size stood in the way of developing a more thorough understanding of the customer. While facility size was an important variable, it turned out that purchasing behavior also was influenced by an array of financial measures (such as the client's capital spending and profit margins), and operating factors (such as occupancy rate and insurance arrangements).
Through a multistep process of analysis and validation, the company eventually decided to recategorize its customers according to their purchasing ability and preferences, and redeployed its sales force with respect to these trends. Instead of treating all customers the same, customized sales approaches are now directed at customers that value this level of service. "Dividing the customers according to their own preferences [and purchasing ability] allows Hill-Rom to better understand why different customers do business differently with the company," according to a recent profile in Harvard Business Review.
The efforts are proving to be effective. While sales costs indeed fell 2 percent (of overall sales), revenue per employee rose 11 percent between 2001 and 2003. Gross margins climbed 6.7 percent. Customer satisfaction rates rose 6 percent. And the company has positioned itself for even greater growth in the future by investing in custom-oriented, consultative support activities to help customers generate new and valuable solutions.
"The strategic foundation of this initiative -- our customer analysis and segmentation work -- has provided a common language for speaking about customer needs and preferences," says Marshall Dahneke, vice president of corporate strategy at Hill-Rom. "It provides a valuable framework to drive not only sales and fulfillment, but also marketing and product development. It gives us the ability to be even more customer focused as we go forward."
