Last week Andy Kessler wrote an article in the Wall Street Journal, The High Cost of Raising Prices, which might scare you into thinking you will ruin your business by raising prices. While I usually enjoy reading his articles and I found a few valid points, I mostly disagree with this article. Don’t fall for the scary stories and false correlations that could make you afraid to raise your prices. When the value you provide to your customers is greater than the price you are charging them, you can and should increase your prices to match the value.
Last week there was an article in the Wall Street Journal, So Long, Hamburger Helper: America’s Venerable Food Brands Are Struggling which discussed the declining market shares of some of the largest packaged food companies. It is not a surprise; the large CPG companies have been losing customers for the past few years on multiple fronts. Although many companies would interpret declining share as an indictment of their pricing strategy and would lower their prices, doing so would likely make the situation worse. It is much more important to understand what is happening with each customer segment and tailor their actions to the segments.
In 2016 we saw several examples of companies raising prices rapidly and causing an uproar in the process. Classpass canceled their subscription to unlimited boutique fitness classes, What The Hell Is Going On With Classpass?. Also Mylan, Valeant, and Turing were all in the news for substantially raising the prices of popular drugs. In fact, they were all called to testify before Congress and were scolded for their actions. Their customers are and have been actively looking for alternatives. These few examples do not mean you should forego price increases or be timid about them; but they do mean you should be thoughtful in the process. Make sure your pricing strategy is multi-dimensional and includes steps to limit your risks when raising prices.
The first step in setting defendable price increases is to avoid having across-the-board common price increases. No matter what price increase percentage you pick, you run the risk of being too high for certain products, and you will definitely miss opportunities on other products. Other elements to consider include:
- How critical is the product to your customers’ business? For mission critical items, customers are less likely to switch to new unproven suppliers and they may tolerate slightly higher increases.
- This answer could be different for each customer segment
- How much of your customers’ total budget is consumed by the product? Your customers will be much more sensitive to price increases on products that comprise a large percentage of your budget. Higher price increases will elicit more negative reactions.
- On the other hand, there is not much incentive for customers to look for alternatives to products that make up a small portion of their budget, and they will be less sensitive to price changes
- What is the price/value relationship of your product compared to competitors, i.e., where is it on the Value Equivalence Line? If your product delivers 20% greater value than competitors, is it priced 20% higher?
- If your price/value relationship is low, you can raise prices more aggressively. Conversely, if that relationship is already too high, increasing the price further could anger your customers
- How many competitors and available substitutes exist for the product? Customers will be more sensitive to price changes on commodity-like products with many competitors and substitutes.
- For more specialized products with few substitutes, customers will tolerate somewhat greater price changes
- How elastic have the purchases of the products been? If customers have historically been inelastic (price increases did not reduce volume), you can be a little bolder with your price increases.
- Be more cautious increasing prices where customers have a history of voting with their feet
Absent from the list above is the change in the cost to produce your product or service, because cost should not be the driver of prices. Having said that, there is no doubt that when customers know your costs are increasing, they are more tolerant of price changes. However, customers care more about how much they have to pay compared to the value they will receive; and those factors will have a much greater impact on their price sensitivity.
If you consider the dimensions above, you will be well on your way to setting product-specific price increases that enable you to capture more margin without too much risk. The last step is to communicate your price changes effectively. That discussion should always emphasize what you do for your customers and how that provides value to them. Be honest and direct about the price changes, and don’t apologize for them. If your prices are really aligned with value, the customers will accept them.
Make sure you give your customers a reasonable amount of notice. Nobody likes surprises, and an adequate notice period let’s your customers plan for the impact. It will also help your customers to offer alternatives. De-scoped products that offer a lower price, rebates for significant volume increases, incentives to order in larger quantities, and product/service bundles can help customers reduce the impact of price increases.
Although we have seen plenty of examples of companies angering their customers with price increases, that should not be the norm. It is clear that huge price increases can cause a backlash, but strategic price increases can improve your profitability without creating customer problems. Be thoughtful and vary your price changes according to the products and circumstances to maximize your upside and minimize your risks.
After getting raked over the coals by Congress earlier this year, Mylan is preparing to release a generic version of their EpiPen, Mylan To Start Selling $300 Generic EpiPen Pack Next Month. The price of the generic will be roughly half the price of the brand name EpiPen. That raises obvious questions like, “How will the generic impact the sale of the EpiPen?” and “What will happen to Mylan’s profitability?” Although the Mylan issue is a bit extreme, these are similar questions to those that must be answered by any company whose pricing strategy includes offering a generic version of their product or an introductory level version of another product. All of the strategic aspects of introducing a low-priced offering must be explicitly considered and planned.
Customers are not all the same. They have different levels of price sensitivity and often experience different levels of value from a given product. The whole point of segmentation is to identify which customers fit into logical groups with common levels of value and common levels of price sensitivity, and then create offers that fit each segment. We see it with automobiles, such as Mercedes which offers an entry level, middle tier, and premium tier of their 4-door sedan. We also see it in HP laptops with devices aimed at basic users, gamers, power users, and multiple steps in between. The products in the lineups of Mercedes and HP have a range of prices and a range of features to address multiple customer segments.
An important point is companies introduce 2nd, 3rd, and 4th versions of products to capture additional customers. If a company’s first version of a product starts at the premium end, future versions are likely to be descoped versions to appeal to customers who are currently not buying. The purpose of the reduced-price version is to capture more price-sensitive customers, or those who do not need all the features of the original, not just to lower the price for existing customers. Conversely a company who starts at the lower end of the spectrum would offer a premium version to meet more advanced customer needs and capture premium prices.
The next important point in these lineups is the products are not simply the same thing with different names. There must be differences. The highest end products have features that add more value compared to the lower level products. The manufacturers communicate those extra features and the additional value to customers and prospects, along with communicating the higher prices.
Generic items market themselves as products that provide the same value as the brand-name products, but at a lower price; and brand names compete by touting their quality, reliability, safety, and special features. In other words, not the same thing. Mylan appears to be trying to market their generic EpiPen by saying it is the same thing as their own brand name drug. If customers perceive a Mylan’s generic product is identical to the brand-name product, a large percentage of those customers will simply switch to the generic version. That will significantly reduce Mylan’s revenue.
For any company looking to expand their customer base by offering a generic or entry-level product, they need to address:
- How large is the market for a generic version of the product?
- How many existing customers are likely to switch to the lower-priced version?
- Can we articulate the differences between the premium product and the generic product in a way that demonstrates value?
- How many new customers are likely to be captured with the new product?
- Does the profit increase from new customers offset the profit decrease from customers who simply switch to the lower-price version?
- How are competitors likely to react?
In Mylan’s case, there were already many complaints that potential customers had been priced out of the market and could not buy EpiPens. In addition, a new competitor will be entering the market, and the new competitor will likely capture some existing Mylan customers and compete for the more price-sensitive customers. So, Mylan needed to act.
For most of Mylan’s existence, they have manufactured generic drugs and sold them as equivalent to the branded versions. With the very large price increases they implemented, they should also have been planning for a path to address the more price-sensitive segments. Without some identifiable differentiation, customers will know that their new generic EpiPen is the same as the branded product. I expect the revenue and profit from EpiPens will fall dramatically. More modest price hikes and better planning could have avoided the coming profit decrease.
September is nearly ended and we are preparing to start the 4th quarter of the calendar year. For many companies, it is also the final quarter of the fiscal year. Similar to sports teams, whether you have a lead or are trying to catch up, winning in the 4th quarter often determines whether you win or not for the full year. That often means a big push to meet or exceed targets by finishing the year strong. Focus and effort are critical, and strategic pricing concepts can help you determine which customers to target. More specifically, you can use the insight from your pricing analytics to help you be more efficient and productive. That insight can also help you make decisions that won’t come back to haunt you next year.
A fairly simple way to identify higher value targets is to think about your customers in terms of how many products they need or could buy, and how price sensitive their behavior tends to be. You can plot your customers and prospects on a simple grid like Figure 1, and prioritize according to the grid. The quadrants can be categorized as High Priority; Good, Not Great; Caution; and Avoid.
On the horizontal axis, the breadth of product assortment the customer needs will give you indications of how many purchase decisions will be made in the 4th quarter, and the likelihood of customer needs for non-core products that you are not already discussing. Customers who purchase a large assortment give you more chances to win. These customers also are more likely to purchase products that are less critical and don’t get as much price scrutiny.
On the vertical axis, the level of a customer’s price sensitivity gives you indications of how likely they are to switch to your competitor for a lower price next year, and how high the margins are likely to be. Go after the customers with lower price sensitivity where you can get better margin efficiency and they are more likely to stay with you. If your pricing analytics don’t show price sensitivity, think about evidence of price sensitivity such as how often they switch suppliers, how often they call for support, whether they order electronically or by phone, how often they ask for a price before ordering, and how often they request rush orders. You can probably think of your own questions too.
Your highest priority targets should be the customers who use a large assortment of products and who have tended to be less price sensitive. With these customers, you will have more opportunities to win, and the pricing is likely to be better, so your time will be more efficient and effective.
Don’t waste your time on the customers in the upper left quadrant. Since they will make very few purchase decisions you will have to work very hard to get any sales, and those sales would be at low prices. The efficiency of the margin you earn compared to the effort required will be very low. Also remember if you take this business from someone else with a low price, the odds are high that the customer would switch back next year if your competitor lowers the price again. You may think that is a trade-off worth making, but you would regret it next year.
There are opportunities in the other two quadrants, but they are unlikely to be as productive as the High Priority targets. The smaller assortment but less price-sensitive group gives you fewer chances to win, but the prices should be good and they will not drop you next year for small price decreases. Conversely, the high sensitivity customers with a large assortment give you more chances to win, but margins may not be as great. For this group, look for opportunities on non-core products that the customers are buying elsewhere and perhaps are not even considering you. Make your pitch with a focus on the particular value your company brings and the outstanding service you provide them.
Good luck in the fourth quarter. Use your pricing analytics to set your priorities and you should be more successful.
I have been watching the Game of Thrones the past several seasons. I love the rich scenery, the diverse range of characters, and the intriguing, suspenseful drama. A recent episode about the Many Faced God got me thinking about customer types. In particular, it got me thinking about customers with multiple faces or personalities. Some customers are like Dr. Jekyll and Mr. Hyde with two personalities, while others are like Sybil or the Many Faced God with several personalities.
Consider my wife. She occasionally shops at Costco. Does that make her a price-sensitive shopper? Maybe, but not necessarily. She will not travel to Costco unless we need a large quantity of something, such as paper towels, napkins, or bottles of water, or because she wants something specific, like a laptop or a printer. The first items she buys in bulk, because prices are lower in large quantities and we are able to store them. In addition, while my wife is at Costco, she will usually pick up a 4 lb. pack of bacon, not because we need it, but because I like it. And if it is in the house, I will eat it. This bulk buying process definitely indicates a level of price sensitivity, and she is willing to use our storage space in exchange for lower prices. But that is not the whole story.
Following her most recent trip to Costco, my wife showed me 2 bargains she picked up while there- a cotton sweater for herself that was marked down to $15 and a $20 cotton sweater for our son. That was definitely the price-sensitive shopper in her. That is her Dr. Jekyll side. However, in the same trip she exhibited the complete opposite Mr. Hyde behavior by picking up some lobster tails for $20 per pound and a 18 oz. bag of Bark Thins (dark chocolate with almonds). Of course the lobster tails and Bark Thins were delicious, but we did not need them, and she could certainly have purchased less expensive seafood and candy.
Those are not the only Jekyll & Hyde moments my wife exhibits. She will buy clothes at Macy’s at the end of a season when they are on sale (Dr. Jekyll), but she will also pay full price for other clothes at Nordstrom when they have what she is looking for (Mr. Hyde). She will stock up on items that are on sale at our local grocery store (Dr. Jekyll), but she will also pick up a meal at a smaller, higher-priced neighborhood store 3 blocks from home. And sometimes she is a mixture, bringing her own bottle or water to a Pittsburgh Pirates baseball game to avoid paying $4 for a bottle, but happily paying $8.50 for a beer.
So what is the significance of these multiple personalities? Here are 5 key things to focus on:
- Recognize that nearly every customer can have multiple faces. Have something for each personality. Once Dr. Jekyll is in the door, sell something to Mr. Hyde.
- Customers are not all the same, so don’t try to be all things to all customers. Some will be 80% Jekyll and 20% Hyde, but some will be the reverse. And some will be like the Many Faced God, with more personalities. Identify your target groups and have an assortment and pricing strategy to match.
- Use your data to figure out who is who. For customers in your rewards program, you can track everything they do. For others, start to create profiles of them using industries in which they work, the applications for your products, which products they need help with, and which they order online, which products get returned at higher rates, which products require high levels of service and which do not. This analysis can help you fine tune your targeting from #2.
- Do your homework to understand what is happening in the market. What are the ranges of prices that are occurring and under what circumstances? If you are going to create a promotion to get Dr. Jekyll in the door and sell something to Mr. Hyde, make sure your promotional price is attractive, and don’t price too low to Mr. Hyde. By the same token, know what the limits are. My wife’s Mr. Hyde bought lobster at $20 per pound, but she would not have done that at $40 per pound.
- Use rifle-shot, not shotgun techniques specific to your targets. For example, at the beginning of the school year, Bed Bath & Beyond often targets a promotion to students moving into dorms. To get Dr. Jekyll in the door, they offer a coupon for 20% off the largest item; but the coupon is good for one item only. They also recognize that kids are moving, sometimes a long way, so the retailer enables students and parents to order whatever they need in the nearest store to home, and pick it up in the nearest store to campus. Bed Bath & Beyond understands the parents would value a service that makes everything easier, and those Mr. Hydes would be a little less sensitive in exchange for the service.
We are all in business to make money, and inconsistent behavior by customers can make that difficult. The most successful businesses will embrace the challenge of serving the Many Faced God, and they will use their knowledge of the multiple personalities to make more money.
We have written many times before in our blogs and newsletters that customers are not all equal. They have different needs, they value product attributes differently, and they have varying levels of price sensitivity. In order to address these multiple customer segments, it is common to have multiple variations of a product or service offering – a Good, Better, Best product lineup. Beyond just creating multiple offerings, your pricing strategy needs to include getting the relative positioning right. Your profitability depends on it.
There is no perfect number of alternatives or options to offer customers, but how many you will offer is an important question to answer. If you do not offer enough options, you run the risk of missing some customer segments by not specifically addressing them. Conversely, if you offer too many options, it is easy for customers to be overwhelmed with the complexity and not make any choice. To determine your best number of offers in your product lineup, consider the ease with which customers can assess the differences, the number of competitive offerings that exist, the range of values perceived by customers, and your capability in managing the range of products or services.
In addition to determining how many products to offer within a lineup, it is also important to determine how the price of each product or service will relate to the others. Multiple studies have shown that when faced with three or more options, customers tend to choose the middle option more frequently than the highest or lowest priced offer. Customers often avoid picking the least expensive offer because they don’t want to feel like a cheapskate. And they often avoid the most expensive option, because they really aren’t extravagant and do not need whatever additional benefits the highest options offer. So they go with the middle.
Thinking about this behavioral tendency can help you execute a stronger pricing strategy. If your goal is to maximize your profitability over time, you will need price points that attract customers at multiple levels of value. But what if you find that your results are skewed in that a large percentage of customers are picking either the most expensive or least expensive option? In that case, the prices of your product offerings are probably not aligned with their relative levels of value.
Try to plot the relative values that customers attribute to each of your products compared to the prices of the products. The result is a Value Equivalence Line (VEL). If your products appear similar to the unbalanced graph to the left, your less expensive product A is probably gaining a higher share than is appropriate. That is because it is value advantaged. That means customers who might want more features find greater relative value in product A and choose that instead of a higher priced product.
To correct this, you want to ensure that your offerings are relatively balanced on the VEL, similar to the second graph on the right. In this case the prices of the products line up with the values customers place on them. If VEL is currently unbalanced, start to correct it by adjusting prices. In this case, you would consider raising the price of product A and lowering the price of product D.
When making these adjustments, evaluate your overall profitability, not just sales. Lowering the price of the higher priced product D will likely increase the number of buyers of product D, but it will also reduce the price to existing buyers. Conversely raising the price of product A will also likely cause a few existing buyers to stop buying, but that customer reduction should be offset by the higher margin from those who continue to buy and those who migrate up to product B. It is important to model the potential scenarios and understand the impact on profitability from each. It is not terribly complicated and will help you make more informed decisions.
You know customers come in all shapes and sizes. If you organized your efforts around developing offerings that create value for those customers, make sure you also do the work to capture that value for your shareholders by setting the appropriate prices.
Late last month there was an article in the Wall Street Journal, Smaller Sizes Add Pop to Soda Sales, describing the attempts by Coke and Pepsi to sell more soda in smaller cans. The article further points out that the price per ounce is higher for the small cans than for larger cans. If that is a surprise to anyone, it shouldn’t be. The real message should be that these actions are not pricing tricks, they are adaptations to customer needs. The things valued by customers are changing, and Coke and Pepsi are simply trying to address those changes. They are being smart about it, and the rest of us should pay attention.
Everyone realizes markets are constantly changing. Customer tastes evolve, new competitors enter the markets, new products are introduced, the economy expands, the economy contracts, cost structures change, etc. Each of those market changes can affect the market participants, and how the participants deal with the changes has implications for whether or not the business thrives. Too often, weaker or poorly managed businesses react out of fear and damage their long-term profitability. In this example, Coke and Pepsi are not being fearful, they are being thoughtful.
Over the past several years, consumers have been increasingly attentive to the fact that too much sugar in one’s diet is harmful. Unfortunately, soda is loaded with sugar. Although sugar-free sodas were created more than 40 years ago, the acceptance of them as substitutes for regular soda has come under fire. There is a growing school of thought that artificial sweeteners are also harmful, and as a result, regular soda drinkers are not simply switching to diet. So the challenge for Coke, Pepsi, and others was how to stimulate demand.
A traditional way of thinking (also a fearful way) would be that soda prices need to drop in order to bolster demand. However, Coke and Pepsi realized that many customers still want to drink some soda, just not as much as they previously drank. So Coke and Pepsi offered smaller sizes. This let adults still have a sweet drink and parents still allow their children a treat, but in lower volumes. They could feel good about cutting back their consumption, while still satisfying a desire. This became a new segment for the soda makers.
If we look back to the 2008-2009 recession, the casual dining and fast casual restaurant chains faced a similar challenge. Many chains responded by lowering prices on existing products with some items as low as $1.00. They simply generated lower traffic and lower sales per person to many customers who were already going to buy those items at the old prices. They also left money on the table by offering lower prices than necessary to customers who were trading down from finer dining. The more creative chains, like Darden Restaurants, created new items with healthier, smaller portions at new low prices, and new bundled meals. Those chains also maintained their prices on existing items. This enabled the restaurants to preserve their profitability on customers who wanted the existing items, and provide new alternatives to the segment focused on healthier food or lower prices.
We can learn something from Coke and Pepsi. When markets change unfavorably, pay attention to how and why they are changing. Maybe size really will matter. Look for new segment and product opportunities to buoy your demand. You will get much better results than if you simply lower your prices.
Time and again I hear people lament that their competitors’ products are just as good as their own, and prices have to be low to win sales. The general assumption is that price is the most important factor to the customer. That assumption is usually wrong. Earlier this month there was a series of posts on Facebook that showed customers decide first on the product that meets their needs, and they are relatively loyal once they have made that decision.
Earlier in 2015 my niece began running a weekly poll of sorts among her Facebook friends. She calls it Philosophical Friday and asks a single question each week, which friends can answer however they please. Last week the question posed was, “What is the one common item that you just can’t bring yourself to buy the off-brand/cheapest option? Household items, food, clothing, shoes…whatever. The answers were mostly focused on consumer products, many of which people might consider to be commodities.
There were 39 different products mentioned, the top 10 (in terms of frequency) were:
- Cereal
- Dish Soap
- Toilet Paper
- Tampons
- All Products
- Coffee
- Mayonnaise
- Shoes
- Cheese
- Cookies
Notice the 5th item in the list – All Products. Some of the respondents said they would never buy the cheapest option for any product. Conversely only one person said they always go for the cheapest option. That person represents the one example or anecdote that you might hear in your organization about why you need lower prices. And following that advice will usually cost you money.
The Facebook survey demonstrates that customers are not homogenous, and most customers are to some degree quite loyal. Think about it in the context of your own personal and professional buying habits. How often do you price shop your favorite products, or switch providers due to lower prices? While some readers are no doubt very price sensitive, others are much less so. We all form opinions about products, brands, stores, vendors, and service providers we like. As long as the item, service or provider satisfies us, we have some tolerance for price disparity.
The implication for your business is you should not compete on price! I don’t mean you can charge anything you want, but I do mean you don’t have to beat or match your competitors’ prices all the time. Your products and services may have commodity-like characteristics, but they are not commodities. There are features and characteristics of your products and services that appeal to customers, which they value. Focus on those elements in selling to current and potential customers.
Unless you have a significant cost advantage, low prices are something all your competitors can match. If you are trying to sell based on low prices, you are not selling anything unique or differentiated. Customers consistently demonstrate that they decide what and where to buy based on how the products, services and providers meet their needs. And their primary needs are not price. So why sell on price rather than on the most important criteria?
Perhaps you are thinking, “Yes, but there is a segment of customers that is very price sensitive and I want to sell to them.” Well you are right, that segment exists. If you want to sell to them, find a way to do it without destroying the price/value relationship in the rest of your business. Come up with your own low-price brand or create a service offering with fewer high-value features. The customers who want the lowest prices will make trade-offs in features to get those lower prices. Your other customers continue to buy based on meeting their needs.
Customers make purchase decisions every day that are consistent with the Philosophical Friday poll, and price is not their most important criteria. Remember that. Don’t take the easy road and sell based on lowest price. Sell the ability of your product or service to provide real value to your customers.
A few days ago Marriott announced they would be merging with Starwood Hotels & Resorts. Arne Sorenson, the President and CEO of Marriott International, posted a blog in LinkedIn Pulse – The Marriott Starwood Merger: Growth of Choices, Value, Opportunities explaining their rationale. The most important component of his post was travelers now have unlimited options available to them. The reason travelers have so many options is the significantly improved customer segmentation that has occurred. Segmentation is critical to creating options and pricing effectively in all industries.
Sorenson specifically cited VRBO, Home Away and AirBnB as competitors in the hospitality industry. They entered the market as lower-cost suppliers who recognized that home-owners would accept lower returns on invested capital. However they also identified more segments of travelers, grouping them by length of stay, level of luxury, food requirements, and trade-offs between self-service and price. Furthermore, the new entrants expanded the ability of customers to self-select their segments. The merger between Marriott and Starwood is designed to create more options for the recently identified segments.
The customer segmentation point applies whether you are in hospitality, retail, or B2B products and services. Customers are not homogenous. Product and service needs vary from customer to customer, and the trade-offs customers will make between product quality, product functionality, provider service quality, customization, speed of delivery, ease of doing business and price vary widely.
Think of the auto industry as another example. The industry has evolved over time as auto manufacturers paid attention to how customers used their vehicles and created new options for narrower segments. Although Volkswagen had introduced a van in the mid-1950s it was not a mainstream hit. However in the late 1970s and early 1980s, American car companies created a van that drove more like a car, but carried more passengers and offered sliding rear doors. Those minivans took off in popularity.
In the 1980s Jeep offered the Cherokee which combined more seating capacity with a rugged truck chassis and off-road capabilities. This and other SUVs like the Ford Explorer and GMC Jimmy targeted consumers who wanted the additional capacity of a minivan, with more sporty looks and functionality. Since then the market has been further segmented and expanded by offering SUVs in small, medium and large sizes, plus crossover vehicles that drive like cars but offer the capacity of an SUV, plus luxury SUVs from Porsche, Audi, BMW and others. In each case, a segment of consumers was divided into sub-segments, but also was expanded by appealing to new buyers.
A fundamental challenge for all businesses is to identify segments which are real and addressable. There is no perfect answer for the number of segments, and each one can be broken down into sub-segments. As you think about your own customer segments, to the extent possible tailor your offerings to address the needs of each segment. Keep in mind, the more segments you include, the more complex it will be to manage your offerings and prices. However, modern tools and systems can help you manage that complexity; and more granular segments should lead to winning more business at better prices.
You can also start more modestly by identifying characteristics of the customers and patterns of their ordering that can indicate similarities in needs and price sensitivity. For example, consider :
- The industry in which the customers operate
- Size or annual revenue
- Annual spend with your company
- Breadth of products purchased
- Geography
- Level of integration
- Ordering style
- Purchasing style
- Number of users
- Urgency or JIT requirements
- Other
If you are uncertain whether a segment is real or not you can test your hypotheses. If it is very expensive to create a tailored offering or to manage the differentiated pricing for the segment in question, leave it out to start. Make progress with the segmentation you are confident in, but monitor the results of the sub-segments you included and those you rejected. It is impossible to be perfect from the start, but a learning organization can continue to improve. As you improve your segmentation over time, your sales and profits should also improve.