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BLF_Air_Products_and_Chemicals_Customer_Segmentation_Rules_of_Engagement
Ensuring Segmentation Has Bottom-Line Impact
Practice #3
Customer Segmentation
Rules of Engagement
? Company Profi led: Air Products and Chemicals
? 2003 Revenue: $6.3 billion
? 2003 Employees: 18,500
Situation
Air Products’ Chemicals business fi nds that the large majority of its operating income is derived from
less than 10% of customers, yet, due to an outdated segmentation model, its resources are focused
disproportionately on low-return, low-margin customers that account for little, or in some cases
negative, cash fl ow for the fi rm.
Action
As a critical work process tool in its strategy development and execution process, Air Products
segments its customers using a granular scorecard it co-developed with its customers to rigorously
assess the potential and strategic fi t of each customer opportunity. Upon completing the segmentation
process for more than 3,000 customers within the Chemicals business and identifying three distinct
customer segments, the fi rm deploys explicit rules of engagement to guide interactions with each
segment. The rules cover a wide range of activities, with the goal being not only to increase margin in
each segment but ultimately to make all customers profi table.
Result
By reallocating resources around the most profi table customers while reducing cost-to-serve for the
rest of the customer base, Air Products’ Chemicals division triples overall business profi ts in only
two years. Overhead costs were reduced by 3% and margins increased by more than 20% in all three
segments. Additionally, the process uncovers segment-specifi c product opportunities and has led to
the launch of several products that quickly became the most profi table in the Air Product portfolio.
Ensuring Segmentation has Bottom-Line Impact 49
50 Segment-Driven Investments
Customer Profi tability
Using the Pareto Principle (the 80/20 rule), Air Products’ Chemicals division works backward from operating
income to determine what percentage of its contr
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