With its differentiated Value Propositions, the concept of Innovative Customer Segmentation (ICS) offers new opportunities to identify strategically relevant customer segments and their precise value threshold levels. With this method you can counter the tendency of commodifying your business and also create stronger customer bonding. To learn more, see our newest explanatory video.
Start Video “How to determine Threshold Levels”
Our market research over the last months confirmed that responsible managers only have a vague idea regarding the threshold levels of relevant customer segments – despite the fact that this knowledge marks the foundation of a successful differentiation strategy. Instead, internal discussions center on customer satisfaction; although we know that this is not an indicator for sustainable organizational success.
Interview with Prof. Sedlák
Dear Prof. Sedlák,
In connection with the innovative customer segmentation the term threshold level comes up frequently in connection with the concept innovative customer segmentation. Could you please briefly explain its meaning?
With pleasure. I would describe threshold level as follows:
- To create attractive and specifically tailored value propositions for your customer segments you have to first know the expectations and desires of these segments.
- Here we use an observation method consisting of 7 value criteria: Product/- Service Portfolio, Time, Price, Quality, Service, Relationship, and Brand. These value criteria therefore extend beyond simply product and price.
- The first step is to identify and understand the minimal requirements each customer segment has concerning the 7 value criteria. This is the threshold level.
- In the second step we have to identify for which customer segments additional expectations or potentials exist, which go beyond the minimum requirements for the 7 value criteria. A possible result: Proposals which satisfy additional expectations, differentiate themselves positively from competitors.
- A proposal beyond the threshold level is only reasonable, if there is a potential that will be rewarded by the customer. Otherwise, resources will be wasted, for there is investment into something that the customer does not need or want.
- An example: The minimum expectation for delivery time in one customer segment is 5 days, which means that every supplier taking longer than 5 days does not meet the threshold level and will be disregarded. It may also be possible that this customer gains additional value, if the delivery happens in only 3 days. In this case, there exists an additional potential or an additional expectation. In another segment, this reduction to 3 days might not provide any value and is thus not needed or expected. In such a case, 5 days is completely fine. In yet another case, the threshold level itself might already be 3 days.
- Threshold levels and additional potentials differ from segment to segment. In one, a delivery time of 3 days would be a positive differentiation, in another this step merely meets the minimum requirements.
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