The essence of developing any customer service strategy is to classify and segment the customers to be serviced. It is like classic market segmentation, albeit on a smaller scale. Your goal remains the same: to isolate a homogeneous set of customers whose needs can be served at a profit.

Generally, you need to address three aspects in formulating your customer service strategy: customer segmentation, cost-to-serve analysis, and revenue management.

Customer Service Segmentation

The beginning of any customer service strategy is the identification of unique segments in the company’s customer base. There are a number of techniques that a firm intent on adopting customer service strategy can use to identify customer needs and expectations. These tools include consumer surveys, focus groups, analysis of demographic data, and mining the data in large-scale information databases. The outputs of this segmentation process are customer service needs and expectations for each relevant segment.

Cost-to-Serve Analysis

Customer service strategy formulation also requires you to evaluate your firm’s current cost structure for customer service delivery. In addition, you must determine the costs of meeting the newly identified service levels for each identified customer segment.

It would be easier to accomplish this if your firm already practices activity-based costing in your accounting system. In the absence of that capability, the cost-to-serve analysis will have to be conducted on a project basis. The analysis must be done as a necessary pillar to your customer service strategy.

Revenue management

You must then determine the appropriate response to the needs and expectations identified for each customer segment. If this analysis is not carried out, there may develop a situation where customer service needs and expectations are known, but the firm’s profitability and growth is not maximized because the best response remains undetermined.

This is the critical pillar in formulating your company’s customer service strategy but it is frequently underdeveloped. Failure to develop this aspect could well turn into a failed customer service strategy.

Even if you have already determined accurately the service needs and expectations of each customer segment, and you already calculated the costs required to deliver the desired level of customer service, one fundamental question still remains to be answered: how will customers respond?

For instance, customers could reward the firm with greater market share, higher price premiums vis-à-vis competitors, or both — and to a certain degree. The implications on the firm will be different: the first outcome may require an expansion of production capacity to meet higher demand; the second may simply need an adjustment in product prices.

Revenue management in the customer service strategy is the process of determining the market share and price premium impact of the customer responses to alternative levels of customer service. These behavioral responses may include purchase, repurchase or "loyalty", and recommendations (to other customers). There are various techniques available for this process, including regression analysis, factor analysis and other multivariate statistical analysis.

With good execution on these three pillars, you can expect to have a well-balanced customer service strategy.