B2B segmentation – The definitive guide

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Table of Contents

The B2B Segmentation Challenge

The challenge inherent in B2B market segmentation often lies not in identifying the segmentation model that will best suit the client’s needs, but rather in persuading that B2B organisation of the considerable, commercial benefits to be gained from deploying a segmentation model in the first place.  

In these instances, the root of the problem is typically the belief that B2B success is more about Sales than Marketing.  This belief is further supported by the view that B2B customers are entirely rational beings who respond primarily to good relationship management and commercially sound offers, rather than marketing ‘flimflam’.

In organisations where this thinking predominates, the order book is usually strong, and the Sales department controls the debate.  

It’s often only after a protracted period of order book stagnation or decline that there is creeping recognition of the fact that the business doesn’t understand its customers well enough and is therefore unable to target them meaningfully. 

For such businesses, the problem is then that it takes time to create a segmentation model in the first place.  Moreover, the organisation will likely have to undergo a period of cultural and operational re-alignment, in order to embrace a more marketing-led approach to customer targeting and development. That will sometimes be time that the business just doesn’t have.

But what is B2B marketing segmentation?

A marketing segmentation divides the brand’s target market into smaller groups of customers based on their most significant, shared characteristics. Depending on the type of segmentation that is deployed, it may enable:
  • The Identification of the most / least profitable types of customer
  • The size of the brand’s market each segment occupies
  • The tailoring of sales and marketing messages to individual segments, in order to ensure maximum relevance and impact
  • The tailoring of customer relationship management (CRM) strategies by customer need, behaviour, and profitability
  • The development of different brand experiences – based on their individual needs, behaviours, and expectations
  • The development of a new product development strategy which is focussed on those segments with the greatest need and purchasing power
  • The development of a powerful brand that is more able to cut through the market noise

The importance of the B2B market segmentation strategy for small businesses

Many successful, small businesses have grown not as a result of sound and insightful marketing strategy, but as the result of entrepreneurial nous, gut feel, and often, not a little good fortune.

 However, such businesses usually reach a point where they are simply too big to be managed in this way, and many start to recognise the need for a strategic framework within which to plan future growth.

 It is often at this point that customer segmentation is first considered. 

 Once in place, such businesses often find that their new segmentation model not only enables them to create that decision-making framework, but that it also enables them to identify myriad new opportunities for Sales, Marketing, and New Product Development in particular.

 

The importance of B2B segmentation for larger businesses

Creating a successful B2B marketing strategy can be challenging, and there are a number of factors to consider:

  • Most important perhaps, is to ensure that the segments that are identified are based on sufficient data. Without this, it is impossible to create a reliable segmentation model.
  • It is important to ensure that the segments you create are meaningful and relevant to your target market. If they are too broad or too narrow, they will not be effective.
  • It is essential that individual customers (both existing and new) can be easily and definitively ascribed to one of the segments, otherwise, it is very likely that the model that is created is not the most insightful one.
  • The segmentation model should be updated on a ‘regular’ basis, meaning at least every two to four years depending on the pace of the sector the brand operates in. Think about it, a segmentation model starts becoming out-of-date from the moment it is launched!

How to Segment Customers in B2B Markets?

Some of the most common types of B2B segmentation models are outlined below.

Firmographic segmentation

You can think of this as the B2B equivalent of a B2C demographic segmentation model. Firmographics may include company size, industry type, location, or growth trends. 

The challenge with a firmographic segmentation approach is that, on its own, it tends to be rather functional.

However, when integrated with other forms of segmentation criteria it can become significantly more insightful – and powerful.

Profit-based segmentation

This form of segmentation is based on a client’s current and / or potential profitability as a customer and can be calculated in a number of different ways, including:

·      Projected lifetime value

·      Cost per channel, based on the specific purchase channel(s) used

·      A scoring system that encompasses a number of commercial factors

Geographical segmentation

 

This form of segmentation enables an organisation to cluster customers according to where they are based.  It tends to be more appropriate for organisations with large field forces, regional depots, or significant logistical / distribution challenges.

 

Needs-based segmentation 

 

For both B2C and B2B markets, some element of needs-based segmentation is often regarded as the Gold Standard!

Most commonly, this form of segmentation reflects tangible, product-related, customer needs.  However, it also has the potential to go much further, by including a wider set of both rational and emotional needs, potentially reflecting the customer organisation’s views on business culture and ethics, or the way they prefer business interactions and relationships to be managed.

It is the identification of these less tangible needs that often provides organisations with the ability to create real differentiation, via their brands, their marketing, the relationship management, and their brand experience delivery.

 

Behaviour-based segmentation 

 

This form of segmentation is in some ways similar to a needs-based segmentation, insomuch as it is likely to reflect both rational and emotional criterion, which enable an organisation to both tailor and tangibly differentiate the way that it interacts with clients.

Behaviour-based segmentation may include specifics relating to:

·      The different discovery and purchase journeys that clients undergo when identifying new suppliers

·      The individual channels they use at different touch points

·      The ways that they use the individual products and services in question

These insights not only pave the way for segment definition, but can also help the organisation to:

 

·      Optimise the different experiences along the customer journey – before, during and after purchase

·      Identify channel development strategies

·      Develop highly focussed, new product development roadmaps

What is the ‘optimal’ form of B2B segmentation?

The most successful segmentation models typically reflect a combination of segmentation criteria, drawn from two or more of the approaches outlined above. Ideally, these criteria will include a number of needs and behaviour-based elements, because of their ability to shape advertising and communications as well as customer relationship management.

The role of market research in B2B segmentation development ​

Market research is only required in the development of segmentation models which include a human dimension – namely the needs- and behaviour-based approaches. The research process typically starts with a phase of qualitative research, in the form of 1-2-1 interviews, conducted with decision-makers within target audience organisations. Their role of the qual is exploratory, to identify and dissect the needs, expectations and / or behaviours that are most significant in their dealings with the supplier organisation. Quantitative research is then used to determine their relative importance in order, to identify the most salient measurement criteria to be used as the basis of segmentation development.

Conclusion

The right segmentation model is so powerful and so transformative that is may well represent the most significant marketing investment your organisations will ever make.

Whether you’re just getting started with B2B market segmentation or you’re looking to take your customer segmentation strategy to the next level, this article gives you everything you need to know.

We’ve covered the basics of what B2B market segmentation is and why it’s so important. We’ve also explored the different types of B2B segmentation and the challenges involved in creating a successful B2B marketing strategy.

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So, what are you waiting for? Get started today and see the benefits for yourself!

For more information on B2B market segmentation, call Brandspeak on +44 (0) 203 858 0052 or at Enquiries@brandspeak.co.uk

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Brandspeak has been providing qualitative, quantitative, ethnographic and neuromarketing research to UK and global brands, marketing agencies, start-ups, public sector organisations and charities since 2004.