The time taken to undertake a B2B market segmentation process is rarely wasted. It can be all too easy for a sales department to lack focus and to chase the easy target. The prospects competitors chase, or the contacts that are always open for a visit.
Instead, it is important to decide which customers are likely to generate the best long term returns. In this post, we cover how a B2B market segmentation process can work, its benefits and risks.
The result of trying to please/relate to as many customers as possible is an undifferentiated offering that fails to please anyone. The key is to focus on the business strengths and match them to the most appropriate customer groups.
Segmentation is an alternative to organising marketing effort around products. Instead, it focuses on customers and their needs. It negates the ‘me too’ approach and increasing pressure on price. Appropriate market segmentation reduces waste on ineffective sales and marketing activities.
The obvious question is if market segmentation is such a powerful marketing tool then why do most B2B markets suffer from little differentiation? The answer, to be blunt, is that to follow through the B2B market segmentation approach takes courage.
Segmentation often leads to a change in focus and is unlikely to deliver significant results in the short term. It can lead to operational change and that will cause some short term disruption.
Market and customer segmentation can be complex and time-consuming. It is often best not to start unless willing and able to allocate the appropriate resources. Buy in and inclusion is essential as is an appropriate risk assessment. Get the market segmentation process wrong and you risk losing customers and new business opportunities.
Rules For B2B Market Segmentation
There are several basic rules for identifying a market segment:
- Members of the segment must be consistent in the way they react to an offer.
- Each segment must be unique and serviced by a unique marketing strategy.
- The segment must be of sufficient size to justify a unique marketing strategy.
- The segment must be reachable.
With segments identified, it is important to examine each in detail and either modify or discard those that are not a perfect fit. Failure to identify segments correctly can be a costly mistake.
When a final list of market segments are available then it is possible to devise a marketing strategy for each. Depending on the business this may include an inbound marketing and content strategy. Allocate sales resources to ideal customers with the most potential long term value to the business.
A Potential B2B Market Segmentation Process
To simplify the marketing planning process it is useful to document existing assumptions about the business. Record what the business supplies, who needs that product or service, and (crucially) what sets the business apart. The result of the B2B market segmentation process may show many of these assumptions are incorrect, but it is important to have a starting point.
The next step is to define the overall market in broad terms such as size and geography. Be careful with demographics and social information, as this can lead to a mass of data that is difficult to interpret and clouds the main issues.
With the above in place, the most critical part of the segmentation process can be initiated. That is the identification of basic customer needs within the market. At this point, it is important to forget customers, competitors and products and to identify the real set of needs the business can satisfy.
There are many ways to identify ideal target customers needs. Purchase history is a starting point but customer surveys, snooping on social media and other appropriate forums, reviewing complaints and returns. Lost order analysis and sales or marketing personnel insights can all help. The objective of the analysis is to identify the range of benefits sought by the market.
With a set of needs identified, it is possible to profile those who have each distinct set of needs. To give them an identity and make them real. Only when this is in place is it possible to fit the business (and competitor) products into a group of needs and arrive at a set of defined market segments. Evaluate each segment against the basic rules outlined above.
Segmentation Impact On Lead Generation
With carefully constructed market segments and a detailed understanding of the customers and their needs within those segments a customised lead generation process can be developed for each segment. This both improves the effectiveness of the lead generation process and reduces waste.
Inbound marketing processes, in particular, can be fine-tuned to deliver the most relevant information (content) to each ideal customer group by the most effective delivery method. There is the potential to develop the process further to full Account Based Marketing.
Market segmentation then is far from easy, and there is a risk of short term losses to achieve a medium to long term gain. It takes courage from senior management and skilled marketers to deliver. However, if successful, the advantages of a B2B market segmentation process are clear. They include reduced price pressure, a differentiated offering and reduced waste.