Why B2B Market Segmentation Delivers Sales Growth

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The time taken 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 the competitors chase, or the contacts that are always open for a visit without really thinking through which customers are likely to generate the best long term returns.

The result of trying to please / relate to as many customers as possible is an undifferentiated offering that actually fails to please anyone. The key is to focus on the business strengths and use this as a basis to identify the most appropriate target customer groups. The objective must always be to avoid competing on price wherever possible. In this post we cover how a B2B market segmentation process may work, its benefits and risks.

Segmentation offers an alternative to organising marketing effort around products, instead focussing on customers and their needs. It brings focus to the sales effort and negates the ‘me too’ approach that ultimately leads to ever increasing pressure on price. Appropriate market segmentation delivers growth and reduces waste on ineffective sales and lead generation activities.

The obvious question is if market segmentation is such a powerful marketing tool then why are most B2B markets ultra competitive with 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 that change is unlikely to deliver significant results in the short term. It can lead to operational change and that will inevitably causes some short term disruption.

Market and customer segmentation can be a complex (and time consuming) subject so it is often best to not to start unless willing AND able to allocate the appropriate resources and act upon the outcome. Buy in (particularly from the sales department) and inclusion is essential as is an appropriate risk assessment. The result of getting the market segmentation process wrong is ultimately lost customers and business.

Rules for B2B market segmentation

There are several basic rules for identifying a market segment:

  • Members of the segment must react in the same way when delivered with the same offer.
  • Each segment must be unique and able to be serviced by a unique marketing strategy.
  • The segment must be of sufficient potential size to justify that 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 as 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 and to identify ideal target customers in each segment to attack. Sales resources then may be allocated to ideal customers with the most potential long term value to the business across a number of segments.

A Potential Market Segmentation Process

As a reference point It is useful to document the key existing assumptions about the business. Try to record what the business supplies (not in terms of products), who needs that product or service, why the products or services are needed and (crucially) why should customers pick the business ahead of the competition. The result of the B2B market segmentation process may show that a number 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 but be careful with demographics and social information as this can lead to a mass of information 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 – 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 within the marketplace.

There are many ways to identify an 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 / customer information and sales or marketing personnel insights can all help. The objective of the analysis is to identify the range of benefits being sought by the market.

With a set of needs identified it is possible to profile those who have each distinct set of needs, 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 each group of needs and arrive at a set of defined market segments. The segments may then be evaluated against a set of basic rules outlined above.

Sales v Marketing issues

As noted above the market segmentation process will not deliver unless it is supported by higher management. There are risks and the process itself takes time and effort. B2B market Segmentation cannot be done in a vacuum without the help of a wide range of departments within the business.

To make the segmentation process work requires experienced strategic marketers who can suppress any preconceptions they may have and methodically work through the segmentation process. Crucially, it also requires marketers who can obtain buy in and co-operation from the sales department.

In many B2B businesses there is an underlying tension between sales and marketing and, as outlined in this post from Heinz marketing that is not necessarilly a bad thing, but if sales do not see the benefit of segmentation and the insights it delivers they are unlikely to change existing behaviours. Without sales buy in,  and the co-operation to deliver the customer insights the process requires, then success will be significantly harder to achieve.

Segmentation And The Impact On Lead Generation

With carefully constructed market segments and a detailed understanding of the customers and their needs within those segments customised lead generation processes may be developed for each segment. This both improves the effectiveness of the lead generation process and reduces the waste in sending messages to the group of customers that are never likely to buy.

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, reducing the workload on sales and leaving them free to build relationships and close.

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, the rewards in reduced price pressure, a differentiated offering, reduced waste and sales growth from a set of clearly identified ideal target customers can be significant.