The time taken to identify ideal target customers in B2B markets is rarely wasted. It can be all too easy for a sales department to lack focus and to chase the easy target, the ones the competitors chase, or the ones 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 customer groups. The objective must always be to avoid competing on price wherever possible.
Segmentation offers an alternative to organising marketing effort around products. Instead activity focusses on each market segment, their specific needs and how the business may satisfy those needs. Research shows that most markets can be broken down into between 5 and 8 segments
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 and inclusion is essential as is an appropriate risk assessment. The result of getting the segmentation process wrong is ultimately lost customers and business.
A Potential Market Segmentation Process
It is useful to document the key existing assumptions about the business as a reference point. Try to note what the business supplies, who needs that product or service, why the products or services are needed, who needs them and why and why should customers pick the business ahead of the competition. The result of the 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. A customer does not need an iron (a product) they need a way to get creases out of clothes. If a new, low cost and efficient way to remove creases is found the iron is obsolete and those manufacturers who focussed on the product and not the need are out of business.
There are many ways to identify true customer needs. Purchase history is a starting point, the differences between the needs of the customer purchase decision making unit may be considered and / or existing customers may be surveyed. 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, to profile them, 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.
Rules For Identifying Customer Groups And 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 a unique marketing strategy.
- The segment must be reachable.
It is therefore important not to define to broad or too narrow a definition for a segment.
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.