The Segmentation Myth

One of the most important requirements of any business is to understand the needs of its customers. In fact, a good definition of marketing is simply that – the process of understanding and satisfying customers’ needs. Furthermore, we know that customers’ needs are not all the same. Some want more of one thing, others want more of something else. If needs are so important and they differ so much, surely a segmentation of customers according to their needs is what we need. After all, needs based segmentation is at the heart of all good marketing strategies.

Well, the answer is yes and no. Understanding customers’ needs is clearly vital to all marketers. Understanding how they are different is similarly important. However, for a business to business company, trying to segment customers according to their needs could be a recipe for disaster. Things just aren’t quite as straightforward as they are in consumer markets.

The decision-making unit (the people responsible for choosing a supplier) in a business situation is likely to involve two, three or four people, often with very different needs. The procurement person wants a low price, the production person wants a product that will process easily, the marketing person wants something that will give the company a differential advantage and so on. These people also have different roles in the customer journey. The technical and production people may have more influence when a product is specified in the first instance and the procurement people assume greater responsibility later on when they believe they can save money for the company. Whose views carry most weight when considering their needs? And in any case, couldn’t those needs change overnight? A company that puts delivery as its greatest need because a product is running short may change its mind and become price conscious once the product goes long. Putting a company into a box and saying that they have a certain need puts them there for a long time. But leaving them in a box that is no longer comfortable might result in a dissonance if they are bombarded with the wrong marketing messages.

What type of segmentation you use depends very much on your objectives. If your aim is to show the direction of new product development or to target promotions, then a needs-based segmentation is for you. However, if your segmentation is required to identify growth opportunities or to help the sales force sharpen its act, then a classical segmentation based on company behaviour, size, share of wallet and vertical market is more sensible.

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