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Segmentation Guidelines for Business-To-Business Markets

All business-to-business companies segment their customers. In the main, b2b companies segment customers because it suits them. It makes their sales and marketing more efficient. All business-to-business companies have key accounts and large customers need a different approach to small customers. Also, customers in different industry verticals may need to be treated differently.

A segmentation based on company size or industry verticals is firmographic. However, any student of marketing will know that this approach is deficient. We are taught to segment on needs rather than demographics or firmographics. It is what people need that should be our focus, not what people are.

Unfortunately a needs based approach to segmentation is hard to implement in business-to-business markets. Most business-to-business companies can list their customers in an Excel spreadsheet. They count their customers in hundreds and sometimes in thousands, but never millions. Every one of these customers has to be placed in a segment so the salesforce can deal with it. It is no good relying on “killer questions” that try to identify needs to put customers in the right bucket. The needs that are recognised are usually those of just one person in a decision-making unit (such as the procurement manager or the technical manager). However, there are nearly always other influencers and they could be in the C-suite, in production or in finance. These other parties may have different needs. Furthermore, business needs vary over time. Whatever an individual’s needs now could be very different in a few months’ time.

So, what to do? Do we abandon the aim of satisfying needs amongst our business customers? Of course not. We are fortunate in b2b marketing that companies’ needs are largely driven by size and vertical. A small business, employing half a dozen people, is likely to have a different array of needs to one that employs a few thousand. Splitting customers by size into large, medium or small and into different industry verticals is the starting point of any b2b segmentation. However we shouldn’t stop there. Our aim must be to understand the needs of customers within each firmographic segment so that we can absolutely meet them in every way.

Segmenting based on size and verticals, supported by a deep dive into the needs of customers, will succeed. It passes the important test of being implementable and therefore useful to the sales team. Companies focused on a segmentation that is based entirely on needs will find themselves spinning in circles because there is no easy way to recognize those needs. Remember the five key tests of a good b2b segmentation:

  1. Different: For segments to exist, they must have different needs. Look at the drivers of these different needs and start with size and industry vertical. Think also about behaviour because this is a good indication of needs. The needs of a segment must be significantly different to those in other segments, otherwise the segment doesn’t exist.

  2. Recognisable: The segments must be recognisable by solid criteria. The size of the company and the industry vertical are good and easy to spot. There may be other recognisable factors such as behaviour (eg frequency of switching suppliers, preferred channel of purchase, composition of the decision making unit etc).

  3. Sizable: The segments must be big enough to be worthwhile targeting. Four or five segments are usually the maximum number of segments suited to a business-to-business market.

  4. Durable: The segments should have lasting power. A segmentation strategy needs a year or two to implement and bear fruit so it is important that the segmentation doesn’t change overnight (for example if, at a customer, a procurement manager with certain needs is replaced by one with very different needs).

  5. Implementable: Last but not least, the segmentation must be easy to implement and acceptable to all who use it – especially the salesforce. If this is not the case a well-argued segmentation will be dead in the water.

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