In b2b markets, a segment is a group of people or companies with common characteristics or behaviors.
By successfully segmenting markets b2b companies can: effectively meet customer needs thereby increasing sales and retention, make marketing communications resonate more, make customers feel more aligned to a brand, save money by not wasting efforts on unreceptive audiences and increase customer satisfaction and loyalty.
Before considering the way in which to segment an audience, it is important to understand the 5 key elements that make up any good segmentation. If any of your segments do not meet the below criteria, the approach should be reconsidered.
| Distinctive | If you can’t easily say what characterizes the segment, it shouldn’t exist |
|---|---|
| Recognizable / Predictive | If you can’t easily place a prospective or existing customer into a segment, it shouldn’t exist |
| Durable | These segments should last; otherwise strategies will not have any long-term impact |
| Sizable | Avoid too many segments, as each requires a separate offer or strategy |
| Actionable | You must be able to attract and serve the segments. In b2b markets the ‘sweet spot’ is between 3 and 6 segments |
There are four main ways in which business market segmentation is approached: segments based on geography, firmographics, behaviors, and needs.
A geographic segmentation is one based purely on where customers are located. It assumes that all customers in a particular region or country behave and act in a similar way, which can be true to an extent. However, such a method is crude, easily replicated and it is unlikely that all customers within a geography truly act and behave the same.
A step up from the firmographic method, this segmentation attempts to group customers according to similar buying behavior or patterns such as buying frequency, brand loyalty, products purchased, attitudes to innovation etc. This approach can be considered a half-way house to a needs-based segmentation, as customer behaviors are highly linked to needs. However, these behaviors can often change depending on the circumstances and customers, especially in b2b markets, do always not always act in the same way when transacting with a supplier.
Firmographic segmentations are segments based on shared company or individual attributes such as company size, location, revenue, customer type, age, spend etc. This approach is often the most common in b2b markets, as larger spending customers will often think and behave differently to smaller customers. However, a firmographic segmentation does not necessarily give a competitive advantage in that it can easily be replicated by others.
The final approach, which is said to be the most sought after of segmentations, is those which are based on customer needs such as low price, service support, customized solutions, ease of use, short lead times etc. By segmenting according to specific needs, an offer can be tailored solely to what that segment values most, and as such sell more to them, keep them satisfied and increase their loyalty. Such segments while difficult to do, are also hard to replicate by competitors. However, the needs-based approach is open to criticism in that while they work well in theory, in practice they are difficult to administer and apply to wider b2b markets due to the complexity of the b2b decision making unit and the inability to measure needs outside of existing datasets.
While there are benefits and pitfalls with all the approaches listed, we at B2B International believe the ‘holy grail’ of b2b segmentations is to selectively take inputs from multiple areas – choosing those factors that are the biggest drivers of potential future value.
Any remaining insights would then be used to profile rather than generate the segments, giving you a fuller picture of who your segments really are.
