Successful marketing strategy is built on a deep understanding of your clients and targeting each type of buyer accordingly. This sounds so much easier than it is – especially for B2B organizations.
Thankfully, a good B2B market segmentation process makes identifying each of your client segments, and handling the diverse buying teams within each of them, much more manageable.
Market segmentation is a useful tool to meet your clients’ needs while making a profit. B2B segmentation insights will help you direct company resources towards real needs of client segments, making sure you’re not wasting time or money on groups that aren’t interested in your offering.
There are two pieces of wisdom that underpin a good B2B market segmentation process:
- Clients are all individuals. Therefore you shouldn’t treat all client segments the same way. You need to navigate the nuances.
- You can’t rely on one bundle of information forever. A fast-paced, dynamic global economy means speedy adaptation to change is a necessity. Continuously updating your market segmentation research and quickly acting on new insights is a competitive edge in itself.
If you’re looking to improve your marketing ROI, get client acquisition costs down, or boost conversion rates,consider how you can optimize B2B market segmentation process.
What is B2B market segmentation
B2B market segmentation is a strategic marketing process that involves dividing a broad business-to-business (B2B) market into distinct groups or segments based on specific criteria. Unlike the mass marketing approach, segmentation allows companies to tailor their marketing efforts to meet the unique needs and preferences of each target segment. By understanding the different characteristics and behaviors of various customer groups, businesses can design more effective marketing strategies, optimize resource allocation, and improve customer satisfaction.
B2B vs B2C market segmentation
B2B market segmentation and B2C segmentation are two distinct approaches used to understand and target different customer types. B2B segmentation focuses on businesses and organizations, identifying specific industries and company sizes to tailor marketing strategies accordingly. It involves understanding complex purchase decisions involving multiple stakeholders and building long-term relationships. On the other hand, B2C segmentation targets individual consumers, categorizing them based on demographics, lifestyle, and preferences to create personalized marketing approaches. B2C segmentation aims to establish immediate connections and repeat purchases, utilizing mass advertising and social media. Both approaches require a deep understanding of customer needs and preferences to drive successful marketing efforts.
What are the benefits of proper B2B market segmentation research
B2B market segmentation research done well brings a host of business benefits. You do need to invest in optimizing your process, but your market segmentation insights should provide benefits across your company. For example:
- Product development: You can just about guarantee good product-market fit by creating features and products or services based on the needs of a specific segment.
- Decrease client churn: You’re making things just for them, so why wouldn’t they keep coming back?
- Increased revenue: Your conversion rate goes up because you’re targeting prospects that are already interested. Sell more, make more.
- Maximize your marketing budget: Time and resources are spent on accurately pinpointed messaging, increasing the cost effectiveness of the whole department.
- New opportunities: Market segmentation research often uncovers great new market segments you can enter
Types of B2B market segmentation methods
B2B customer segmentation employs diverse methods to categorize businesses based on relevant criteria. Some of the key types of B2B customer segmentation methods are as follows:
- Industry Segmentation: This approach involves dividing customers according to the industries they operate in. It allows businesses to tailor their marketing strategies to address the unique needs and challenges faced by customers in each industry.
- Technographic Segmentation: Technographic segmentation focuses on the technology stack and tools used by businesses. Understanding the technological preferences of customers helps businesses align their offerings with their target audience’s requirements.
- Value-Based Segmentation: Value-based segmentation classifies customers based on their perceived value and willingness to pay. It enables businesses to prioritize high-value customers and optimize pricing strategies.
- Usage-Based Segmentation: Usage-based segmentation categorizes customers based on their product usage patterns and engagement. This method helps businesses identify potential upsell or cross-sell opportunities and enhance customer retention.
- Decision-Making Unit (DMU) Segmentation: DMU segmentation focuses on the different roles and individuals involved in the buying process within an organization. Understanding the DMU helps tailor marketing messages to key decision-makers and influencers.
By leveraging these various B2B customer segmentation methods, businesses can gain deeper insights into their customer base, develop more targeted marketing strategies, and ultimately achieve higher customer satisfaction and business growth.
The challenges of B2B market segmentation
B2B market segmentation can be a powerful tool for businesses, but it also comes with its fair share of challenges and issues. One of the primary challenges is obtaining accurate and comprehensive data for segmentation, especially in B2B environments where data sources might be limited. Data discrepancies and outdated information can hinder the segmentation process and lead to inaccurate results.
Moreover, the complexity of B2B relationships poses another challenge. Decision-making units often involve multiple stakeholders with different needs and preferences, making it challenging to create distinct and meaningful segments. Additionally, B2B markets may have relatively small customer bases compared to B2C markets, leading to smaller sample sizes for segmentation analysis and potentially reducing the statistical significance of the results.
Selecting the right segmentation criteria is critical for meaningful results. In B2B markets, finding the most relevant variables that truly differentiate customer segments can be difficult, especially when considering both firmographic and behavioral factors. Furthermore, B2B markets are constantly evolving, with changes in customer needs, industry trends, and competitive landscapes. Segmenting in dynamic environments requires continuous monitoring and adjustment to remain relevant.
Implementing segmentation findings into marketing strategies effectively can be a hurdle. Aligning segmentation outcomes with marketing efforts requires a coherent and well-structured plan to ensure consistent messaging and personalized experiences. Moreover, there may be instances where customers fall into multiple segments, leading to overlapping boundaries. Managing overlapping segments and ensuring consistent targeting can be demanding.
Addressing these challenges requires a thoughtful and data-driven approach. Utilizing advanced research techniques and market intelligence, businesses can enhance their B2B market segmentation efforts.
Elements that apply to all B2B market segments
B2B market segmentation has its own challenges that are different to B2C segmentation. There are four elements of B2B market segments you’ll recognize that are common across industries, locations and size of business.
- Personalization is a high priority
Your client segments are very involved in and knowledgeable about their buying decisions. They want a product or service that meets their exact needs and solves their specific problems. This extends to the expected level of service. With a smaller client pool, B2B relationships are often built on more personal interactions that require greater time investment.
- Carefully considered judgment
There aren’t any B2B impulse buys. Your client segments are handling large budgets and are personally invested in the outcome of their purchase decisions. They’re buying on behalf of a business and their professional reputation is on the line if the product or service doesn’t live up to expectations.
You’re not looking for quick sales in B2B. Ushering all your buyers along their individual paths to purchase takes time. Sometimes, a long time. The more time it takes, the more chance there is that elements that influence their decision can change and require a rethink.
B2B purchases are usually made by a team of decision makers. You need to know the criteria and motivators of each different member of that team. Beyond that, you need to understand the group dynamic and how this affects the final decision.
Sounds familiar, doesn’t it? B2B market segmentation is a complicated beast. But it’s comforting to remember that everyone, in every B2B industry, is wrestling with the same thing.
Defining your B2B market segments
Unsurprisingly, there’s no one-size-fits-all formula to determine your B2B customer segmentation model. There are different ways to segment your different client groups. Ideally, you’ll establish the right combination of research to reach the most actionable insights for your business.
The 5 parts of the market segmentation framework
- Demographics: Sometimes called firmographics in B2B research. This is all the cheap, publicly available information about size, location, revenue and industry. This data is easy to find and understand. It’s a useful place to start, but lacks the data for more sophisticated segmentation thinking. Just because two companies are the same size and in the same place, doesn’t mean they’ll have the same software needs.
- Needs-based: This is a great way to get to the heart of what your clients want and group them together by those needs. It just makes good sense to create a campaign targeting people with the same pain point.
- Purchasing behavior: This is based around the what and the where of your clients’ behavior. For example, what content are they accessing? Where are they finding it? What channels are they using to find you?
- Sophistication levels: Are they a start-up, or a company moving into its third decade? There will be similarities between businesses at the same stage of development that can be used to develop targeted campaigns.
- Profitability: Rank clients and prospects by how profitable they are to your company. You can use these insights to focus resources on the most potentially lucrative leads.
Optimizing your B2B market segmentation process means tailoring elements of whichever frameworks best fit your business needs. After that, it’s all about formulating questions, deciding on the research methodology to ask them, and finding the niche experts you need to ask.
Statistical analysis in B2B market segmentation
Statistical analysis is a crucial tool in B2B market segmentation, offering valuable insights and a data-driven understanding of customer behavior. To utilize statistical analysis effectively, businesses need to follow a structured approach:
Firstly, gather relevant data on B2B customers, including firmographics, purchase behavior, industry, and other essential variables. Ensuring data quality and handling any missing or inconsistent data points is critical during the data collection and preprocessing stage.
Next, identify the variables that will be used for segmentation. These variables should have a significant impact on customer behavior and be actionable for marketing purposes. Common segmentation variables include company size, industry, purchase frequency, spending level, and customer engagement metrics.
Selecting the appropriate segmentation method is the next step. Various statistical methods, such as cluster analysis, factor analysis, and discriminant analysis, can be employed based on the nature of the data and research objectives.
Conducting the analysis involves applying the chosen statistical techniques to the data using software tools like SPSS, R, or Python. This step helps identify distinct customer segments based on the selected variables. After performing the analysis, it is crucial to validate the segmentation results. This can involve examining the homogeneity within segments and heterogeneity between segments. Interpreting the findings helps understand the characteristics and behaviors of each segment.
Once the segments are defined, businesses should profile each segment to analyze its unique attributes and needs. This step aids in tailoring marketing strategies to specific customer segments and creating personalized experiences. Implementing segmentation insights into the overall marketing and sales strategy is essential. Developing targeted marketing campaigns, product offerings, and customer service initiatives based on each segment’s preferences and needs will lead to more effective engagement.
Continuous monitoring of the effectiveness of the segmentation strategy is vital since B2B markets are dynamic, and customer behaviors may change over time. Regular refinements to the strategy help businesses adapt to evolving market conditions.
Success criteria for B2B market segmentation
Market segmentation research is only useful if it can be relied on to make critical decisions. Successful B2B market segments are:
- Clear: It’s easy for anyone across your company to recognize each segment and assign clients to the right one. It’s important to bear in mind clients can’t be straddling different segments, but neatly fit into one. This means that each segment must have its own unique identity. But it’s not just about sorting clients into different segments. The insights behind this categorization should be informing your marketing team’s decisions as you move forward. How you use your B2B market segments must be part of your overall process.
- Just the right size: There is a need for precision, but it’s important to avoid segments that are so small that they use a disproportionate amount of resources.
- Authentic: There must be genuine differences between your segments. Those that are too similar should be merged together. If they’re not based on authentic characterizations, they won’t be useful. A good affirmation of your segment differentiation is that their nicknames quickly become part of your internal language. (Say ‘hello’ to Quality Queen and the Price Prince!)
It’s worth taking time to evaluate your segments against these three criteria at regular intervals. If you’re not using them, they’re not earning their keep, and it’s time to update your research.
Working with a B2B market segmentation research partner
That’s a lot, isn’t it? The concept makes complete sense, you can immediately see how useful the insights will be, but there’s a lot involved in optimizing your market segmentation research. Working with a B2B research partner removes the pressure and need for internal expertise.
NewtonX leverages our Knowledge Graph to find the exact, 100% verified experts you need to answer your segment defining questions. We’ll use the right research methodologies to optimize your market segmentation process. In fact, our end-to-end market research services can give you high quality answers to any number of strategic questions. NewtonX insights give you competitive intelligence to evidence confident, business critical decisions.
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