Principles of Market Segmentation, Part 2: Business to Business

In part one of this divided post, we talked about the ubiquity of reminders from marketing professionals that every business – including small business – must carefully segment their market or customer/prospect list for maximum appeal of targeted marketing messages. In part one, we focused on market segmentation for B2C (business to consumer) companies. In this concluding post, we will look at firms that market and sell B2B (business to business).

Romeo, the little black dog carefully segments our business clients

Defining factors for business customer segments

The factors defining market or customer segments among business entities are the following characteristics:

1. Demographics – for businesses, your firm might segment the market based on industry, company size, and geographical location. In fact, company size might be the first segmenting characteristic when segmenting the market or a customer list. Some companies approach small and large companies using different strategies.
2. Operating Considerations – what technologies are used in corporate operations? How heavily do the companies use your products or services? Do your best customers use a few of your products and/or services, or many?
3. Purchasing style – Do your best customers (or easiest sales) buy from a centralized purchasing organization, or from a decentralized structure?   What is the power structure in companies that are your best customers? What is your firm’s current relationship with the company? What seems to be the first consideration of the company or the purchasing agent – price, service, or quality? What are the company’s purchase policies for products or services like yours – buy a service, lease, focus on service contracts, buy entire systems, etc.
4. Situational considerations – Are the most likely and/or profitable customers those with an urgent and immediate need for your product or service? Do your best customers typically buy a small number of specific products or services? Or do they buy your entire product/service offering? Do your best customers make a few large purchases or many small purchases?
5. Personal characteristics – Is your sales team more successful selling to companies with people and values similar to yours, or does it matter? What is the customer’s attitude toward risk – risk averse, risk-taker, or calculated-risk-taker? Are your best customers highly loyal to you? Should you focus on customers that tend to be loyal to suppliers? Or do you believe your product or service and delivery will be adequate to win every customer’s loyalty?

Other ways to segment B2B customers

Another very important consideration in segmenting B2B customers are price and risk involved in the purchase. Complex sales, high-risk sales, and high price sales often require a longer conversion and nurture process. Buyers or purchasing agents typically move more slowly in transactions of this kind because they will need more information, more time to convince others in the company, or more time to evaluate the risk and cost of a wrong decision. Many providers of software-as-a-service (SAAS) today should also consider a trust factor. Business owners and leaders must be very careful when providing access to confidential information to a vendor.

It is also possible to segment B2B customers based on where they are in the buying cycle. A prospect is typically concerned about talking with a salesperson that explains details thoroughly and clearly, understands their business, and earns their trust. The person who has made the decision to buy will likely be concerned about customer support, service, repairs, training, etc. The firm that has received the product and begun using it is likely to be interested in response time on maintenance or repair requests, technical support or how to customize or personalize the product for specific needs.

Another way to segment business customers is how and why purchasing agents make purchases. Four categories are traditionally distinguished:

• Routine buyers – these buyers have no strong attachment to the salesperson, the vendor, or the product. It is needed, so they buy it. As a result, they often pay full price for each product and they seldom receive outstanding service.
• Attentive buyers – these buyers know the product is important to their company and they know what alternatives to your product are available from competitors. They tend to be price-sensitive and they demand a higher level of service. They usually receive a small discount and above-average service
• Relationship buyers – these purchasing agents know the importance of the product, the competitive landscape, and their sales representatives. They tend to prefer working with a particular vendor as long as the price remains competitive. They typically receive a small discount and average service.
• Bargain hunters – these buyers know the importance of the product, know the competitive landscape, demand exceptional service, and will change vendors for a lower price or better service. They generally get the best discounts and service, and they are thus less profitable. They are generally important to the company because they account for the volume that reduces production costs.

Necessary criteria for segmentation to be helpful

Romeo, the Little Black Dog, is always listening to the world around him and thinking about how to make the most of every opportunity.

Finally, all marketing segments for both B2C and B2B customers should meet five criteria in order to be helpful:

1. The segment must be measurable by size, purchasing power, business profile, or individual characteristics.
2. The segment must be large enough to justify the effort of developing a specific approach to sales or marketing. 3. The segment must be reachable in some reasonable way. 4. You must have the capacity and capability of communicating your marketing and sales messages to the segment. 5. You must be able to differentiate the various market segments you establish clearly.

These principles of market segmentation should enable you to understand the attributes or characteristics of your customers and ask your best clients the questions you can use to build a segmentation system for your small business, whether you sell B2C or B2B. Define your segments based on several share criteria to create meaningful segments for your marketing and sales teams.

Knowing your best customers and identifying prospects like them will enable you to generate more leads and convert them to loyal customers much faster.