Segmentation answers the question, “who do you serve and how are they different?” The process of segmentation is a crucial component of any company’s marketing strategy and overall business strategy, regardless of its size or sophistication. Defining your ideal customers is the first step to understanding them and figuring out how to compel them to become and stay real customers.
What is Segmentation and Why Segment?
Selling in a B2B environment is often complex. Your product or service might be sold to companies of various sizes, sophistication, and buying processes. Even in the same industry, the decision makers and influencers within an organization can vary wildly from company to company and across geographic markets. For example, when selling facilities engineering services in the oil and gas industry, one might need to reach various types of exploration and production companies and countless roles within them, from team leads to area leads to VPs of Engineering to individual engineers and facilities engineers, or all of those roles, depending on the makeup of the company.
Each target company and role within it likely has different goals, needs, and concerns. Segmentation is an effort to group them together so you can reach, compel, and serve them more effectively and profitably. While all these individual relationships must be managed uniquely, it is still possible to group them into segments that have a similar need and will respond to similar messages and marketing strategies. Segmentation is the first step to positioning yourself effectively for varying customers, targeting them, and ultimately getting their business.
Simply, market segmentation involves aggregating prospective buyers into groups that: 1) have common needs and 2) will respond similarly to marketing tactics and messages. The segments that result from the process are a relatively similar collection of prospective buyers. Each segment must be measurable (you can determine its size and qualities), accessible (you can reach it), valuable (substantial enough to be profitable), and capturable (you offer compelling value to that segment). Even if the service offering or product is standard across all segments, you must communicate what value it has for each segment and give them the tools to evaluate your product or service relative to their needs. Each has slightly different demands and concerns.
How to Segment
Most common, is a firmographics, or features based, approach to segmentation, which considers dimensions such as industry, size and location, among others. Our approach at William Joseph closely aligns with this, but because our end goal is connecting with clients’ customers and compelling them to take some action or develop affinity towards the company, we also layer in behavioural, needs, and attitudinal considerations.
Segmentation criteria vary for each business, so the first step in the process is to determine which are relevant. Next, break down your customers by these criteria. In a B2C context, segmentation focuses on demographic features, such as location, age, life-stage, and even interests; segmentation in a B2B context might begin with industry and then drill down into geographic location, size of company, and even business model or roles to target within companies. Whatever way you choose to group segments, the segmentation process should begin at a more general level and then becomes more specific.
Sample Segmentation Criteria
- Location of Operations
- Size of Company (From a revenue or number of employees perspective)
- Location of Decision Makers
- Usage Level for your Service or Product Category
- Purchase Behavior or Process
The above are just a small sample of variables worth considering. You could also segment by sophistication, operations type, and even age of business. Other criteria could include, power structures and dynamics in each company, such as the level of influence of different roles and departments, or strategic concerns. Are they focused on short term cost-cutting or long-term relationship development? Do they focus on performance or cost? Strategically, are they wanting individual suppliers or managed solutions that tie together several services? The potential factors to consider are nearly endless.
Segments ultimately must be applied and used to guide product/service offerings and marketing. This process is not an academic exercise, so don’t create so many minutely defined segments that they are impractical or costly. Take segmentation to the point where it is infeasible to segment further, due to budget and resources, or where there are few meaningful differences in the segments’ needs and responses to marketing messages and tactics.
Once you have your segments, create a profile for each that includes the segment criteria and deeper analysis as well. At WJ we almost always dig down to the role level in our analysis, because at the end of the day, companies are made up of people. No amount of structure, policies, procedures, or directives can eliminate the human element of decision making. Even when selling to large organizations, it’s important we consider the unique needs and more emotional factors that influence the people that make up the companies in segments.
Remember, the ultimate goal of segmentation is to better serve your customers and speak to them more precisely. It provides a base for strategic decision making. Segmentation ensures we define our customers, helps us better understand their needs and the value we offer them, and then groups them so we can communicate with and serve them more efficiently and effectively.