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your Market Segmentation

Build your business on a solid foundation.

The market segmentation is the foundation of your marketing strategy.

You had the greatest offer ever. Your new product was a real breakthrough. Everything was obviously being successful.
And you failed! Slow ramp-up of your business, few customers are captured, you are starving to get orders.
Like most of the business’s failures, you focus on yourself and do not spend enough time on customers.
Who are your customers? Those who value the benefits of your offers? Those who need it? Those you can access to?
To define them properly, you must create your market segmentation.
You think this article is not for you because you already have a good market segmentation? Maybe you’re right. However, you know that things are changing fast, so your market. Nowadays change is the only constant.As consequence you should challenge your existing market segmentation on a regular basis.
To select the right business opportunities through unique targeting and positioning, the market segmentation is the foundation of your marketing strategy.

Why?

I’d like to start with a quote from James D. Hlavacek :

Very few general managers realize that the definition and selection of market segments is the most important strategic decision facing every industrial manufacturer

That’s simple.
If you have no clue about what is your target, how can you aim at it?

Reductio ad absurdum!

Do you have a target?

Let’s imagine what may happen, or happens, in business without clear targets from a market segmentation:


When a product is released on the market, communication experts are building marketing campaigns to deliver its values to customers. With no targeted audience, the campaign has no impact. Loss of energy, time and money.
Much earlier than its commercialization, the offer is created by a team of designers who are technically answering to customer’s needs.
Without a defined target from the market segmentation, it is difficult to see this offer as likely to meet anyone’s needs. 
That seems stupid! But there are many technical products which are just the result of engineering distraction.
What about a sales team? Struggling to sell an offer without knowing who are the customers that are targeted and why?

The market segmentation is the foundation of your marketing strategy.

We all agree! Market segmentation is important for your efficiency. It impacts positively your time, money and other resources.
The market segmentation is the foundation of your marketing strategy.
A wise segmentation is providing many benefits:
– Spend time on real opportunities and eliminate distractions.
– Define priorities and invest where the return is substantial.
– Reduce the risk of unsuccessful promotion campaign.
– Create the right products for your targets and therefore more satisfied customers.

Above all, working on your market segmentation will unveil some battlefields where your competitors are weak or absent.

And never forget: Not all customers want to buy the same product.

What is market segmentation?

Market Segmentation

Now, we are all convinced that we need a market segmentation to do a good targeting and a good positioning.
But what is market segmentation?

Market segmentation is a process. It consists of dividing your customers and potential customers into small groups, your market segments.
Each group contains customers that share the same characteristics and behaviors.
Each segments are homogeneous, and different segments have different features which make them unique. 
The ultimate objective is to create a marketing mix that matches the expectations of a segment.


Let’s take an example often used to explain segmentation: the toothpaste market.
Above the cleaning aspect, first and obvious feature, different categories of customers are expecting different benefits:
some are willing teeth whitening, some others have sensitive teeth, some are focusing on fresh breath, or cavity protection, or tartar control.
Each of those criteria can define different market segments. They ultimately are leading toothpaste manufacturers to create different products with different pricings and different promotion messages.

How to do?

First and foremost

I urge you not to head down create a huge and unusable database or excel spreadsheet to do your segmentation.
First of all, you must collect information.
Collect in your company and outside your company everything you can find about:
your market (size, trends,…),
your existing or potential customers (behaviors, needs, decisions process,…),
your competitor’s position and strategy,
The technologies you use or may use,
Everything from direct and indirect connection with your business.
All those data, either quantitative or qualitative may be useful during your segmentation process. I wrote about quantitative and qualitative data in a previous article: Why you must meet customers?
Start internally! I mean starts with the gold mine in your company: understand the customers, the offers, the values, etc.
And give yourself time to do this.

A process more than a task.

Market segmentation is a process. Image by Gerd Altmann from Pixabay 

Let’s now see how to do, or re-do, your market segmentation.
As written in the previous paragraph, it’s a process. 
And it takes time.
The market segmentation is the foundation of your marketing strategy. Therefore, it deserves enough time and resources to be done.
This is a process that you are not doing alone. Involve your partners, your management, and any third-party organization that could help you along the process and challenge your proposals.

Segmentation can be done following some steps:

  • Select the variables to identify possible segment
  • Evaluate the attractiveness of each segment
  • Profiling

Select the variables.

Type of business

In Business to Business, B2B, there are commonly used variables:
The first one is usually the type of business, or activity, of your customer. You can easily find a global list such as the North American Industry Classification System that I already mentioned in a previous article: What is B2B marketing?
Too complex or too many information in the NAICS, then go to the yellow pages. Businesses are already sorted by categories and you can use these classifications.

Size

The second mainly used variable is the size of the users.
Using the business size and/or the number of headcounts as statistical values will help in targeting. Depending on your offers, the way to address large quantities buyers may require a different approach than the way to address buyers of small or medium quantities:
their behavior toward pricing and purchasing is going to be different.

Work already with these 2 variables to make a first draft of segmentation. You will already be able to eliminate some segments.

Geographic

Photo by Bundo Kim on Unsplash

Geographic segmentation must also be considered in B2B. Differences in ways of working, values, and preferences vary a lot throughout countries, therefore it is important to recognize these differences.
Sharing my own experience on this criterion:
In one of my former position, we tried during years to deliver some software engineering tools to Chinese customers without any success. This software tool was designed upon our deep understanding of western customers and had pretty good success in Europe. However, we completely ignored the ways of working of our potential Chinese customer toward software engineering tools. A late dive in the Chinese market highlighted the key differences and allowed us to adapt the offer to this segment.
Geographic segmentation is not simply to list the countries you target but to understand what the geographical differences are. This should lead you to create a kind of sub-segmentation covering criteria such workforces, currency impact, climate impact…

Demographic

Demographic segmentation can also be one of your criteria. It divides your market upon variables such as age, gender, education level, income, and more.
Age is incredibly important for marketers to understand, its most important impact is the way to communicate efficiently.
Behaviors and expectations vary dramatically between generations. There’s a great article by Tracy Francis and Fernanda from Mc Kinsey here.

Behavior

Behavioral segmentation. As its name tells, it is grouping customers showing similar buying behavior. It usually covers the habits, the motivations and the loyalty to brand.
Let’s have a look at Apple’s segmentation with a zoom to their behavioral segmentation here. And to illustrate it, here is the behavioral segmentation that leads them to create the unsuccessful Iphone lite in 2013.

Psychographic

Psychographic segmentation classifies your customer on their intrinsic characteristics.
Those are values, personalities, interests, attitudes, conscious and subconscious motivators, lifestyles, and opinions.
Those are key criteria in the Business to Consumer market, B2C.
In B2B, buyers make decisions that are more rational than in B2C. Consequently, a psychographic segmentation seems useless in B2B. Only seems!
In fact, decisions are made by human beings. And more you will collect information about your existing customer more you will be able to identify the emotional components in their purchasing history. So, you need to meet with customers!
What are you going to do with this?
You will create relevant content, targeting the right segment for your product or service. For example, send personalized emails that better speak to the reasons, why people need your product or service.

Benefits

Benefits segmentation. This market segmentation is based on the different benefits that different groups of customers look for in your product.
In other words, to divide the market based on the perceived benefit of the product or service. Which means that you must know who are your customers!
This is the example I used in the introduction of this article: the toothpaste market segmentation.

You don’t need to use all these different models of segmentation. Of course, select more than one. Use a mix of method that are relevant to your company, customers and offers.

Attractiveness

To select the right segments, you must define their attractiveness.
First, you cannot go and sell everywhere. Unfortunately, you have limited resources and you must optimize the profits. That’s the legendary equation of doing business.
What are the common criteria to define the attractiveness of a market segment?
The market segmentation is the foundation of your marketing strategy, so take time to answer the following items.

Is there a need?

Despite this seems stupid to ask, is there a need for the solution you promise to provide in the segment?
You may have a wonderful technical idea for a new product, but no one needs it.
Just google “useless products” and have fun discovering the millions results.

Measurable?

Can you size the segment? Even an estimated value.
Can you name the competitors acting in this segment? At least the major direct competitors?
If not, either you have to search for more date, or the segment is not measurable.

Substantial?

Complementing to the previous criteria. Is the size of the segment large enough to justify the efforts?
The efforts being the creation of an offer and all the marketing tasks that are needed from offer creation to commercialization.
It’s money, time and other resources.
Your company has minimum requirements for the financial return from its investments, so it is necessary to only consider segments that are substantial enough to be of interest.

Actionnable?

marketing mix

Are you able to create and implement a distinctive marketing mix for the segment?
Basically, can you describe the 4 P’s for the segment?
Want to know more about the 4 P’s of the marketing mix. Jim, from refresh:b2b and I talk about them in our podcast The B2B Beach Bar.

Accessible?

Can you reach the customers of the segment?
In other words, do you have the resources to address the right communication channels of this segment?
Moreover, ask yourself : do you have the sales force ready for it (in number of headcounts and competencies)?
Or maybe you have the available resources to recruit the right sales force?
A good way to address this topic could be also to imagine how you may re-route your existing sales forces.
If it’s a segment mainly served by a distribution network, do you have those distributors as partners? Are they opened to your proposals both for promotion and sales?
Try to estimate your expenditures to access the segment.

Profiling

Most of the above question can be easily answered by yes or no. Therefore, you can eliminate the segments that are not attractive.
Do not hesitate to really dismiss them.
There are always too many remaining. They need you to do more work.

Market data

After this sorting out process of attractiveness, then you’ll set up the profile of remaining segments.
This consist in giving the qualitative data to each of them:
size, potential growth, current and future profitability, competitive structure.
Once again, this step is taking time. You may not have all the data.
It’s time to wear your treasure hunter suit and dive in the web. However, not everything you need is accessible.
Therefore, buying some market studies is important. That’s nothing you can get for free. But you need several to assess your profiles with robust data.

Mistakes

Segmentation is burdensome and complicated Think about it as a project more than a task.
Mistakes in the early steps are inevitable. So be aware of the most common mistakes. This may help you and your team to avoid them.

Creating too small segments.

When you’ll try to define all variables to ensure you capture everything, you will define some segments with low attractiveness due to their business value. Or you may create too small segments that do not need your offer.
Then you should revisit your proposal: grouping some “small” segments, but do not forget the rule of homogeneity.

Not updating your strategy.

Your customers are changing. People in your customers are changing. And it happens fast. Consequently, you must refresh your segmentation from time to time.
I’ll never say it enough: meet your customer to always challenge and update your understanding.

Forget the upstream impacts

Most of marketers, and I am one of them, we focus on customers in their roles of users, or buyers, or decision makers. But we tend to forget about influencers.
They have the power of words of mouth, they can be individuals or organizations … And they must be considered in your segmentation exercise.

Weak or limited data

None of your segment should be set in stone until their qualitative data is robust and up to date. Moreover, you must have large quantities of data (sorry there isn’t a magic number).
– Having wrong data, or feelings instead of values.
– Relying on data that are 3 or even 5 years old.
– Using a limited number of data.
All those will lead you to build a strategy on a foundation of sand.

is your segmentation correctly done?

Ask yourself this question.
Not so easy to answer. There are some criteria that you can use to assess your segmentation.
Those criteria can help you to answer by yes or no to the above question. However, this will not tell you if it’s a good and valuable segmentation.
What are those criteria?

  • The segments are homogeneous.
  • Segments are not overlapping.
  • Marketing mix are different for each segment.
  • The segments are substantial and sustainable.
  • The segments are accessible.

So Much to do!

Overwhelmed?
Image by annca from Pixabay 

Market segmentation requires a lot of time and energy.
The market segmentation is the foundation of your marketing strategy.
Are you ready to do or to review your market segmentation?
Then set up a project, with the right resources in people, time and money.
That’s a priority investment for the efficiency of your organization. By efficiency, I mean your return on investment.

You may not have the marketing expertise in-house to lead this process. Consequently, you should think about bringing in a consulting firm. Take it as an opportunity to also train your in-house marketing team and upskill your people.

References and web links

True Gen’: Generation Z and its implications for companies, McKinsey & Company, November 2018, by Tracy Francis and Fernanda Hoefel

Apple Segmentation, Targeting and Positioning, Posted on April 20, 2019 by John Dudovskiy

Categories
B2B marketing Beginner Marketing Marketing basics Marketing definition

What is B2B Marketing ?

B2C, B2B or BtoB, B2B2B, B2B2C, just an extract from an acronyms list to leave the dummies outside of the expert’s discussion. That’s bad !
Like many other domains, the marketing and his folks have an incredible list of acronyms and expert vocabularies to protect their private backyard.
There’s nothing better than the usage of acronyms when you want to loose your non-expert audience.
I hate acronyms ! So, let’s kill them !

B2C ?

B2C stands for “Business to Consumers“. Therefore, B2C marketing is about the activities I described in a previous article, that target consumers as customers. marketing?
Basically you or me into our daily life, buying and using goods : from food to smartphone, from water to membership of fitness club…
I may write later about B2C, but the main subject of this article is B2B marketing , let’s speak about it.

Companies as customers
Photo by Rodney Minter-Brown on Unsplash

B2B?

Our key question, what is B2B marketing ?
B2B stands for “Business to Business” .
Then it’s about the marketing activities that target companies as customer.
Let’s list a few examples :
. Rolls Royce selling engines to Boeing, that’s Business to Business.
. Foxconn manufacturing iPhone for Apple, that’s Business to Business.
. SalesForce selling services and software, that’s Business to Business.

Business to Business is a huge market, covering many fields , from raw material to machinery and tools , from stand alone software to services, from energy generation to waste treatments. We speak of trillions US dollars.

Like Business to Consumers, Business to Business marketing starts and ends with customers.
It is  targeting your most relevant market segments, discovering and learning about the customers, creating and delivering values.

Who are the customers in Business to Business marketing ?

The customer is always the one who decides that the value your deliver is really a value for him or her.
The customer will buy, or will influence the decision-maker to buy.
Human beings involved in companies decision process are exactly the same who are  buying consumer goods.
If their behavior varies upon their role ( I mean as actor into an enterprise, or as a individual consumer) , their expectations are unconsciously cross-influenced by their two experiences.
The border between B2C and B2B can easily be drawn :  target is consumers on one side , target is companies on the other side. But customers are human beings and they cross this border all the time.

Market Segmentation in Business-to-Business.

What is targeting in B2B marketing ?
Photo by Simeon Jacobson on Unsplash

Business-to-Consumers market segments are usually done by  definition of social and cultural groups , impacted by level of education, age, receptivity to social media, income categories …. And you can put each and every individual in one of your defined box : the market segments.

Business-to-Business market segments are usually defined using other dimensions :
 – the category of industry type ( such as mining, electronic, automotive, chemicals ….),
 – the activity ( such as machine builder for segment/application X, building and structures for segment/application X, integrator for segment/application X, and much more).
You can always create your market segmentation by using very standards categories such those of NAICS : (one more acronyms to keep away ignorant) North American Industry Classification System.
Above all, be lazy ! No need to re-invent the wheel , use what is already available and adapt it to your own need.

The good market segmentation is the one that is useful for your organization

It’s not necessarily the academic one.
Useful for your organization, that’s common good sense : your peers understand the way you define each segment and it gives you powerful data to select the most attractive and achievable targets.
Your good segmentation is your foundation to target your winning battle-fields.

A classical mistake 

The mistake I always see : Marketer in Business-to-Business are defining their segments with industry classification.
However they always skip or disregards the social and cultural criteria.
After that, no wonder if a product that perfectly fits an industry in Europe, will never raise in the same industry in China !
I did make the mistake. I have to admit that I had to live several years in China to understand and take the cultural criteria into account
These social and cultural criteria can be strong differentiation and added values when creating new offers.

Understand who’s who.

who are the customers ?

More than in Business-to-Consumers, Business-to-Business marketing must take care of the people involved with your offers. I would say, impacted by your offer !
Marketers often tend to mix their targeted customers with a limited number of people, those they can easily interact.
You should never skip the guys who will implement , set, maintain or use daily the product.
Above all, customers-as-personas are one of the most valuable knowledge in Business-to-Business marketing,
You must always dig deeper and know who is doing what,how and why.
Therefore, you must take the necessary time to understand each and every persona concerned directly or indirectly by your offer.


Business-to-Business marketing is : dealing with people.

who is the real use of your product ?
Photo by Alev Takil on Unsplash

Coming back to the basics : the foundations of every organization are people.
Organization being often structure in a pyramidal way , it makes easy to list each sub-function and then categorize and describe the personas that marketers must understand.
Do not forget also to understand the customer of your customer !
Sometimes named as the end-users.
The values you create and deliver must address this end-user’s real needs and pains !
In our Cartesian logic education, we would build our personas-understanding from the top of the pyramid. From the C-levels, down the base of the pyramid : the workers or the end-user.
As a result, the understanding of the real user , or end-user, is influenced by what we discover and learn from the above levels. And our final picture is not the real one.

Who to Start with ?

When digging in customer’s need, please start by the bottom of the organizations.
Then you must start by the end : the end-users. The end is the beginning !
Start with the real user of your product.
Then learn from other levels to understand better the decisions processes and indirect needs that your offer must answer to.
Even if this looks like a linear process, from bottom to top, it’s not!
You must challenge your learning and knowledge’s : always come back to your personas end-user to check and value what you may have discovered. 

Real life vs objectives

Ideally, every companies would like their marketers to follow a timely defined process.
In a very summarized steps approach :
1- describe customer needs
2- create values
3- monetize the values

But the reality is quite different:
The marketers must discover and learn about their customer’s personas every day.
Each interaction with a customer is a unique and priceless moment. The unique moment to learn more about who is doing what, how and why.

Projects to create new offers, as well as to maintain and evolve existing offers, must be fed by marketing knowledge.
This knowledge is acquired along years of customer’s experience. Therefore, the marketing knowledge can not only be fed by  short campaign of interviews or customer-interest-check meetings.
What is B2B marketing : Business-to-Business marketing is dealing with people, interacting with the personas of your targeted segments.

Marketing needs time.

The activities I describe TAKES TIME.
But it’s the only  way to get robust offer requirements.
Marketing is delivering business opportunities from customer understanding ; those marketing facts are the trigger of offer creation and offer evolution.
Marketing facts are also the triggers for design thinking and co-creation.

Business-to-Business delivers values

Finally, marketing must deliver the values : Show and Tell .
The tools and media used can be very similar to those of Business-to-Consumers. But the how to
“show&Tell ” must take into account that Business-to-Business customers have a different behavior.
They don’t buy your product because of the product.
In fact they don’t care about your product!
They care that your created value is solving one or several of their needs or pain points.
The list can be long and embraces topics such as productivity, safety, return on investments, easiness, robustness ….
Therefore , your Show&Tell must speak more about customer than product.

Long-term but short-time ?

Business-to-Business customers are usually loyal and long-term customer, and remember : they don’t buy , they invest.
Therefore their decision can take time. Sometimes months, even years.
You must never skip those key facts when delivering your values to your Business-to-Business customers.
Messages must tell about how their issue is solved and communication Campaigns must last. Targeted media must be those your customers-as-personas are used to get … and have time to go through.

That’s a paradox in Business-to-Business Marketing :
Excited by the tremendous successes from brands acting in Business-to-Consumer, companies managers ask to copy/paste those successes in Business-to-Business. Awaiting for short-terms business results.
Business-to-Business marketer’s roles and responsibilities are to create the future , but the paradox is that they struggle under pressure for immediate actions and short-term results.

In a nutshell.

What is B2B marketing ?
Business to Business marketing is :
understand the needs then create and deliver values, to the various and complex organizations of companies, and to their own customers : other companies and sometimes consumers.
Therefore, Business-to-Business marketer’s value stands in their abilities and skills to listen and understand the real needs of the various personas along the decision chain, from the real end-user up to the c-level of the targeted customer segments.
It takes time.