Market segmentation is as important in B2B as in B2C. Strictly speaking, segmenting means dividing one’s market into subsets (segments) that make up homogeneous and distinct groups. In B2C, one resorts to quantifiable criteria pertinent to one’s consumer segments: socio-demographic, geographical, economic and behavioural patterns. B2B is quite different, however. Let us describe which criteria are applicable to business-to-business marketing.
The Choice of Data for B2B Segmentation
As described above, in B2C, one uses quantifiable characteristics relating to consumers. Segmentation byproduct is also possible. For example, the vacuum cleaner market can be divided into several segments: Cordless stick vacuums, upright vacuums, cylinder vacuums, handheld vacuums, robot vacuums, etc.
In B2B, the choice of data for segmentation is different. In business-to-business, one will mostly focus on the industries in which your buyers are working, the revenue and headcount of the businesses you are targeting, their geographical location and, possibly, the end consumers or buyers they address (in a B2B2C or B2B2B configuration for instance). One can also choose certain technical or technological factors linked to your potential customers’ buyer behaviour or their company size.
Limitations of Theoretical Approaches
- In B2B, there is usually a dearth of information available on any given market. The segmentation approach is therefore rarely routine and systematic. It is generally done on an industry or geographical basis. And most of the time, one starts with buyer segmentation rather than market segmentation.
- One must also ensure that the cost derived by a choice of segmentation (as supply must be adapted to each segment) isn’t too high. This additional cost manifests itself in the design of the product and the marketing plan specific to this product. Hyper-segmentation can also lead to confusion for the B2B buyer who, faced with too broad and therefore unintelligible an offer, turns to other vendors with a much more straightforward marketing offer.
- Thirdly, in their book ‘marketing the unknown’, Palmer and Millier remind us that in terms of segmentation, a market can be created from scratch (as opposed to snatching market share from the hands of one’s competitors).
- Innovation is another serious limitation. Millier and Palmer take the example of microwave ovens. They argue that when microwave ovens were first launched, virtually no one knew the product. It was brand new. As such, aiming at, for instance, 10% of the oven market wouldn’t have been a valuable option. Besides, microwave ovens ended up – as is seen when observing modern kitchens – being a secondary oven for the household. ‘Such ovens never withdrew market share from traditional gas or electric ovens, they created their own market,’ Millier explains.
Innovations in B2B Segmentation Techniques and Methodologies
Paul Millier developed a method called Segmentuition™ to segment markets that do not yet exist. He assumes that great ideas never come out of a computer, but always from a human brain, the seat of creative intuition and that the same is true for products and markets.
Its starting premise is that, even if imperfect, the starting representation that one makes of one’s market is based on intuition. Through careful observation, it has the merit of being down-to-earth, straightforward and fast. From then on, this initial intuitive and unstructured representation can be tested iteratively to reinforce, enrich, improve, justify and structure it to make it intelligible and convincing. To a large extent, the modern view of marketing and the MVP (Minimum Viable Product) approach is based on similar assumptions.
Tools and Methods for B2B Segmentation
Many methods – beyond segmentation – exist with regard to customer segmentation in B2B. Lead space has listed five of them.
- Segmenting Customers Based on Firmographics (i.e. the equivalent of demographics for businesses)
- Segmenting Customers Based on Tiering (customer tiering will help you sort those customers, you do not want to work with because they belong to a particular buying pattern. For instance, you may decide not to work for e-merchants because their buyer behaviour is based on price rather than value for money. This method is often used in ABM to exclude certain segments.)
- Segmenting Customers Based on Needs (which seems like the most obvious method and yet often isn’t. Needs are rarely expressed openly by buyers who often want to keep their reasons for choice hidden from vendors to leverage their negotiation power).
- Segmenting Customers Based on Customer Sophistication
- Segmenting Customers Based on Behaviour