Business-to-Business Market Segmentation

Business-to-Business segmentation rarely receives the attention that its cousin discipline, customer segmentation, receives.  We at SIS International Market Research have compiled a few considerations for B2B segmentation.  This is not an exhaustive description, but an overview for understanding about how business-to-business can help companies to grow their accounts and revenues.  SIS helps companies develop actionable segmentation plans that can boost profitability.

Companies can consider several different variables in their segmentations.

• Behavior
• Profitability / Lifetime Customer Value
• Benefit / Attribute
• Conjoint Analysis
• Use or Application
• Product Class
• Price/Quality Demands
• Competitor

In Low-involvement product offerings, companies can consider researching usage behavior, buyer behavior, price elasticity / sensitivity and brand loyalty, among others.  For high and medium involvement products, businesses can consider researching their customers’ comprehensive needs, buyer types, business’ buying behavior and core values, among many others.  Lifetime Customer Value as a metric can provide companies a measurement of the value of a client to the firm; with research into each segment done by Lifetime Customer Value and the Pareto principle (80 20 rule), companies can make a concerted effort to improve profitability.  The variables for segmentation will vary by company and industry.

Michael Baker author of “Marketing” asserts that Market Positioning should include quantitative analysis.  He advanced the following quantitative analysis:

Potential Market Size x Penetration Probability

Customer share has received currency in the past two decades over marketshare as a useful metric.  Companies can estimate market potential with the following quantitative analysis:

Customer Potential in Market x Share of Customer

Some considerations for Business-to-Business segmentation research:

1. Avoid focusing too much on the product.  Rather companies might consider a segmentation based on perceived benefits by each segment.  An example of this is with many software companies that focus only functions, rather than the benefits that customers of many different sizes may perceive.
2. Avoid focusing on company size as a means to meet customer needs.  By puting companies in categories by how mny employees they have, these segmentations can miss important insights and make smaller companies feel that their needs won’t be met.
3. Business-to-business segmentation needs to be useful to the company.  While companies can do vasts amount of research, the segmentation information needs to be relevant and actionable.
4. To create a clear market positioning that can be tested.  An example of a positioning statement is:
   To information systems managers, Microsoft is the brand of software package that provides the most value for the price because of added functionality, service and competitive pricing.
5. Continued commitment to research as customer needs rapidly change

Why target heavy users in Market Segmentation?

1. Companies can often extract the most value  from these customers because they’re willing to spend.  According to the Pareto Principle / 80 20 Rule, companies can benefit from targeting the 20% of customers that compose 80% of their revenues.
2. Increased loyalty lowers customer acquisition costs over the long term
3. Marketing costs can become cheaper, as customers increase frequency of purchase

General guidelines for B2B Marketing:

• Novices
  • Focus on product benefits
  • Learn better when message is well organized
  • Benefit from multiple exposures to information
• Experts
  • Focus on product attributes
  • Learn easily whether message is organized or not
  • Benefit from single exposure to information