B2B Segmentation: The Easy to follow 2021 Guide [6 Methods]
In this guide, we will cover how market segmentation in a B2B environment can help your business reach new heights, along with 6 easy methods for B2B segmentation.
These methods have helped well-established brands like Canon increase their market share up to 40% and save MetLife $800 Million in customer acquisition costs.
Let’s get right into it.
The Importance of B2B Segmentation
If there is one basic rule of marketing, it is to sell different people differently. Segmentation takes up an even more important role when it comes to the B2B market.
Market segmentation in a B2B setting is a bit more complex than in a B2C one, but the benefits are immense. With the right segmentation strategy in place, you understand your target groups better and cater to their specific requirements in an effective manner.
The importance of segmentation in the B2B market can be understood from the fact that it has helped brands like Canon tap into newer markets and grab up to 40% of the market share just with the right segmentation strategies in place.
Similarly, the insurance giant MetLife was able to better sort its customers into groups and save up to $800 Million from their customer acquisition costs.
Here are a few benefits B2B segmentation can bring to your business.
- It boosts company revenues.
By reaching out to groups who are the most interested in your products, you automatically get a higher conversion rate. The more you sell, the greater your revenues are.
- It can help cut marketing costs.
When you filter out your audience into specific groups, you can create more personalized campaigns. Such focused campaigns have a greater ROI and hence, you get the same results with lesser spending.
- It improves product development.
When you have a deeper understanding of your audience, diversifying your product portfolio becomes easier. You create different products for different groups and meet the requirements of the customers better.
- It identifies areas for expansion.
Once you start segmenting your audience, you will find groups that you have never been able to reach out to in the past. These new segments are brilliant areas to enter into and exploit.
- It enhances the customer experience.
When a business starts delivering more relevant solutions to the problems of its customers, the customer experience automatically gets better. They get exactly what they want and hence keep coming back for repeat purchases.
How B2B Segmentation Differs from B2C Segmentation
Segmentation in both B2C and B2B markets revolves around the same basic idea of identifying target markets, grouping prospects, and creating focused marketing campaigns. However, there are few unique characteristics of the B2B market that need to be taken into account when segmenting.
Before we move to the methods for B2B segmentation, let’s look at some of these differences that make B2B segmentation unique.
- The buying behavior is complex.
B2B purchases are usually high involvement and customers are looking for personalized solutions. This element of personalization allows businesses to segment in great detail, based on the needs of similar clients.
- There are no impulse purchases.
Contrary to B2C markets, a B2B buyer is extremely rational. Purchases are made on behalf of large corporations and there is a lot at stake. So, the buyers are very careful with their decisions. Segmentation, here, is purely on the basis of factors that affect purchase decisions rather than simpler criteria such as demographics or geography.
- There are more than one decision-makers.
B2B purchases involve a number of decision-makers from different departments of the business. The buying criteria and the final decision to buy rests with full teams and panels. Hence, it often gets difficult to understand their decisions and put them in certain groups while segmenting.
- The buying cycle is considerably longer.
A longer buying cycle means that you can’t rush towards closing and have to wait for a few months or even years for the purchase to be finalized. A lot of factors change over this long time period and again, segmentation becomes tricky.
6 Easy Methods for B2B Segmentation in 2021
Segmenting Key Accounts
No two customers are the same and each customer should be treated as an individual. Ideally, each segment should consist of exactly one customer and the business services should be optimized for that individual.
But since realistically that is not possible, you may put the Pareto Principle in action here. According to this principle, somewhere around 20% of your key accounts will be responsible for driving 80% of your business activity.
In most B2B cases, this 20% would amount to a handful of customers only. It is quite reasonable to treat these VIP customers as individual segments and provide personalized services to them in all aspects.
You may tailor your products according to their needs or even develop new ones specifically for them. Make sure that you give special attention to these crucial key accounts as they are responsible for 80% of your revenues.
Demographics take the form of Firmographics when our clients change from individuals to firms. Firmographics segmentation involves segmenting customers based on shared qualities such as business size, company location, the industry they are operating in, tech adoption rate, and a lot more.
Firmographic segmentation is particularly useful since it is fairly inexpensive. The cost to collect firmographic data is low and you don’t have to do a lot of research; firmographic information is publicly available in most cases.
Additionally, the information is quite simple to understand and all levels of management understand this model of segmentation.
Firmographic segmentation is used by a lot of firms since it does not require an in-depth understanding of the clients or their purchasing patterns. However, there is a downside to it. The basic needs of organizations may be similar at a firmographic level, but when it comes to providing customized solutions, this data is of no use.
For instance, you can assume that all companies in the finance industry require bookkeeping software but you can’t tell the average amount each of them is ready to invest in it.
You may use Firmographic segmentation for top-of-the-funnel marketing but for deeper levels, you may require a different B2B segmentation framework.
Customer tiering is a process of ranking customers on the basis of their importance for your business. This importance could be defined by their profitability potential, lifetime value, or simply how well they are aligned with your future goals.
Customer tiering is similar to the key accounts segmentation discussed earlier but the difference is that this type of segmentation covers a lot more than revenue generation potential only.
You may even consider how influential a client is in bringing more clients for your business so that you could focus on this particular client more.
Modern tech-savvy firms even utilize AI and machine learning to calculate the potential value a client holds and then create tiers based on these technologically advanced methods.
The downside, again, is that while customer tiering may guide you on what clients need more attention, the needs for all customers are not the same. Customers in the same tiers may be very different from each other and to put these insights to use, you may need additional segmentation criteria along with tiering.
This one is by far the most powerful method of customer segmentation.
Needs-based segmentation clusters audience groups on the basis of what they normally look for in a product. This could be a certain feature of the product or any other aspect they pay the most attention to while purchasing.
This model of segmentation is very accurate and highly scalable. You can identify certain aspects of the products or services you provide and then assign a certain score to each aspect for each of your clients.
The data collection may be hard and this score-assigning system might require some level of data analytics. However, the results are incredibly helpful.
You can also derive customer needs from what drove them to the product in the first place. For instance, a client could be subscribing to a cloud hosting service to share files across their network. Another client could be subscribing to the same service to backup important data and recover easily in case of loss.
Here are some examples of customer needs.
Needs-based segmentation is always recommended for firms that have the resources to conduct it. Otherwise, if you want a simpler framework for segmentation, you could always go for other methods discussed in the article.
Segmentation Based on Customer Sophistication
Customer sophistication refers to their acumen of the product you are offering or the industry they are operating in. There are customers who require a very basic version of what you are offering and then there are ones who are experts in the area and demand a lot more sophistication. You need to put these two types of customers in separate groups and make sure they don’t overlap.
The major risk with using customer sophistication as a basis for segmentation is that marketers try to link it with the size of the business or the industry they are operating in.
Also, making faulty assumptions about customer sophistication may lead to pushing customers away instead of bringing them in.
For instance, if you bombard a sophisticated customer with your top-of-the-funnel pitch, they might find it very annoying and instantly switch to a competitor.
As the name suggests, behavioral segmentation looks at the behavior of your customers towards your product or service. You segment customers on the basis of their interaction with your business and try to figure out if a particular customer has become more interested or disinterested over time.
Behavioral segmentation is often used in combination with customer tiering to identify customers who need to be pursued to get greater value out of them. Marketers are able to identify the potential for upselling and increase revenues from individual customers.
Alternatively, the customers who are at risk of churning are given preferential treatment to keep them on board.
B2B Segmentation Case Study
Now that we know how B2B segmentation works, let’s go through a real-life case where B2B segmentation helped a business focus its sales and marketing operations and bring in valuable clients.
MetLife is a well-known insurance and employee benefits company. Back in 2015, reimagined all of its branding and customer acquisition strategies by putting customer segmentation to use.
Traditionally, the company had been using simpler segmentation criteria for its corporate clients. Segments were created based on the size of the organization or the number of employees in the company. Using these criteria gave MetLife only a rough outline of who their customers are but no actual insights on how they could be targeted.
MetLife interviewed and surveyed more than 50,000 of its customers, both individuals and corporate, to collect certain data points. The segmentation was then redesigned based on sophisticated big data clustering techniques with the help of machine learning algorithms.
For the first time in its history, the company had a clear picture of who its clients were and how the company resources needed to be allocated against the pursuit of the right customers. The newer segmentation model was based on a mix of demographic, firmographic, behavioral, and needs-based metrics.
The company was able to save up to $800 Million in customer acquisition costs over the course of 5 years.
This segmentation practice was so effective that MetLife took it one step further and started educating its corporate clients on how they could think about their employees through a combination of demographic and psychographic data.
The company’s corporate services now include “helping HR leaders select their benefits and adjust current programs to suit their diverse employees”.
B2B marketing activities demand loads of cash to drive any results. And no firm has infinite resources available. Even if you are a large company, you may be able to spend millions in marketing, but if the message you’re sending isn’t specifically targeted at anyone, there is no use sending it out in the first place.
This is exactly where market segmentation comes in. You group similar customers up and try to define the focus of all your activities right from the initial product development, to the eventual sale, and even after-sales activities.
Make sure you are using the right method of segmentation that not only goes well with your own goals but also sits well with the industry you are operating in and the type of customers you are dealing with.
Such a segmentation model is bound to succeed and bring positive results for your business.
References & Sources
- Sopro.io: The complete guide to b2b market segmentation
- Hello-adience: How to conduct a B2B market segmentation
- MetLife: A Case Study in Customer Segmentation
- Insight to Action: the Case for More Meaningful B2B Market Segmentation
- Investopedia: Pareto Principle
- Marketing Interactive: How Canon carved a new market segment
- Sterling Woods: 10 Stats That Demonstrate the Power of Segmentation
- Data Captive: How Important is Market Segmentation in B2B?
- Iammoulude: Market Segmentation in B2B Markets
- The Wiglaf Journal: What are Firmographics?
- Intandemly: Account Segmentation and It’s Importance
- Worshipful Company of Marketors: Needs-Based Market Segmentation
Frequently Asked Questions
What is B2B segmentation?
B2B market segmentation means finding unique audience groups by understanding the common characteristics between customers. Different market segments are created using different criteria and then these segments are treated very differently with respect to product development, marketing, or sales.
What are the types of B2B segmentation?
There are various types that B2B segmentation can take. The most used methods include key accounts segmentation, firmographic segmentation, customer needs-based segmentation, customer sophistication-based segmentation, behavioral segmentation, and customer tiering.
Is B2B segmentation important?
B2B segmentation is extremely important especially in the competitive market of 2021. With the right segmentation strategy in place, you understand your target groups better and cater to their specific requirements in an effective manner.