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Effective B2B Market Segmentation
b2binternational.com
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Do companies fall clearly into one of the segments? A company cannot be in more than one segment. This is unlike consumer segments where one week I may fit into an airline’s business-class segment and another week fit into low cost. “In many cases, companies pick out the key firmographic characteristics of each needs-based segment and use these as segment identifiers.” Choosing Segments To Work With
The benefits of b2b segmentation are not hard to grasp. The challenge is arriving at the most effective groupings. “The consumption levels of business-to-business customers are so widely different that this often makes sense due to large companies usually thinking and acting differently to small ones.” These “demographic” approaches to business market segmentation, sometimes referred to as “firmographic segmentation”, are perfectly reasonable and may suffice. However, they do not offer that sustainable competitive advantage that competitors cannot copy. A more challenging segmentation is one based on behavior or needs. Certainly large companies may be of key or strategic value to a business but some want a low cost offer stripped bare of all services while others are demanding in every way. If both are treated the same, one or both will feel unfulfilled in some way and be vulnerable to the charms of the competition.
A common approach when segmenting business markets is to base this mainly on company size. The consumption levels of business-to-business customers are so widely different that this often makes sense due to large companies usually thinking and acting differently to small ones. A further sophistication may be to classify customers into those who are identified as strategic to the future of the business, those who are important and therefore key and those who are smaller and can be considered more of a transactional typology. “These “demographic” approaches to business market segmentation, sometimes referred to as “firmographic segmentation”, are perfectly reasonable and may suffice.” It is not easy to jump straight into a fully-fledged needs-based segmentation. Most companies are starting with some history of involvement in business market segmentation, even if it is only a north/south split of its sales force. Companies move down the road of segmentation learning all the way.
The company looked at its customer base and found that 80 percent are women. With this in mind, CVS redesigned 1,200 of its 6,200 stores to meet the needs of busy, multi-tasking women by offering shorter wait times for prescriptions, wider and better-lit shopping aisles, and more beauty products. In doing so it fulfilled the requirement of all good marketing orientated companies – it identified the needs of its customers and organized its offer to better meet them. This is at the heart of all good marketing – meeting customers’ needs profitably, and allocating finite resources in such a way that profit is maximized. This means not wasting time or resources on customers who would be less profitable, and treating the key targets not as one homogeneous population but as distinct groups with distinct needs. “It is designed to be a practical tool, balancing idealism against practicality and coming up with a solution that maximizes profit.” This means we have to be clever in targeting our offers at people who really do want them, need them and are willing to pay for them. Equally, we have to be strong in setting aside those who do not. We have to choose our target audience on the basis of our capabilities and strengths. In other words we have to choose our own battlefield where we are confident that we are more attractive than our competitors. This early observation is fundamental, as it requires us to think as hard about where we don’t want to sell our product as where we do.
“However, people’s needs differ and therefore satisfying them may require different approaches.” What Is Marketing If It Is Not About Segmentation?
CVS Pharmacy is one of the most successful drug store chains in America. What is the reason for this success? They understand their market and have approached it through market segmentation and targeting. “This is at the heart of all good marketing – meeting customers’ needs profitably, and allocating finite resources in such a way that profit is maximized.” It is very rare for even two customers to have identical needs to each other. In a perfect world, we would identify those customers that we deem to be profitable, and then treat each one of those individually according to their unique needs. In any market with a sizable target audience, even this is likely to require more resources than is practical or profitable. To reiterate, segmentation, like marketing itself, is all about the profitable satisfaction of customers’ needs. It is designed to be a practical tool, balancing idealism against practicality and coming up with a solution that maximizes profit.
It is very rare for even two customers to have identical needs to each other. In a perfect world, we would identify those customers that we deem to be profitable, and then treat each one of those individually according to their unique needs. In any market with a sizable target audience, even this is likely to require more resources than is practical or profitable. To reiterate, segmentation, like marketing itself, is all about the profitable satisfaction of customers’ needs. It is designed to be a practical tool, balancing idealism against practicality and coming up with a solution that maximizes profit. “We have to choose our target audience on the basis of our capabilities and strengths.” Further Reading
It is very rare for even two customers to have identical needs to each other. In a perfect world, we would identify those customers that we deem to be profitable, and then treat each one of those individually according to their unique needs. In any market with a sizable target audience, even this is likely to require more resources than is practical or profitable. To reiterate, segmentation, like marketing itself, is all about the profitable satisfaction of customers’ needs. It is designed to be a practical tool, balancing idealism against practicality and coming up with a solution that maximizes profit. “This means we have to be clever in targeting our offers at people who really do want them, need them and are willing to pay for them.” Further Reading
It is very rare for even two customers to have identical needs to each other. In a perfect world, we would identify those customers that we deem to be profitable, and then treat each one of those individually according to their unique needs. In any market with a sizable target audience, even this is likely to require more resources than is practical or profitable. To reiterate, segmentation, like marketing itself, is all about the profitable satisfaction of customers’ needs. It is designed to be a practical tool, balancing idealism against practicality and coming up with a solution that maximizes profit. “Equally, we have to be strong in setting aside those who do not.” Further Reading
CVS Pharmacy is one of the most successful drug store chains in America. What is the reason for this success? They understand their market and have approached it through market segmentation and targeting. “This means not wasting time or resources on customers who would be less profitable, and treating the key targets not as one homogeneous population but as distinct groups with distinct needs.” It is very rare for even two customers to have identical needs to each other. In a perfect world, we would identify those customers that we deem to be profitable, and then treat each one of those individually according to their unique needs. In any market with a sizable target audience, even this is likely to require more resources than is practical or profitable. To reiterate, segmentation, like marketing itself, is all about the profitable satisfaction of customers’ needs. It is designed to be a practical tool, balancing idealism against practicality and coming up with a solution that maximizes profit.
The company looked at its customer base and found that 80 percent are women. With this in mind, CVS redesigned 1,200 of its 6,200 stores to meet the needs of busy, multi-tasking women by offering shorter wait times for prescriptions, wider and better-lit shopping aisles, and more beauty products. In doing so it fulfilled the requirement of all good marketing orientated companies – it identified the needs of its customers and organized its offer to better meet them. This is at the heart of all good marketing – meeting customers’ needs profitably, and allocating finite resources in such a way that profit is maximized. This means not wasting time or resources on customers who would be less profitable, and treating the key targets not as one homogeneous population but as distinct groups with distinct needs. “In any market with a sizable target audience, even this is likely to require more resources than is practical or profitable.” This means we have to be clever in targeting our offers at people who really do want them, need them and are willing to pay for them. Equally, we have to be strong in setting aside those who do not. We have to choose our target audience on the basis of our capabilities and strengths. In other words we have to choose our own battlefield where we are confident that we are more attractive than our competitors. This early observation is fundamental, as it requires us to think as hard about where we don’t want to sell our product as where we do.
It is very rare for even two customers to have identical needs to each other. In a perfect world, we would identify those customers that we deem to be profitable, and then treat each one of those individually according to their unique needs. In any market with a sizable target audience, even this is likely to require more resources than is practical or profitable. To reiterate, segmentation, like marketing itself, is all about the profitable satisfaction of customers’ needs. It is designed to be a practical tool, balancing idealism against practicality and coming up with a solution that maximizes profit. “it requires us to think as hard about where we don’t want to sell our product as where we do.” Further Reading
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