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Ultimate guide to B2B market and customer segmentation

In the world of B2B, market and customer segmentation is crucial to success in your business.

The B2B market covers a wide and diverse set of companies. You can tailor your marketing materials and advertising campaigns to appeal to different B2B customers by targeting them through different segments. It may seem complicated, but it’s worth the effort. 

Although B2B segmentation might seem more complex than B2C segmentation, it yields significant benefits in understanding your target groups so you can effectively cater to their needs.

There are several advantages of B2B segmentation:

B2B segmentation helps you reach the most interested groups in your products and services, which will lead to more conversions and, in turn, more revenue.

Segmentation allows you to personalize your marketing and advertising campaigns. Personalized campaigns can deliver greater ROI, so your initiatives can have more impact.

Armed with an improved understanding of your target segments, you will find it easier to improve your existing products and create new ones that better meet their needs.

During your segmentation process, you’ll find groups that you haven’t reached in your past efforts. New, niche segments can be lucrative opportunities to broaden your reach with an even more tailored approach.

Customers will reap the benefits of your segmentation efforts, as you’ll deliver new and relevant solutions to their problems. A Usage and attitudes study will help you build strategies based on purchase habits and key drivers. If you tap into these motivators, you realize the benefits of these happy customers coming back for repeat purchases.

As we mentioned, B2B and B2C segmentation are similar but different processes. They both involve identifying target markets, identifying prospective segments, and creating focused campaigns to address each segment’s needs. 

But B2B is unique because of the following:

  • B2B markets have multiple decision-makers. In business, purchases depend on approval from various stakeholders, vs. B2C, where consumers usually make decisions for themselves. In B2B, the final decision to buy rests with teams and panels. It can be a challenge to understand the decision-making process, and to make sure decision makers are included in the appropriate groups during segmentation.
  • B2B products and services tend to be more complex. While the decision-making process can be complicated in B2B markets, the products can also be complex and sophisticated. B2C purchases are typically more straightforward, and products tend to be standardized. B2B purchases are frequently customized.
  • Buying cycle is different. The B2B buying cycle can take much longer than B2C. It may take months or years for the purchase to be finalized. Factors change over long periods, making segmentation more difficult.
  • B2B target audiences tend to be smaller. Most B2B markets support the Pareto Principle or 80:20 rule, meaning a small number of customers are responsible for the majority of sales. Large B2B companies can have 100 or fewer customers who make up most of their sales.

Measure market demand with Market Sizing from Momentive, the maker of SurveyMonkey.

  • Personal relationships matter in B2B. In B2B markets, sales representatives and vendors speak directly to buyers in businesses. Many customers form strong relationships and dependencies with their representatives that can influence purchase decisions.
  • B2B buyers tend to be more “rational.” Customers buy what they want, while businesses focus on what they need. Company size, the volume of product needed, and job functions of those responsible for purchasing all influence decision-making, and are useful in predicting which segments to target.
  • B2B markets have fewer behavioral and needs-based segments. A B2C market could conceivably have 10 or more segments. B2B markets generally have three or four. B2B segments are usually based around teams of people who have similar needs that can be addressed by a few product variations. 

Before beginning segmentation, analyze your current customer base. Look at why they initially came to your organization, which might include the problems you solve for them, whether they all have similar pain points, and if they all in the same vertical. 

With this data, create your ideal customer profile so that you know which characteristics are most important to you. You’ll use this profile and the data from your existing customers to create your B2B segments.

These are five of the most common types of B2B segments:

  1. Firmographic segmentation

In B2C markets, we use demographic segmentation based on gender, age, location, and other factors that characterize customers. Businesses use firmographic information such as:

Industry: What is the company’s industry, from retail to manufacturing or transportation?

Location: Is the business located in a small town or a large city?

Size: How many employees work at the company? Are they sizing up or scaling down?

Legal structure: Is the company privately held? An LLC? A subsidiary of a larger organization?

Performance: What are the rates of growth or decline? Profits and losses?

  1. Customer needs segmentation

This type of segmentation groups customers based on what they need from a product or service. This focuses on buying motivations, pain points, and attitudes. To accurately identify the needs of new customers, you can interview existing customers and infer the needs of new prospects. If they interact with your social media and blog, that will also provide clues to their needs.

  1. Behavior-based segmentation

Now that you’ve looked at who the customers are and what they need, it’s time to look at how they act. Use analytics to gather information about how they found your business, what content they interact with, and how they might use your product. This segmentation can help you uncover what buyers want, but can sometimes be difficult to connect behaviors to needs.

  1. Profitability segmentation

Also called tier-based segmentation, profitability segmentation examines the potential value of a customer. This method generally uses average customer lifetime value, acquisition costs, and lead quality. You may want to use this method for your top targets and segment the rest in another way.

  1. Customer sophistication segmentation

This method is based on business maturity and acumen. Customer sophistication looks at the target company’s awareness of the problem your product or service solves. A business may know that they need a particular service, but not really understand the consequences of not having it at all. It will be up to you to explain the need to them.

Make your marketing matter by reaching out to customers who have a challenge you can solve—and tailor your messaging to meet their needs. 

B2B market segmentation is an important part of your marketing strategy. Advantages include:

  • Target attractive prospects

Identify which types of prospects are the best fit for your brand, have higher percentages of opportunities, and are more lucrative to your business. These are your future high-value customers.

  • Prioritizing customers

Find the customers who are closest to your ideal customer profile and personalize their experience. This will, in turn, improve customer loyalty and retention and offer better opportunities for cross and up-selling.

  • Refining marketing messages

Once you understand your customers, you can develop messaging that speaks to their pain points, motivations, and requirements. Avoid generic language and be specific about what you have that addresses the segment’s needs.

  • Optimizing channel strategy

What channels do the decision-makers use to stay in touch with their industry and gather information on vendors? Niche industry blogs? Conferences? Trade shows? Find out so you can be present when they are looking to purchase.

  • Product optimization

Once you know your target segment, you can improve your existing lineup of products or develop new products that suit their needs.

In any type of segmentation, certain best practices should be followed. These are some of the best practices in B2B market segmentation: