Here’s how it works. Examples of data to look at include industry, revenue, number of employees and location. Marketing takes a longer-term view. In other words, B2B companies have the time to continually re-evaluate their segments and CVPs and respond promptly to the evolving needs of their clients. Panel incentive programs, when done correctly, build brand advocacy and increases the lifetime value of the panelists. Market segmentation enables you as a marketer to compare marketing opportunities in different segments. Selling focuses on the product in hand and our pressure to get rid of it, almost regardless of the needs of the customer. This post includes material adapted and reprinted from Core Reading: Segmentation and Targeting, HBP. 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. This article provides pointers for effective Business-to-Business segmentation research. Market Segmentation helps the marketers to devise appropriate marketing strategies and promotional schemes according to the tastes of the individuals of a particular market segment. Developing market segmentation strategies depend on the current market as perceived a business. The firms can segment the market on the following bases: Geographical Segmentation: Here, the segmentation is done on the basis of the geographical location of the customers. How to Conduct Segmentation Research . Some of the most frequently used methods a business can use to segment their market include: Geographic Geographic segmentation divides your target market into various geographical areas e.g. Even complex consumer purchases such as cars and stereos tend to be chosen on the basis of fairly simple criteria. Market segmentation is a common practice among all the industries. Do the work upfront (research thoroughly) and you’ll avoid the laborious and costly task of recreating your marketing campaigns. Do we segment the companies in which these decision makers work, or do we segment the decision makers themselves? It isn't. The resulting market segments have their basis in the organisation's existing customer classification schemes and are an iteration to which most managers readily buy‐in., – Despite the size of the market segmentation literature, very few papers offer step‐by‐step guidance for developing customer‐focused market segments in business‐to‐business marketing. But to get to this point, you will need to have panelists to enroll and be engaged. B2B International will show you how to: Differentiate products/services in line with your customers; Improve your competitive positioning A common approach in business-to-business markets is to apply a market segmentation based on company size. In a recessionary environment the company purchasing the products may be fighting for its life … This article deals with the market segmentation and its implementation in the specific market for secondary cardboard packaging. A partnership-focused segment, usually consisting of key accounts, which seeks trust and reliability and regards the supplier as a strategic partner. When marketers use market segmentation it makes planning campaigns easier, as it helps to focus the company on certain customer groups instead of targeting the mass market. 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. Most companies are starting with some history of involvement in segmentation, even if it is only a north/south split of its sales force. The importance of market segmentation is that it makes it easier to focus marketing efforts and resources on reaching the most valuable audiences and achieving business goals. Experts say that market segmentation, when applied correctly, is mainly about understanding customer needs, and therefore, how they decide between one product (or offer) and another. These identifiers often enable needs and therefore segments to be quite accurately predicted. Statistical techniques (specifically factor analysis) can be used to show the association between the overall satisfaction with a supplier and satisfaction of that supplier on a whole range of attributes that measure the customers’ needs. Rather companies might consider a segmentation based on perceived benefits by each segment. Companies can often extract the most value from these customers because they’re willing to spend. It can be difficult for students to understand why segmentation can be useful to target customers and support decisions about the marketing mix. This makes marketing a lot more productive, as you can utilize laser-focused marketing strategies. A mechanism is now needed for determining every need of every company on the database. Part of the reason for this is the smaller target audience in business-to-business markets. Buyers of Armani suits may show a strong link between overall satisfaction with the suit and attributes related to the brand and so point to the importance of the brand in the buying decision. In most business-to-business markets, a small number of key customers are so important that they “rise above” the segmentation and are regarded as segments in their own right, with a dedicated account manager. Contact Paradigm Marketing and Design to learn how B2B market segmentation will ultimately increase your ROI. Increased loyalty lowers customer acquisiton costs over the long term. It is not unusual, even in the largest business-to-business companies, to have 100 or fewer customers that really make a difference to sales. Mainly, marketing segmentation is used by most (if not all) consumer goods manufacturers, as well as retailers. There’s something to be said of possessing this kind of reckless ambition, but ultimately a smarter, more intelligent approach is going to earn you a more rewarding form of recognition. By continuing, you agree to the use of cookies. Market segmentation is a process of dividing a heterogeneous market into relatively more homogenous segments based on certain parameters like geographic, demographic, psychographic, and behavioural. 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. Cross tabulations of data on these criteria allow us to see the different responses among groups of respondents. By puting companies in categories by how many employees they have, these segmentations can miss important insights and make smaller companies feel that their needs won't be met. By spotting a clear niche market using segmentation, the start-up business can focus all its efforts on reaching the target customer base. Below we summarize the main differences between consumer and business-to-business markets, and set out the implications for market segmentation: 1) B2B markets have a more complex decision-making unit: In most households, even the most complex and expensive of purchases are confined to the small family unit, while the purchase of items such as food, clothes and cigarettes usually involves just one person. In other words, instead of asking what factors are important, we can derive them. The guidance and recommendations we received were most helpful, resulting in a great response from US management. Segmenting business markets is essentially the same as segmenting consumer markets.. You should also review examples for segmenting consumer markets.. One of the greatest benefits of market segmentation is that it can help you gain a competitive advantage against your competitors. Product strategy aims to extract the most value out of customers. In this business market segmentation example, the firm has used two segmentation variables to construct six market segments. To reiterate, segmentation, like marketing itself, is all about the profitable satisfaction of customers’ needs. The quality of your verbal presentation was very impressive and brought non-involved managers up to speed immediately. This raises an issue at the core of b2b segmentation – everyone may want a personal relationship, but who is willing to pay for it? Companies in this segment often work to high margins, are medium-sized or large, and regard the product/service as of high strategic importance. In fact, people launch products keeping the market segmentation in mind. What is Market Segmentation? A computer network, a new item of machinery, a photocopier or a fleet of vehicles usually require far more extensive aftersales service than a house or the single vehicle purchased by a consumer. A Practical Guide to Market Segmentation: B2B Buyer Personas – Marketing To Somebody, Not Just Anybody! There are however, a number of practical problems in achieving a needs based segmentation in business-to-business markets. The aims of the thesis are divided into two main parts: first, to improve AmCham’s marketing strategy/project management by doing a market segmentation of AmCham’s current member companies. 2) B2B buyers are more “rational”: The view that b2b buyers are more rational than consumer buyers is perhaps controversial, but we believe true. inner-city Chicago versus rural Utah), industry, and even other technologies used by the targeted companie… Customer Satisfaction Surveys & Research: How to Measure CSAT B2B Marketing: What Makes It Special? B2B had to be very flexible and adapt fast while working with us. One of the greatest benefits of market segmentation is that it can help you gain a competitive advantage against your competitors. Market segmentation involves breaking down a large heterogeneous market into smaller homogeneous markets. 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. Beneath these key customers, however, lies an array of companies that have similar and modest enough requirements to be grouped into segments. Just like for consumer markets, business or organizational markets should be segmented in order for the firm to effectively develop a successful marketing program. Segmentation is how a business splits up its target market and is based on location, demographics, behaviour, lifestyle, income and age. The five basic forms of consumer market segmentation are demographic, geographic, psychographic, benefit, and volume. The quality of work throughout the process was outstanding. One of the more difficult markets to operate in, the business market is legendary for its bureaucracy and for the time taken in making business decisions or purchase decisions. They are usually purchasing relatively high volumes. Limitations of segmentation. Some considerations for Business-to-Business segmentation research: Avoid focusing too much on the product. Segmenting a market refers to targeting a product to a specific target customer or industry, such as selling footwear to women or accounting software to hospitals. Copyright © 2020 B2B International. If both are treated the same, one or both will feel unfulfilled in some way and be vulnerable to the charms of the competition. However, the tastes and needs of populations are constantly changing and we should always be mindful of new segments that may not show up as more than a dot on the current radar screen. It reveals consumer experience insights, product development innovation approaches, suggestions for … Eight Benefits of Market Segmentation Luckily, there is an answer: Market Segmentation. However, the traditionalists may be worth working on to see if they can be moved north and east to join a more attractive segment such as the range buyers, quality fanatics or delivery buyers. Such companies tend to be large, operate on relatively high margins, and regard the product or service in question as strategically important. According to the Pareto Principle / 80 20 Rule, companies can benefit from targeting the 20% of customers that compose 80% of their revenues. It is not unusual for a business-to-business supplier to have customers that have been loyal and committed for many years. Market segmentation is a marketing concept which divides the complete market set up into smaller subsets comprising of consumers with a similar taste, demand and preference. As a B2B marketer, the need to adapt to the customer-centric digital market is very real. Rather companies might consider a segmentation based on perceived benefits by... Avoid focusing on company size as a means to meet customer needs. This has led to a need for CPG companies to restructure their businesses and develop new approaches to targeted marketing, customer management strategies, and identifying profitable customers. However, business marketers also use other variables. Companies in this segment are often small, working to low margins and regard the product/service in question as of low strategic importance to their business. Example: Providing raw material to the other company that will produce output. By … However, they do not offer that sustainable competitive advantage that competitors cannot copy. Segmentation can make a huge difference in understanding your market. In one sense this makes life easier in terms of b2b segmentation. We at SIS International Market Research have compiled a few considerations for B2B segmentation. A price-focused segment, which has a transactional outlook to doing business and does not seek any “extras”. In this lesson, we will discuss concepts and applications related to Business to Business (B2B) market segmentation. Market Segmentation. Business-to-Business segmentation rarely receives the attention that its cousin discipline, customer segmentation, receives. What is market segmentation? However, people’s needs differ and therefore satisfying them may require different approaches. There are many benefits of market segmentation that your business can experience. 2. It can be determined that any individual attributes receiving high satisfaction scores must drive the overall satisfaction score and therefore be an important reason for choosing that supplier. The research was carried out in order to determine segments … 8) B2B markets have fewer behavioral and needs-based segments: The small number of segments typical to b2b markets is in itself a key distinguishing factor of business-to-business markets. It is done by offering products at different price levels or by only making expensive products available first. Businesses’ repeat purchases (machine parts, office consumables, for example) will also require ongoing expertise and services in terms of delivery, implementation/installation advice, etc that are less likely to be demanded by consumers. Types of market segmentation While there are many markets to sort people into, businesses tend to initially go for these four types of market segmentation. No. A market segment is a small unit within a large market comprising of like minded individuals. The possible combinations of groupings from 200 interviews are literally millions and we need some means of creating combinations that have a natural fit. The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. Expensive Process: Segmentation is an expensive process, both in terms of time and money. Companies move down the road of segmentation learning all the way. The variables for segmentation will vary by company and industry. Market segmentation splits up a market into different types (segments) to enable a business to better target its products to the relevant customers. One of the more difficult markets to operate in, the business market is legendary for its bureaucracy and for the time taken in making business decisions or purchase decisions. Bases for Business Market Segmentation. It is not easy to jump straight into a fully-fledged needs-based segmentation. Michael Baker author of "Marketing" asserts that Market Positioning should include quantitative analysis. These statements are designed to determine the needs and interests of the respondents. Whims, insecurities, indulgences and so on are far less likely to come to the buyer’s mind when the purchase is for a place of work rather than for oneself or a close family member. Segmentation helps marketers to be more efficient in terms of time, money and other resources. 251 W. 30th Street, Suite 606, New York, NY 10001 | Phone: 212-849-2752, BUILD A WINNING LOYALTY PROGRAM STRATEGY FOR YOUR PANEL, Understanding Consumer Decision-Making with Means-End Research. The purchase of a piece of plant equipment may involve technical experts, purchasing experts, board members, production managers and health and safety experts, each of these participants having their own set of (not always evident) priorities. At the same time, businesses buy in bulk and for longer time and even retention is easier when compared with the B2C market. Their characteristics are summarized in (Figure) and discussed in … Satisfying people’s needs and making a profit along the way is the purpose of marketing. B2B segmentation research can help segment your market and so enable an effective marketing strategy, leading to competitive advantage in the marketplace. It perhaps therefore follows that segmenting a business audience based on needs should be easier than segmenting a consumer audience. There may be problems in developing a needs-based segmentation but this is at least an aspiration to drive towards. Two of the Most Important Statistical Tools You Will Ever Need: Brand Strategy & Brand Architecture Research, Customer Loyalty Research & Touchpoint Surveys. However, what questions would you ask and could you be sure of the answers? We at SIS International Market Research have compiled a few considerations for B2B segmentation. In business-to-business markets it is critical to identify the drivers of customer needs. The commonsense approach may appear to be to ask them. Avoid focusing too much on the product. Do people really buy a Porsche for engineering excellence? Firmographic segmentation: Business-to-business (B2B) companies may use firmographic segmentation to divide up the businesses in a market. A business market may be segmented by large customers and small customers or by geographic area. Market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a … This is patently not the case when the target audience consists of a couple of hundred business buyers. Communication strategy advertises the appropriate ads using the right media to target the chosen consumer group. Creating a loyalty program for your panel is the foundation for increasing profitability and revenue by increasing panelist retention, survey frequency, and supporting panelist acquisition programs. This site uses cookies to improve your visit. First, while the degree of relationship focus may vary from one segmentation to another, most segments in most b2b markets demand a level of personal service. Segmentation is the first crucial step in marketing, and the key towards satisfying needs profitably. Whereas it is not uncommon for an FMCG market to boast 10, 12 or more segments, the average business-to-business study typically produces 3 or 4. 3) B2B products are often more complex: Just as the decision-making unit is often complex in business-to-business markets, so too are b2b products themselves. In a b2b segmentation study (or even in a customer satisfaction study), respondents are asked to say to what extent they agree with a number of statements. The fundamentals of marketing are the same fundamentals of segmentation. 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. Sales and technical representatives visit the customers. The importance of segmentation is to understand the customer needs and wants, right product, in the right place at the right price with the right promotion. Bespoke Segmentation. Large companies often segment their markets by conducting extensive market research. Developing market segmentation strategies depend on the current market as perceived a business. A service-focused segment, which has high requirements in terms of product quality and range, but also in terms of aftersales, delivery, etc. SIS International Research, founded in 1984, is a leading full-service Market Research and Market Intelligence firm. If the same market takes a downturn and frees up the supply of products, delivery may not be the issue that it once was. 4) B2B target audiences are smaller than consumer target audiences: Almost all business-to-business markets exhibit a customer distribution that confirms the Pareto Principle or 80:20 rule. In Low-involvement product offerings, companies can consider researching usage behavior, buyer behavior, price elasticity / sensitivity and brand loyalty, among others. Market segmentation allows companies to learn about their customers. Market segmentation allows you to get to know your customers, identify what is needed in your market segment, and determine how you can best meet those needs with your product or service. All Rights Reserved. A market segment is a small unit within a large market comprising of like minded individuals. The two factors that influence this decision are the attractiveness of the segment against the supplier’s competitive position within that segment. Before segmentation solutions, B2B marketers faced a struggle to truly know their target audience. Bottom … This brings us to the consideration of the difference between marketing and selling. In business, it’s easy to bite off more than you can chew. neighbourhoods, towns, cities or countries. It is designed to be a practical tool, balancing idealism against practicality and coming up with a solution that maximizes profit. 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