Market segmentation in B2B

But despite the various benefits of segmentation, its (correct) application in the B2B sector is far from being widespread. Often, it is perceived as too complex to identify and target the right segment or persons. In other cases, companies are approaching B2B market segmentation with heavy emphasis on B2C market segmentation thinking.

However, in comparison to B2C customer segmentation, the B2B environment is additionally characterized by some unique challenges and peculiarities:

• Definition of the customer – It is often not easy to define a single customer. You can think about an individual decision maker or about the company as a whole. In bigger firms, the so-called “buying-centers” consisting of multiple employees are usually involved in the purchase process.
• Complexity of products and services – Products and services in the B2B sector are often significantly more complicated and not standardized. It is not uncommon to see solutions completely customized for one client.
• Rationality assumption – It is often assumed that B2B customers make fully rational decisions. However, a big number of in-depth interviews we have conducted with decision makers in this sector have shown that emotional factors and personal preferences play a big role in the purchasing process. Overall, it does not matter whether a person is making decisions in B2C or B2B environment: They are always the same person rationalizing their gut feelings, even if the impulse control might differ a little bit.
• Revenue share of a given customer – Single B2B customers often make up a big part of a firm’s revenues. It is often said that the 20/80 rule works in this case, meaning that 20% of customers generate 80% of the revenues. This in an important feature which must be taken into account when defining and interpreting individual segments.
• B2B market – In general, B2B sectors consist of fewer segments than those in the B2C environment and they are slower to react.

In this context, the questions arise: Do we segment the companies in which decision makers work, or do we segment the decision makers themselves? Do we identify one key decision maker per company, and segment the key decision makers. In short, who exactly is the target audience and who should we be segmenting.

How do I conduct a successful B2B segmentation?

Segmentation can be conducted mostly based on “soft” factors. These include needs, attitudes or motivations of a customer, whereas “hard” factors concern the so-called “firmographics”: Company size, industry or location. Both types of factors have different advantages and disadvantages – the former makes it harder to identify the segments in day to day business, whereas the latter can result in segment definitions not being accurate enough.

Because of that, at the savvy company we think that the best results can be achieved through a smart combination of both approaches with the use of various research instruments. In segmentation projects, we always follow a three-step process:

1. Stakeholder interviews (qualitative research)
2. Exploration of customer needs (qualitative research)
3. Segment quantification (quantitative research)

Stakeholder interviews

The role of stakeholder interviews as research instruments is often underestimated. It is not unusual for organizations to have a lot of easily accessible knowledge about their customers which is left unused. Qualitative stakeholder interviews help to unravel this knowledge. This is why in this step it is crucial to talk with various stakeholders from different departments and hierarchy levels of the company.

Apart from collecting information on customers and the market, which is extremely useful in the process of conceiving the research design, stakeholder interviews serve yet another goal – involving various people within the organization can make the project widely accepted and facilitate implementation of its findings and their strategic implications in the future.

Exploration of customer needs

The goal of the exploration phase is to identify clients’ needs and problematic issues, as well as their usage of specific products or services and their purchase behaviour. Here, semi-structured in-depth interviews are conducted with an adequate number of respondents. It is crucial to select respondents of possibly many backgrounds and in order to achieve a vast variety of companies in terms of size, industry, product or service requirements and the positions of actual decision makers. For example, key insights can often come from non-traditional users. The qualitative in-depth interviews help not only to gather knowledge about customers, but also to understand their perspective by setting the interview in their own environment.

The results of the exploration phase can be used as an overview of customers’ needs and behavioural patterns but, above all, of the different types of customers in the form of personas. A persona is a representation of a typical member of a given group of people. It has a name, a life story and allows for classification and identification of customer groups. Personas are created using the “soft” factors mentioned above. They serve as an important instrument to implement the outcomes of the segmentation by adding a human touch to quantitative data calculated in later stages of the segmentation process.

However, one should be careful not to confuse or mix the two approaches the wrong way. Where the confusion can happen is buyer personas are crafted from quantitative sources or interviews seeking factual buyer intelligence.

Segment quantification

After various categories of customers have been identified, it is important to quantify the results in order to calculate market potential of each category and, afterwards, develop a corresponding strategy. This is done with the use of typical quantitative surveys conducted with a representative sample of decision makers in companies purchasing products and services defined in the qualitative phases of the project.

Aside of quantifying market potentials, the goal of these surveys is to validate the results of the qualitative exploration and estimations of the size of various customer groups and segments. For this reason, each survey consists of both “soft” and “hard” factors. The outcomes of the quantification process are identifiable segments and a deep understanding of the market.

We at the savvy company have extensive knowledge and experience in conducting valuable B2B segmentations for all different types of organizations. For more information read about our work in segmentation or contact us.