B2B companies typically look at straightforward approaches to segmenting their prospects and customers, such as size of the customer, spending levels in the business, and the customer’s industry. For existing customers, further segmentation might include spending by product type, profitability and trends over time.
Frequently, the top 4-10 existing customers are defined as “mega accounts” and are treated separately. The remaining large, middle and smaller-sized customers and prospects are then segmented, often by spending/judged spending potential, industry and geography.
These standard techniques can overlook important insight and are not helpful when the firm is entering a line of business with prospects, different customers (or even different decision makers at existing customers), different economics, and different decision criteria.
Let’s look at two case studies to illustrate the point.
B2B Segmentation Case Study #1
A media company needed to segment advertisers for sales and marketing. These advertisers included national, regional and local advertisers. The company assumed one of its best prospects was a firm just five minutes from its headquarters-- one of the largest spending advertisers in the world. Numerous sales calls were made without success to this large prospect or “whale.” The implicit segmentation was based on size of spending of the prospect in this case.
The company decided to take a step back and gather insight from decision makers at advertising agencies, media buying firms and advertisers (the brands). After talking with over seventy decision makers, it became clear the company should segment on two dimensions.
- The advertiser’s message objective, e.g., to build its brand image, to promote a new product, to drive traffic to a retail store, etc.
- The target audience of the advertiser.
With the new segmentation in hand, the media company’s sales team was readily able to classify customers and prospects into this new framework and to use this segmentation to drive product and service offers, including value-added offerings.
Since no firm has infinite resources, this new segmentation also helped the team to focus. Specifically, the media company decided that the ‘whale’ (large prospect) five miles down the road was not a fit for their firm and that their time was better spent elsewhere.
B2B Segmentation Case Study #2
A $100 million, ‘small’ division of a large printing firm wanted to segment its customers to drive sales, service and marketing. They started out by examining a segmentation matrix of profitability and revenues for their current customer base. This segmentation approach was viewed by the parent company as the right framework to use because it had worked well in the firm’s large, profitable magazine business-- where the existing customers represented the overall market well, and the firm had a strong market share.
However, the smaller division was EVA negative, and its current customers were not representative of the market. Recognizing that internal analysis was not helpful the firm changed course and instead decided to gather insight from approximately sixty prospects and customers in the new market segment, to develop a more useful segmentation approach. They conducted in-person and telephone interviews to gather these insights.
With insights in hand, they chose a segmentation framework that considered the customer’s needs and commitment to their printing category as well as the customer’s industry. Within nine months of adopting this framework and developing go-to-market actions designed around target customer segment needs, the business had become profitable and went on to double-digit growth for several years.
The management team’s decision to use a segmentation framework that was more relevant for its business, with its prospects and unique customers, rather than the parent company’s existing customer profitability matrix was validated.
With these case studies, the power of more meaningful B2B market segmentation becomes clear. Moving beyond obvious segmentation, like geography or customer size, allows B2B firms to reach prospects and customers in new and effective ways. Such segmentation requires research and analysis, but the initial effort will result in insights that offer long-term success (especially when competitors are stuck in the past!).