Planning your marketing campaigns and go-to-market strategies can be challenging, but they can be made easier with B2B segmentation. You can’t lump every customer together and hope one strategy will work for everyone. You have to treat every customer as an individual with unique needs and interests. This guide will help you learn all you need to know about how to segment the customers of your B2B business.
Table of contents
What Is B2B Segmentation?
B2B market segmentation is the process of identifying your total addressable market and splitting it into groups based on similar characteristics. In B2B, the total addressable market is all the accounts that would find value in your products. Marketers use a number of factors to judge their leads and segment them; size, industry, location, etc.
Most companies have hundreds of leads they want to pursue simultaneously, but that isn’t possible even for larger businesses. You need to find leads and clients that fit your buyer persona and segment them. This helps create smaller audiences that are easy to target with the same content and strategies.
If done right, there are a lot of benefits to B2B segmentation. You can target your audience better, which increases the chances of conversion. This results in a boost in revenue and can reduce marketing and sales costs. A great example of segmentation done right is MetLife, which was able to save $800 million in customer acquisition costs.
Why Should You Segment Your Market?
The number one rule in marketing is to sell to different people differently. You can’t treat every person the same. What works on one may yet be totally useless on another. Market segmentation is one of the fundamental rules of marketing, be it B2C or B2B.
Segmentation is necessary if you want to understand your audience better. No two customers have the same needs. But you won’t understand them at all if you group every customer together. Separating your customers on the basis of who they are or what they need will help you serve them better and meet their needs effectively.
An email marketing experiment conducted by MailChimp showed that segmented campaigns had a 14.3% higher open rate than non-segmented campaigns. The bounce rate and unsubs were 4.65% and 9.37% lower, respectively. Moreover, CTR more than doubled for segmented campaigns.
What’s the Difference Between B2C and B2B Segmentation?
The fundamental concept in both B2C and B2B segmentation is the same. Divide your audience into clusters based on similar characteristics and create customized marketing campaigns for each group. But there are some differences in these segmentation strategies, most of which arise due to the unique characteristics of the two business types. These differences are:
Complexity
B2B buyer behavior is much more complex. B2C buyers usually buy for themselves, so they don’t have to think much and can get whatever they need. But B2B buyers have to think about their end customers and the quality of their services. Hence, they’re much more involved in the buying process. These buyers are experts in their fields and most often require custom solutions. This personalization requires individual attention from marketing and sales.
Rationality
There’s a very debatable opinion in marketing that B2B buyers are much more rational than B2C buyers. A B2C buyer will look at their needs, find the best solution, and go for the buy. They’re unlikely to get multiple opinions, weigh the pros and cons, or collect extensive information on products before making a purchase. But a B2B buyer has much more at stake. The wrong decision can affect their business and its profit margins. Hence, they go through a more complex process. with complete due diligence and compliance.
Decision Makers
Since the complexity of the product and buying process is high, there are multiple decision makers involved. These people can all be from the same or different departments, each with their own unique needs and priorities. A full panel of experts with their own buying criteria has to sign off on the purchase. This poses a challenge for marketers, who have to meet the needs of all decision makers to get the deal signed off.
Cycle Length
All of the factors discussed above feed into how long the buying cycle takes. B2C purchases are simple, cheaper, and involve fewer people, so the cycle is quite short. But B2B purchases are the opposite, and the buying cycle can be quite long. The complex process can take months or even years to complete. Over this period, many factors can change, so segmentation can be tricky.
Audience Size
B2C companies are selling to thousands of buyers around the globe. The average order value isn’t large, so they have to sell to a very large number of people to turn a profit. B2B businesses have comparatively smaller audiences. Since most solutions are custom-made and tailored to the client’s needs, the product can get very expensive. Hence, a small number of clients are responsible for the majority of the revenue of B2B businesses.
Relationships
B2B sales are not as highly dependent on marketing as they are on personal relationships. Every sale is the result of multiple meetings, handshakes, dinners, and expenses. Without these, B2B sales just wouldn’t be possible. But marketers have to decide which clients get the most attention and how to build relationships with them. B2B segmentation helps them do exactly this.
Moreover, B2B purchases take a lot of time, so clients tend to repeat purchases from the same business. Both parties form an understanding of each other’s needs during this time, and a strong, loyal relationship is formed. As such, B2B segmentation is a long-term strategic tool in the hands of marketers.
The Five Types of Segmentation
Here are the most common types of market segmentation that B2B businesses follow:
Firmographics
Firmographics work the same way demographics do for B2C businesses. These are a set of shared qualities or attributes that businesses use to place other firms in the same group. These can include a lot of things, such as industry, business size, location, and structure. Some businesses like to go even further and divide these categories into more minute points, e.g., business size can be measured with either revenue or staff numbers.
Firmographic segmentation is one of the most popular methods. This is because such data is publicly available and doesn’t cost much, if anything at all. It’s also very self-explanatory so you don’t have to understand clients and leads that well. Finally, it’s easier to sell to your sales team because they don’t have to study the client or their purchasing patterns.
But this also proves to be the downside of this type of segmentation. Since you’re not diving into the intricacies of your lead, you can’t customize anything for them. All businesses are thrown into a single group based on one attribute, so any kind of content you make is very generic. Firmographic segmentation only proves useful for top-of-the-funnel marketing content such as blogs or webinars.
Tiers
Tier-based segmentation is when you divide your customers based on how well they match your company’s goals or how profitable they are to you. Most companies that use customer tiering base their segmentation on their potential to generate revenue. The more revenue a customer can generate, the higher the tier they’re placed in.
But it isn’t easy to predict how much revenue a customer will generate in the future. Most B2B companies will look at past sales and other key metrics to predict customer potential. Larger businesses even use AI and predictive analytics to create models and rank their customers. Some important metrics B2B marketers look at are:
- Customer Lifetime Value
- Lead Quality
- Acquisition Channel
The downside of customer tiering, or account-based marketing, is that the needs of customers are never the same. Customers in the same tier may have different needs and thus require different services, solutions, and content. Tiers will only tell you which customers you need to pay more attention to now and in the future. You will still have to treat each customer uniquely.
Needs-Based
Needs-based segmentation groups your customers together according to what they look for in a product. It’s the most popular method of B2B segmentation. Every customer has a different need and will look to fulfill those needs with your products and services.
For example, one customer might subscribe to your cloud service in order to go paperless. Another client might subscribe to the same service because they need extra storage. Making clusters of customers with the same needs is much more subjective than grouping them based on profit potential. This also makes targeting and creating content for them much easier. You can simply customize your content and tactics to target those who need to save money or need more storage, as in the above example.
This type of segmentation has a lot of benefits and proves to be the most fruitful. But it’s also very challenging. It’s difficult to accurately identify the needs of each client. A lot of this will depend on how well your sales team is trained to identify buyer motivations. But if you have the resources, needs-based segmentation is the way to go.
Customer Sophistication
This segmentation is based on the customer’s product or their industry acumen. Not every customer will require the same version of the product from you. Some might only need a specific part or service. Other larger businesses may need you to build a top-of-the-line customized product. It only makes sense to put these two types of businesses in different groups.
This type of segmentation allows you to highly customize your content and approach for each client. Taking the example used above, one of your leads may be very new to cloud services and have very basic needs. Another lead may have worked with one of your competitors before and is looking to switch. Your sales and marketing content for both leads will be vastly different based on their level of industry knowledge and needs.
The risk here is faulty assumptions. Marketers may make the wrong assumptions about leads. A startup may already have enough knowledge about what they want. But their business size and status may make marketers send them simple top-of-the-funnel content.
Behavioral
Other segmentation methods consider who the lead is and what they need. But this last method focuses on how the lead acts. Behavioral segmentation considers all the interactions a lead has had with your business and then clusters those together that show the same signs.
To collect behavioral data, B2B marketers look at a few things, namely, the acquisition channel, the content that the lead interacts with, their technology, and how they interact with your product. With this data, marketers need to figure out two things. First, will the customer benefit from upselling? Secondly, is the customer at risk of churning?
This B2B segmentation method is often used in tandem with customer tiering. Both of these methods complement each other and help marketers figure out which leads and clients should be given preferential treatment. This way, they are able to use upselling strategies on clients and generate more revenue from them.
B2B Segmentation: Best Practices
Now that we’ve discussed the different types of B2B segmentation methods, it’s time to talk about some best practices. The following are some practices that will set the framework for your market segmentation.
- Your key accounts (high profile and profitable accounts) will be a segment of their own.
- Collect qualitative and quantitative data on existing and potential clients.
- Conduct market research to see what competitors are doing and what your audience wants.
- Formulate your Ideal Customer Profile (the buyer persona you want to target).
- Decide on the best segmentation method that fits your sales and marketing objectives.
- Analyze the customer and market data to cluster similar clients together.
Start Segmenting Your B2B Customers!
Segmentation is an important part of B2B marketing because it makes it easier to understand the needs of your customers. There are many ways marketers do this; firmographics, tiering, needs-based, sophistication, and behavioral. Segmenting your total addressable market on the basis of a few critical characteristics is very beneficial in the long-run.
Featured Image: CDN
