Updated: May 5, 2022
If your customers aren’t all the same, why are your marketing messages?
Personalization has long been a problem for B2B marketers, especially as buyers increasingly prefer a B2C experience. The truth is that business-to-business sales used to rely on close client relationships and face-to-face interactions, but it’s changing with the advent of the internet. Today’s B2B buyers progress 70% of the way through the buyer’s journey before engaging a sales representative. In other words, reaching customers with meaningful marketing messages is more important than ever. This is where market segmentation can help.
B2B segmentation has a few nuances you won’t see with B2C segmentation, but it’s not a totally different ballgame. This guide can help you get started.
What Is Market Segmentation?
The term market segmentation was first coined in 1956 by Wendell R. Smith. To put it simply, it’s the process of identifying a target audience and dividing prospective buyers into subgroups based on shared characteristics or actions. Sometimes these buyers are existing customers (in which case, it’s called customer segmentation). Other times, they’re leads within a target market (in what’s known as audience segmentation or target market segmentation).
The idea of market segmentation is that each market segment has specific needs and perceives the value of products and services differently. For example, a SaaS company with 20 employees looking to implement a work management platform will use the product very differently than a SaaS company with 2,000 employees. With market segmentation, a business can create a tailored message that suits both types of companies.
Benefits of B2B Market Segmentation
Market segmentation is important because it’s the pathway to personalization—which is increasingly valuable to modern buyers. 73% of B2B sales transactions now involve millennial decision-makers, one of the demographics that value personalization the most. It’s not surprising that companies that have the most tailored outreach are 1.7 times more likely to have gained market share than those only moderately utilizing personalization. Flatly put, B2B segmentation has a wealth of benefits, and personalization is just the foundation.
- It boosts revenue: According to McKinsey, personalization can boost sales by around 10%—and the simplest way to create a personalized campaign is through market segmentation. This concept worked for GuideStar USA, an online data publisher that aggregates information from more than 1.7 million nonprofits. According to Nielsen, the company expanded their business by using firmographic segmentation to identify 60,000 new prospects that were “most likely to generate higher than average revenue.”
- It nurtures product development: Market segmentation gives you an understanding of your core customers. The better you understand your audience, the more you can fulfill their needs. Use that knowledge to create new products tailored to key segments.
- It helps optimize user experience (UX): Segmentation can help you identify what is and isn’t working in your UX. For example, if you create B2B market segments based on the sales cycle, you can see where customers are most likely to churn. Once you identify common pain points within a segment, you can fix them.
- It helps break new markets: Analyzing market segmentation data can help you identify potential B2B segments in brand new markets you may have not explored.
- It can save you money on marketing: You don’t want to waste your budget throwing a bunch of marketing strategies at a wall and seeing what sticks. A solid segmentation strategy helps you create focused, personalized campaigns that make the most of your money. According to McKinsey, personalized campaigns have five to eight times the ROI of a traditional campaign.
Types of B2B Market Segmentation
In the general world of marketing, there are four widely accepted forms of customer segmentation: demographic segmentation, geographic segmentation, psychographic segmentation and behavioral segmentation. When it comes to B2B markets, of course, things are a little different.
Instead of segmenting individual customers by details like age, hometown, income, religion, and likes and dislikes, B2B marketers need to segment entire companies. This requires a deep knowledge of company data and behavior. Firmographic segmentation is the gold standard, but it can be used in conjunction with another type of B2B market segmentation to create a hyper-targeted audience. These are some of the top types of market segmentation in B2B.
B2C companies use demographic segmentation, where potential consumers are separated by categories like age, gender, education, and income. B2B marketers use firmographic segmentation to get the same result.
Firmographics are basically just descriptors used to aggregate companies and organizations into meaningful market segments. While firmographic segmentation criteria can include a lot of characteristics, there are seven prominent features that you should pay attention to:
- Industry: Keep in mind that some companies service more than one industry.
- Location: Where are the headquarters? Do they have any other locations?
- Company size: Consider both employee numbers and physical size.
- Total sales and revenue: Look at quarterly and annual information to determine short and long-term strategies.
- Company status: Are they a public or private company? Are they a charity or nonprofit?
- Growth trends: Some companies are growing. Others are stagnant or downsizing.
- Sales Cycle Stage: Some companies are ready to buy. Others are in the discovery phase.
According to research carried out by Clearbit, 50% of B2B marketers already use firmographic data to segment their email lists, but you can also use it throughout your overall marketing strategy.
Technographic segmentation is a type of B2B audience segmentation that categorizes companies based on the type of technology they use. This is particularly helpful information for B2B businesses that sell tech—whether they operate in the SaaS space or manufacture industry-specific technology and machinery. Technographic data can show you a company’s digital footprint and the types of technology they’ve already implemented.
B2B Demographic Segmentation
In the world of B2B, demographic segmentation is about the people who work at a company rather than the company itself. It centers around the idea that you’re trying to reach decision-makers, who are actual people with unique interests and needs, rather than an organization at large. Take a look at who’s holding leadership positions. How old are they? Where are they located? What are their values, interests, and habits?
B2B Behavioral Segmentation
B2B behavioral segmentation is the process of creating B2B market segments based on a company’s actions—and it’s not all that different from its B2C counterpart. You may want to look at features like buying behavior, product behavior, purchase intent, and engagement level.
You can create different B2B segmentation within your target market based on need, though this data is often informed by firmographics. For example, a small business is going to need different things than a large organization.
How to Make the Most Out of B2B Market Segmentation
Wondering how to segment a B2B market? These steps can get you started.
1. Clean Up Your Database
Making sense of your data is a huge part of B2B market segmentation. Unfortunately, companies often have masses of unorganized data clogging up their CRM systems. This doesn’t help with accuracy. Before you attempt to segment your audience, clean up your database. Consider implementing a centralized customer-data platform (CDP) that aggregates internal and external data so it stays tidy and easily accessible.
2. Don’t Have the Data? Buy It
Figuring out how to segment existing B2B customers seems simple because you probably already have the data—but what if you want to target new customers? In the past, B2B target market segmentation was notoriously difficult because data was so hard to access. Companies were tight-lipped and contacts weren’t readily available on the internet. Today, it’s a bit easier.
If you don’t already have a rich database of customer information or want to create B2B market segments outside your existing base, you can buy the data. There are a wealth of data firms (like UpLead, ClearBit, and Datanyze, to name a few) that can help you optimize your B2B marketing process by providing firmographic information about businesses within your industry.
3. Understand Your Customer
If you know what your customers want, you can better serve them. It’s the foundation of personalization—and as research from McKinsey shows, companies that excel at personalization make 40% more revenue than their average competitor. Before you can create B2B market segments, you need to first understand your ideal customers. Who is buying your products and why?
Start by investing in segmentation and analytics technology, which is essential to stay competitive in an increasingly digital world. In fact, it’s responsible for one of the most successful real-world examples of B2B marketing segmentation. FedEx managed to increase their sales by 433% after implementing segmentation tech that overhauled their complex database system and honed the segments within their target market.
Beyond that, choose core segments and research their needs. Ask yourself what struggles have companies in this niche faced? What are their goals? How do they use competitor products and services? How can you help?
4. Choose Your Segmentation Criteria
Based on your research, create your B2B segments. Start with firmographics and think about which criteria will provide the most qualified lead. For example, if you manufacture farm machinery and you want to promote a new line of combine harvesters, you may want to target agriculture companies that harvest corn and other grains. If you’re selling enterprise cloud storage, you may want to segment your audience by size (since larger companies need more server space).
5. Think Outside of the Box
When you start creating B2B customer segments, it’s normal to start out with areas you’ve traditionally found success—but you may find success with a new avenue. Scan your data for segmentation criteria you may have otherwise overlooked, and don’t discount it.
For example, a chemical supplies vendor may have an understanding of its B2B segments within the construction and farming industries. However, once they analyze data, they could discover that a large portion of their consumers are in the industrial cleaning industry. With this new information, they can create an additional B2B market segment.
6. Consider Micro-Segmentation
B2B segmentation can be more effective when you’re working with a hyper-targeted audience, as long as you don’t end up making the audience too small. Once you segment your audience by firmographics, you can segment a step further using behavioral segmentation, demographic segmentation, or another type of criteria.
For example, if you have demographic data about decision makers within an existing segment, you may want to create micro-segments based on age. Why? Millennials relate to more casual marketing messages, whereas baby boomers may respond better to a traditional approach.
7. Work Segmentation Into Your Digital Strategy
Once you’ve created your B2B market segments, it’s time to work them into your overall marketing strategy. Create rich content tailored to each audience with relevant keywords. Start sending personalized emails. If you’re segmenting by location, target your ads by proximity. Analyze each segment’s sales journey and use it to fine-tune the process. Find their pain points and remedy them—but always move forward.
B2B markets aren’t static. If you’re not careful, in today’s chaotic, non-linear sales funnel, copycat companies with a greater understanding of your target segment can easily swoop in and poach your customers. Use segmentation to create a better customer experience overall, whether it’s with UX, product development, or the buying journey.
In B2B markets, relationships are everything, but B2B segmentation can help you build the foundation. The more you analyze segmentation data, the more you understand your core customer. The more you use that data to personalize your marketing messages, the more your core customer understands you.