Why is Customer Segmentation Important?

At its core, customer segmentation helps businesses better understand and serve their customers. By grouping businesses with similar needs or characteristics, you can tailor your product, service, sales or messaging approaches to resonate better with each segment. Segmentation allows you to reach the right groups with the right offering, maximising your chance for success.

B2B Segmentation: Why It’s Different to B2C markets

The B2B buying process is vastly different from B2C, making segmentation more complex. Consumer buying journeys tend to be simple: see, evaluate, purchase; based on the consumer’s view. In B2B purchasing, decisions are rarely made by a single person; they often involve multiple decision-makers across departments all with conflicting priorities and needs.

B2C segmentation is typically based on the customer’s profile – people with a similar background, education and even those living in the same postcode are likely to have similar preferences. With businesses, preferences aren’t always obvious as even business within the same industries can have wildly different needs and procurement processes.

The buying cycle in B2B is also considerably longer. It can take months or even years to close a deal, during which time customer needs may shift. It is therefore vital to ensure that your segmentation approach is flexible and adaptable to change.

How to Segment in B2B Markets

1. Firmographic Segmentation

Firmographic segmentation is often the first approach that businesses take. It requires access to extensive company data and can be used to divide businesses where needs or approaches align with measurable traits such as location, performance and size. For instance, for a large corporation the procurement team may be the main sales channel, whereas smaller businesses might have the CEO as the main buyer.

We recently helped a medical device manufacturer reassess their sales strategy. After evaluating their needs and access to market data, we recommended firmographic segmentation with segments based on customer location and growth rate, allowing for a more efficient engagement approach.

When using firmographic segmentation, ensure that the segments are measurable, accessible, and substantial enough to support a meaningful sales effort. Segments must also be actionable, based on identifiable elements, and rely on externally available data covering the entire prospect pool. If segmentation requires in-depth company knowledge or bespoke approaches for each company, it may become unfunctional.

2. Needs-Based Segmentation

Sometimes customer needs aren’t defined by industry, company size or other external elements so you may an alternative approach. Needs-based segmentation involves grouping customers based on their needs or challenges. This approach allows a more nuanced understanding as to why customers are choosing different products and services, and therefore you can offer tailored solutions to meet the unique needs of each segment.

This approach is best suited where:

1. The way customers utilise your product / service and therefore their solution needs differ based on their company structure, strategy, KPIs or processes rather than their industry, turnover or location
2. Procurement processes require you to convince multiple stakeholders within the same company. Those in similar job roles are likely to have more needs in common than individuals with different roles within a single company, such as Procurement and C-suite staff. An approach tailored to specific job roles rather than companies may be more impactful here

To start, you’ll need to conduct research on customers — surveys and interviews are key here. Understanding your customers requires digging below the surface to understand their pain points and how these translate to needs from a solution.

We worked with a public corporation focused on retaining and growing relationships within the utility sector. By segmenting their customers into an array of ‘personas’ based on people facing similar challenges, we helped them gain a deeper understanding of the challenges decision-makers face in their day-to-day roles, and how this varies across their customer base. This allowed for tailored messaging and services to be relevant for each persona’s goals. Needs-based segmentation can be a resource-intensive exercise, requiring statistical modelling and primary research for an effective outcome. However, the best results are seen when it is set up in such a way that answering 3 or 4 short questions allows you to categorise a prospect and consequently tailor your approach.

What Comes After Segmentation?

Once you’ve established your segments, it’s important to test and refine them. Segments should not be set in stone – customer needs evolve, and so should your segmentation. Don’t hesitate to explore new segments as your market grows or changes.

A balance should be struck when segmenting – having too many segments can be difficult to manage and beyond a certain level leads to diminishing returns. Having too broad segments can result in generic messaging and reduce the overall impact of segmentation. We typically recommend aiming for 5-8 segments but this could vary depending on how you’re planning to action the segments.