The components of segmentation

 

Tools to make you THINK differently about your business

 Strategy, segmentation, diversification

In the last blog we looked at the differences between B2B & B2C markets, in this blog we are fleshing out the potential components of segmentation:

As a result of the previous blog, the benefits of segmentation are easy to see; customers are more likely to be beating a path to your door.  The difficulty is arriving at the most effective criteria for segmentation.  We are now going to explore some of the components and distil out a few generic B2B segments.

Geographic Segmentation

Geographic segmentation probably is the simplest type of market segmentation. It categorises customers based on geography and many firms do this without even realising they are in effect segmenting the market, for instance, when they assign sales reps to the north or the south, or some other designation of a country.  Other examples include:

  • International, Europe, National or home but also
  • Country
  • County
  • Town / City
  • Post code

Demographic or firmographic

The components of demographic, sometimes called firmographic, segmentation are probably the most popular and commonly used criteria for market segmentation. The approach uses information about companies and roles undertaken within them, for instance:

  • The Business Lifecycle: The age/founding/ start-up date of the targeted businesses. Broader classifications include: start-up, established or mature.
  • The Industry or Sector:  At Statius we do a lot of work in two main sectors, construction and manufacturing, but each of these has a number of sub sectors to allow a more granular segmentation and targeting, often aligned to trade association or professional bodies.  In construction sub sectors include; asbestos removal, roofing contractor, house builders …there are many more and manufacturing where the sub-sectors include; precision engineering, medical, electrical etc
  • Standard industrial Classification (SIC) codes can also be used.  However, often these are not sufficiently granular, for instance lift companies (we do a lot of work with lift companies) come under a very broad SIC code of mechanical handling…not very helpful
  • Directory codes: Directories like Thompsons and Yell often have useful granular codes against which companies are organised
  • Financial: Turnover, Revenue, Profits, Debt, Market Capitalisation, Financial Ratios etc.
  • Company type: examples include PLC, Limited, LLP, Partnership, Public, Joint Venture and Sole Trader
  • Job function: Managing Directors, Finance Director, Head of HR etc

These demographic dimensions are perfectly reasonable and may suffice, but they don’t offer an advantage that competitors cannot easily copy; the more challenging segmentations are based on psychographics and behaviours.

Psychographic

Psychographic segmentation is about categorising the market by factors that relate to personalities and characteristics which makes them more difficult to identify because they are subjective. They are not data-focused and need to be researched to uncover and understand. Examples include:

  • The likely interests of a particular job role
    • MD likely to be interested in leadership and company growth
    • Sales director likely to be interested in sales tools and techniques
    • The production director likely to be interested in production efficiency and reducing waste
  • Social Media Presence: inevitably, these days, social media is an issue and some parameters that might apply include:
    • Platforms: The different platforms where the customer is present.
    • Friends & Followers: The number and type of friends and followers.
    • Engagement: The social media outreach and engagements. These may include page likes, post likes, comments, and shares, number of tweets and retweets, etc.
    • Activity: This may include how active is the customer on social media.
  • Values: On the basis of the values espoused by customers.

Behavioural

As the name suggests this is about the things people do.  Behaviours. While demographic and psychographic segmentation focus on who a customer is, here we focus on how the customer acts.  Aspects of behavioural segmentation might include:

  • Purchasing / spending habits, frequencies and patterns; Contracting companies can only get access to schools in the holidays, printing companies focusing on the retail trade are busier just before each change in the retail “season”
  • Interactions with the product, service or brand
  • Usage: Where parameters may include volume, time, distribution, etc.
  • Loyalty: On the basis of the loyalty of the customers. Whether the customer tends to stick to a brand or keep on switching.
  • Nature & Demand: The customer may belong to one (or more) of the following generic segments depending on his nature and demands.
    • Quality Fanatics
    • Price Sensitive
    • Brand Sensitive

Generic segments

Obviously, none of this is a case of “either” / “or”, many of these dimensions can and should be combined.  Essentially, it’s about working out what is most useful to you.  However, there are a number of generic segments that perhaps have commonalities across B2B sectors.  Typical segments include:

  • A quality and brand-focused segment.  These guys are at the top end who want the best and are happy to pay for it. They are usually the larger or possibly medium sized companies in the segment with a higher regard for the strategic importance of your product or service.
  • A price-focused segment.  These are people with a low frills / low cost focus, usually it’s a transactional sell, often the smaller companies in the segment as they are working on lower margins and they don’t consider your product/service to be of strategic importance.
  • A service-focused segment.  These companies can be any size but normally operate in some time-critical environment.  There is an emphasis placed on your product quality and (sometimes) range, but the key is the focus on service, aftersales and delivery reliability.
  • A partnership-focused segment.  These guys want to work hand in hand with their suppliers.  They view your products and services to be of critical and strategic importance and often want to be a key account so together you can build trust and reliability.  You will be the preferred or strategic partner.  In the contracting sector this is seen a lot, particularly with large housing association or even local authorities working in conjunction with companies looking after their stock of buildings and assets; often manifested in duel branding of paperwork, websites and vehicle fleets and van’s

Conclusion

There are a range of criteria that can be used to segment markets, there is no “one size fits all” and the more a company can tailor the criteria the more incisive the messaging can become, as a result of which the benefits to you are likely to be better segmentation, better customer identification, better margin.

In the final blog we’ll take a look at how segmentation is used to identify and grow customers and your business.


Related tools and ideas

Recommended references

  • Market Segmentation: How to Do It, how to Profit from it - Malcolm MacDonald 

Downloadable resources


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