Market segmentation helps you target specific groups of consumers and improve the productivity of your marketing.
One of the most effective ways you can improve the productivity of your marketing is market segmentation. B2B market segmentation helps you target specific groups of consumers, hence directing your marketing efforts to the right audience every time.
In this article, you’ll learn about market segmentation and why it’s such an important part of an effective marketing strategy. You’ll also learn about the 4 most common types of market segmentation and how they work.
What Is Market Segmentation?
B2B market segmentation — or customer segmentation — is the process of dividing your target market into smaller groups that share similar characteristics such as age, location, income, common interests, behavior, needs, or priorities.
These categories are used to better understand your target market and identify the attributes that your ideal customers within that market segment have in common. They allow you to optimize your marketing, advertising, products, and sales efforts for each individual market segment and its respective characteristics.
In modern marketing strategies (e.g. ABM), personalization is key. Without customer segmentation, you risk treating every customer the same. Your message might get across to some consumers, but it’s unlikely to connect well with any of them.
B2B market segmentation, however, enables you to create unique marketing strategies for different types of consumers. This allows you to personalize your marketing to fit the way your target market perceives the overall value of certain products and services — hence making your target consumers much more likely to convert.
Advantages of B2B Market Segmentation
There are numerous benefits to implementing customer segmentation in your organization:
- Focused efforts: B2B market segmentation enables you to identify new marketing opportunities and focus your efforts on your target market without distraction.
- Greater personalization: Segmentation enables you to target your audience far more precisely. And when you know whom you’re targeting, you’ll be able to create strong, personalized messages that resonate with your target audience and respond to their wants and needs.
- Better marketing strategies: B2B market segmentation gives you a much better idea of who your target audience is. This makes it easier for you to identify and craft the right marketing strategy for attracting that audience. And once you’ve attracted that audience, you’re also more likely to convert them into buyers.
- Targeted advertising: Knowing the age, location, interests, buying habits, etc. of your target audience enables you to target your advertising more effectively.
- Brand differentiation: Crafting targeted messages that meet your customers’ unique needs creates a distinct and recognizable presence for your brand that allows you to stand out from the competition.
Market identification: Segmentation enables you to discover niche markets you might not have considered before. This makes it possible for you to investigate niche market wants and needs, and determine how your brand might address them.
- Customer retention: Once you have identified your customers’ wants and needs, you’ll be able to build a strong connection between your brand and your customers. In this way, you can craft marketing that offers irresistible reasons for a return visit. This improves customer retention, brand loyalty, and lifetime value.
The 4 Types of Market Segmentation
There are 4 commonly used types of B2B market segmentation:
- Firmographic segmentation
- Technographic segmentation
- Psychographic segmentation
- Business situation segmentation
1. Firmographic Segmentation
- Industry type
- Company size (number of employees)
- Company structure
- Performance over time (growth rate)
- Annual revenue, etc.
Firmographic segmentation is one of the most basic types of market segmentation. However, this does not mean it should be overlooked. The grouping of customers based on the above characteristics provides much useful information for your marketing strategy.
For example, if your product is more affordable than your competitors’, it might be more popular among smaller companies with less annual revenue. Looking at annual revenue allows you to advertise to companies who can realistically afford what you offer. This prevents you from wasting resources on prospects who can’t.
This way, firmographic segmentation lets you offer far more personal value propositions to your prospective customers — and this increases the chance that your propositions will resonate with them.
2. Technographic Segmentation
Technographic segmentation allows you to divide the market into sections based on their technology use. This includes sections based on their ownership, use patterns, and attitudes towards:
- Information technologies
- Communication technologies
- Marketing automation technologies
- Entertainment technologies, etc.
Regardless of industry, many organizations rely on their technology stack to drive worth, productivity, customer relationships, and more. This makes technographic B2B data highly useful for creating firmographic profiles.
For example, if your biggest clients are using marketing automation software like Marketo or Eloqua, you can use this knowledge to identify prospective clients.
Marketo and Eloqua are typically used by large companies with tens or hundreds of thousands of contacts. They have plentiful resources and much technical know-how. If these descriptors apply to the clients are are attempting to reach, technographic data can help you identify prospective clients who have Marketo or Eloqua installed.
3. Psychographic Segmentation
Psychographic segmentation groups people in your target market based on characteristics such as:
- Personality traits
- Interests, etc.
These characteristics are not as easy to identify as those used for e.g. firmographic segmentation. Psychographic segmentation requires more research and involves methods such as interviews, surveys, focus groups, and case studies. This makes it one of the more resource-heavy segmentation types.
However, the tailored marketing which psychographic segmentation allows for enables you to connect with your target audience on a far more personal level than other types of marketing segmentation will. When done well, psychographic segmentation can therefore drive extremely effective marketing campaigns.
4. Business Situation Segmentation
Business situation segmentation divides the market into groups based on certain situations affecting the companies in the industry and the industry at large. Among these are:
- Years in business
- Growth rate
- New initiatives or acquisitions
- Competitive intensity
- Regulatory changes
- Industry events, etc.
Segmentation based on business situation makes it possible to determine circumstances affecting prospects positively or negatively.
For example, a common business situation relevant for B2B segmentation is companies who have just received an investment round. Companies receiving an investment round need to grow fast, and this often makes them more receptive to tools that help scale or enter new markets.
An example of a business situation affecting an industry negatively is the COVID-19 pandemic, which greatly impacted travel, hotel, and tourism companies. While such companies are still recovering from their losses, they wouldn’t make great prospects. Instead, your resources would be better spent targeting e.g. e-commerce or delivery companies who received lots of business during the pandemic.
5 Steps to Getting Started with Market Segmentation
There are 5 primary steps to getting started with market segmentation:
1. Define your market: Start by determining the size of your target market. Identify where your brand fits and whether there is a need for your product or services within the market.
2. Segment your market: Choose which type(s) of market segmentation is/are the most suitable for segmenting your market. You don’t have to settle for just one – in fact, most brands and organizations combine the types that fit their strategies best. Research, experiment, and find what works for you.
3. Understand your market: You need to know your target audience well. Get to know your market by asking your customers the right questions. Use surveys, polls, and focus groups. Combine quantitative (e.g. tickable boxes) and qualitative (e.g. open text response) questions – and ask questions that relate to your customer segments.
4. Create your customer segments: Your customer segments should be defined based on your findings in step 3. Analyze the responses from your research to discover which customer segments you should focus on.
5. Test your strategy: Test your findings from the previous steps on your target market. Track your conversions to see how effective your marketing strategy is. Keep testing, and adjust your strategy according to your findings.
If you aren’t seeing the desired results, go over your customer segments or research methods again. And remember to revisit your market segments periodically.
You should also revisit and update your segments in times of rapid change. The COVID-19 pandemic is a good example of how consumer behavior is affected by such events. And when consumer behavior changes, so should your marketing strategy.
B2B market segmentation is a highly effective marketing strategy.
There are 4 common types of market segmentation:
- Demographic segmentation
- Psychographic segmentation
- Geographic segmentation
- Behavioral segmentation
Based on different characteristics, each type enables organizations to identify their ideal customers and understand the latter’s wants and needs. This allows for a far more personalized marketing approach, higher return on investment, and increased brand loyalty.
When getting started with segmentation, remember that you don’t have to choose one type. Experiment and combine the types that fit your specific needs — and test and adjust your strategy regularly.