Acheiving market segmentation from B2B sectorisation

This article talks about how markets should be segmented differently for B2B companies from the traditional way of segmentation based on a common characteristics like geographical location, sectors and product groups to a more needs, purchasing behaviour based approach. This paper talks about a six-staged process that focuses on understanding the behaviour and attitude of targeted customers, the composition of DMUs and customer needs along with the buying process and influencing factors.

Most often B2B businesses utilise sector-based segmentation referred to as sectorisation in the article, dividing the customers into sectors like local government, health, financial services, etc.. which is feasible but may not be the most effective method. Product based or customer based segmentation is also argued to be a poor way of market segmentation. A segment may share some common characteristics but the needs may differ. Hence, the need for ‘segmentation by stealth’ proposed in the paper.

It must be noted that there is often resistance to managerial and procedural changed because of which segmentation may not be implemented to its full effect. However, “Segmentation enables an organisation selectively to target ‘good’ business” (Anderson and Narus, 2003; Dibb et. al., 2002). Also, although segmentation is the only way we can make propositions in a cost-effective manner focusing on particular groups of customers, it is also a way of knowing which customers are just not worth targeting. Surely, we will sell to them if they come chasing but we will not invest in chasing them. Hence, for this way of segmentation, a buying proforma was created.

This proforma analyses the customers’ buying decision process, the influencing factors and the needs of the customers along with their profiles. To prevent a revolution against this new segmentation procedure a cross-functional team of managers is selected. The process should not only include marketers but also sales, product development and customer support staff. During the process, it may be noticed that dissimilar customers are often wrongly grouped together.

The six stages are as follows:

1> Convening the team: Cross-functional, cross-hierarchical group of managers

2>Describe current customer groups: whether by sector, marketing channels, geographical or sales volume

3>Analyse the customer characteristics and buying behaviour in each group: to complete the proforma

4>Further proliferate the number of distinctive customer groups: The proforma should be completed from left to right. When there is a disagreement on customer profile characteristics, then separate proformas should be created. Once there is an agreement on the customer groups, the buying process should be formed and also the list of influencing factors.

5>Re-aggregate the customer groups to form market segments: The team should find common trait across many proformas and group those together. Within each segment, customers share common characteristics, key customer values and buying behaviour.

6>Select the segments to target and develop marketing programmes for engagement: A clear positioning strategy and an appropriate marketing mix must then be formulated for each of the segments targeted.