The prime goal of any performance marketing program is to reach potential profitable markets. If you do not reach the right markets, the program will fail, regardless of how persuasive your copy or how attractive your product or service. Unlike mass marketing, which blankets the total market universe, performance marketing relies on market segmentation and targeting to more narrowly define appropriate prospects.

With market segmentation you divide a market into various distinct groups of customers or prospects, identifying those markets that appear to be most appropriate from the total market universe.

Market targeting selects the segments – through segmentation analysis – that will produce the most buyers.

Smart performance marketers constantly search for cost-effective solutions to the continuing decline in response from campaigns to customer databases.

They find that targeted campaigns, in every possible medium or channel, to segmented market lists of both customers and prospects prove more productive than mass marketing activities to vast numbers of businesses in horizontal markets.

Marketers with B2B performance marketing objectives also get more cost-effective results when targeting segmented markets. Time and money are not spent on contacting “unqualified” buyers.

Example: a B2B marketer may determine it is better to make a lead generation promotion to a list of more qualified prospects, such as manufacturers of prefab buildings who have 100 employees or more in the Sun Belt states, than to address all manufacturers of prefab buildings in the United States.

Segmentation Variables

Your customer base can be segmented into smaller, more homogeneous subgroups by geographic, demographic, and behavioral factors.

B2B Geographics

Geographic factors refer to data about the economic vitality of companies as positioned in regions, states, counties, cities, and metropolitan areas.

For some business-to-business marketers, factors such as economic health, nature of the marketer’s business, climate, transportation costs, and regional tax laws can have an effect on geographic targeting.

Most of this information comes from government statistics.

B2B Demographics

Demographics are the factors most commonly used to determine differences between segments since they are the easiest to locate.

Demographic factors refer to information about companies, such as the SIC classifications in the US, UKSIC in the UK, or PKD in Poland, sales volume, net worth, and number of employees.

These are the key elements, but you may, as many B2B marketers, also examine the year the business started, credit rating, company headquarters, branch or subsidiary location, sales trends, private or public ownership, minority or nonminority ownership, and even the sex of the decision makers.

You can find this information in a myriad of published sources, such as directories, reports, surveys, and compilations.

B2B Behavior

Behavioral factors are more difficult to acquire, but they are essential if segmentation strategy is to be of maximum value.

These variables include knowledge of how a company operates, purchasing patterns, special market needs, and the decision maker’s personal characteristics.

You can gather much of this behavioral information from survey questionnaires, focus group sessions, and salesperson feedback.

Operating Elements

Knowing how a company manufactures its products or delivers its services and whether it is driven by technology, by the market, or by its product provides the kinds of data that can help you determine the company’s buying needs.

These operating elements remain fairly fixed and enable you to get a more precise identification of existing and potential customers within the demographic categories.

Purchasing Patterns

Another useful variable used for segmenting focuses on the customer company’s purchasing approach, which is often a neglected method of segmenting B2B markets.

It is based on company philosophy and its rules and guidelines on purchasing. Some companies have formal purchasing organizations and functions whereas others are less structured.

The size of the purchasing unit and its reporting relationships within the company, divisions, or departments determine how these units are organized.

Example: The B2B marketer who is successful at selling to those companies with decentralized operations may find it difficult to respond to a centralized buying pattern where individual purchasing units are combined into a single group. Either way, different purchasing approaches usually require different performance marketing strategies.

Some company department heads, for example, can purchase software tools or IT consulting services on their own authority for their own department uses.

Yet in other companies all such products and services are purchased through a centralized IT department to ensure its compatibility with a company-wide systems and policies.

Targeting performance marketing messages that do not take this difference into account can miss the mark.

Your prospects internal management power structures also can have a bearing on purchasing approaches. The financial units in some companies are very price oriented in their purchasing decisions.

And the real power structure of the company may lie in this financial department that strongly influences the whole company’s purchasing function.

So, if your product or service can be sold on the basis of a strong return on investment (ROI) message, it may be profitable to segment by companies that have a financial power structure reflected in their purchasing decisions.

Another purchasing pattern centers around the B2B marketer who has preferred supplier status. You should study the purchasing pattern to determine why this status is enjoyed.

Knowing whether purchasers buy because of loyalty to the company, to the salesperson, because of price, or for any other reason can help you in the segmentation process.

Special Market Needs

Different B2B product or service users seek different product benefits that can be targeted with different promotion mixes. This user benefit approach is one more way that successful business-to-business marketers segment their universes.

The product application variable, combined with size of company and other company characteristics, can help you determine those who buy because of quality, service, or economy. These three user benefits surface most often in B2B buyer surveys.

A company may have a continuing need for fast service. Some B2B marketers have found this urgent need for order fulfillment useful for developing a focused operating and marketing strategy.

Market segment selection can also be based on order frequency and size of orders. Users of a particular product or brand generally have some characteristics in common or at the very least they have a common experience with the product.

Volume users especially have similar attributes. All can have a major impact on the purchasing process and thus on the choice of vendor.

Personal Characteristics

The B2B buyer’s personal characteristics may be an important variable in market segmentation. B2B marketers can segment markets according to the personal characteristics of the individuals involved in the purchasing decision.

You can look at the decision maker’s personal management style – his or her level of self-confidence and need for purchase justification. These characteristics determine the amount of risk a buyer will assume when making a purchase.

Some buyers do not like to take risks whereas others like the challenge. The level of risk buyers are willing to assume is related to other personality variables such as personal style and self-confidence.

B2B buyers who do not like to take risks are not good prospects for new products and concepts. They also tend to avoid new supply sources. These buyers are very thorough in their approach to buying.

They get several bids and even split their order as a hedge against delivery problems. Others feel safe by continuing to do business with the same vendors.

Business buyers’ needs, preferences, and purchasing approaches often are fashioned by these many human factors.

If you are able to establish a routine collection of data on B2B customers and prospects called on by salespeople or telemarketing agents you have the best chance of success in developing highly meaningful segmented marketing strategies and databases.

Demographic and operating variables can be inadequate when used by themselves in all but the most simple or homogeneous markets because they ignore buying differences among customers.

In segmentation development, a review of the geographic/demographic base should come first, followed by behavioral characteristics, including company operating variables as well as personal characteristics of those who buy products and services.

These, of course, are the most difficult to get because they are not obvious. However, you should not overemphasize personal characteristics or the situational factors either, because they can be expensive and time consuming to gather.

In the final analysis such data gathering efforts are only justified when there is a return in sales and profit dollars for all segmentation efforts.

Data Sources

Local, state, and regional governments compile an enormous amount of data that is valuable for segmenting markets, even though the information is general instead of on individual establishments.

In the US, most of these data come from the Internal Revenue Service, the Department of Commerce, and the Bureau of Labor Statistics.

For instance, the IRS’ statistical reports are valuable reference documents based on tax returns of U.S. businesses. They give the number of businesses by size and by industry and provide overall revenue information.

Also, the Department of Commerce publishes census data on major segments of American industry. Included are summary data by SIC code, employee size, and geographic areas.

You can obtain similar data sources in most countries as the institutions mentioned above have their counterparts all over the world.

You can also use prospects databases and other data compilations, that are pieces and parts of various information sources, to determine the profile of the prospect universe.

More information can be extracted from surveys and company reports. Of course, all of this data must be pieced together by you for every name in the database.

B2B Segmentation Strategy

Segmentation Criteria

For performance marketing segmentation strategy to be successful, four standards must be applied. Of course, by definition, the segment has to be a homogeneous group with common attributes.

The targeted segment should be marketable, reachable, sizable, and promotable:

1. Marketability: To be marketable, the targeted segment must have potential sales and profit for the product and selling channel you plan to use. The interest turnover and buying frequency of a product in a given segment may be so slight as to preclude a profitable marketing effort.
2. Reachability: It must be possible for you to reach and service, cost effectively, by performance marketing media the firms and organizations within the segment. For instance, viable segments that are not cost effective for selling through personal sales visits may be accessible through the use of ecommerce channel.
3. Sizability: The segment must be large enough to be worth pursuing. For example, if you plan to sell a $30,000 inventory control distribution system but find that only the top 15 percent – those dozen or so customers with revenues of $2 million and above – could afford a system at that price, the segment may be too small to be worthwhile. B2B markets can be refined to the point where the small size of some segments precludes targeting.
4. Promotability: The segment selected must have an audience that will respond to performance marketing programs and promotions.

Selection of Segments

Implementation of a segmentation strategy can been a complicated and expensive process. Many products sold in the business marketplace have more than one application, and many different products can be used for the same application.

Also, businesses in the B2B marketplace differ greatly in their methods of doing business.

There is no simple, predetermined way to segment a market. You need to examine such segmentation factors as geographic location, company customer size, and product end use to find those most common to the entire customer universe.

The process of segmentation involves trying different combinations of variables and rating these factors in order of their importance to you.

Of course, any two B2B marketers may weigh the factors differently. For example, in the rating scheme shown below, the marketer – selling through a direct sales force – assigns a value of zero to the factor “distance selling / ecommerce responsive.” An ecommerce marketer, however, might assign the same factor a value of 50 or more.

Primary Factors	Rating Points
1. Size of business by number of employees by annual volume of business net worth	15
Type of business or industry (SIC classification)	15
Product end use	20
Purchasing interest (special interest category)	10
Where and when is the buying done? headquarters, divisions, or subsidiaries	10
Job function (shows importance as a decision maker or influencer)	10
Credit rating	15
Age of business	5
Distance selling / ecommerce responsive	0
Total rating points	100

When determining the most profitable segment of the B2B market, you should also look at competitive strategy and reach in the same area.

This is done through research. Focus group interviews or questionnaires can be of great help. Armed with results of research, you can formulate a position to combat competition or try to develop a targeted marketplace in a previously untouched segment.

Segmentation Analysis: Targeting B2B Markets

The great bulk of sales in the business-to-business world comes from a very small number of a firm’s customers. It is critical for you to know the ratio in their overall marketplace for their products.

Knowing who these customers are is necessary for effective business-to-business performance marketing strategic sales planning.

B2B market segmentation is a key approach in pinpointing sales and profit forecasts more accurately. Some target segments may show promise. Others cannot measure up to the bottom line.

You may find it necessary to ignore prospects who do not match the good B2B customer profile, targeting only those prospects where the profit is higher.

You may also choose to target several segments and develop different offers for each. The idea, of course, is to appeal to the business-to-business buyer on the basis of the more specific needs of the buyer in the smaller target segments rather than on what the marketer assumes are the more general needs of the larger marketplace.

Target marketing with different product offers for different segments usually will produce more total revenue because each targeted segment is marketed to and served more comprehensively.

In any one planning cycle, for instance, you may target with performance marketing tactics as many as one or two dozen or even more market segments.

Multiple costs are incurred when there are many segments. Costs will be higher because more research, planning, production, marketing, and servicing must be customized for each targeted segment.

Segmented markets naturally mean smaller prospects lists and smaller media circulation or user traffic, so the cost will be larger per prospect reached.

Companies that have salespeople covering several targeted segments might have multiple sales support campaigns to move their low potential prospect segments closer to the point of taking buying action.

Prospects in the medium potential segments may get a greater quantity of promotional pieces and the higher potential prospect segment may get personalized materials followed up by telemarketing calls.

In tandem with this type of prospect campaign, you may target high potential customers, regular customers, as well as first-time and former customers through dimensional (“lumpy mail”) and high-impact direct mailings in combination with an organized telemarketing campaign.

Key customers, those who are multiple purchasers or frequent purchasers spending high-dollar amounts, are segments usually targeted for intensive effort.

Case in Point

Targeting small segments can also be a successful strategy. For example, one of my consulting clients which is a marketing automation platform, reduced its huge market down to a segment of 40 top marketing agencies and media houses. The objective was to get them to become exclusive resellers of its white label software-as-a-service platform.

A three-part direct mail campaign that did not ask for a response was sent at two-week intervals. However, a phone call followed the mailings in an effort to set up a meeting between the supplier and the agency / media house prospect.

This program to such a highly selective segment was very successful at a cost of over $500.00 per prospect. This strategy of setting up high-level meetings with hard-to-reach prospects was accomplished with tactical use of direct mail and telemarketing to the high-potential account segment.

Additionally, both of these media, i.e. direct mail and telemarketing, and their integrability with the digital marketing automation platform were the company’s unique feature.

In contrast, a business-to-business distance selling marketer (i.e. with no direct sales force) may successfully market a range of product supplies through a single ecommerce promotion or catalog mailing to a list of 150,000 businesses. Yet, there may be more profits through market database segmentation.

Segmentation analysis may highlight low-risk opportunities to modify the single promotion to incorporate different appeals to match different segments of the prospects database.

Loyal buyers can be rewarded for frequent purchases with special incentives. Personalized campaign and telemarketing could be targeted more specifically to higher-interest prospects.

Still another important segment for the B2B marketer is the group of prospects ready to buy from one vendor company or another. They are prospects who salespeople are calling on and who are individually identified only by the salespeople. Reinforced-selling campaigns should be directed to this most highly qualified prospect segment.

The B2B Market Niche

Another strategy you may choose is to concentrate on one particular segment of a B2B market that does not greatly interest major competitors.

Many small companies and small divisions of larger companies are often not able to achieve a major market share, but by occupying smaller market niches they can maintain a very healthy standing in the marketplace.

The B2B niche has to be large enough, of course, to justify the performance marketing costs, and there has to be enough growth and potential sales for the market to be profitable.

You must have skills and resources to serve the niche effectively and be able to develop customer loyalty in defense against competitive inroads.

Many B2B marketers who specialize in a niche of a larger segment of the market often do so in one of several ways:

1. They may set their sights on customers of a certain size or type.
2. They may develop the niche in a particular geographic area.
3. They may concentrate on specific products, product lines, or service.
4. A unique end use of the product may be a profitable market niche for a business-to-business performance marketer.

Market Coverage Factors

When the various segments have been identified and evaluated, the B2B marketer can determine the most appropriate target market coverage strategies.

The decision of how many and which segments to cover is influenced by several vital factors. Suitability and availability of company resources are the prime considerations. Limited resources almost always dictate a segmentation approach.

Homogeneous products such as office supplies or non-complex equipment do not lend themselves to product-differentiated positioning strategies that work best in segmented marketing.

Nor does segmentation strategy apply in homogeneous markets where purchasing preferences, order intervals, and order amounts tend to be standard.

Product life cycle also influences market coverage strategy. Many B2B marketers launch a product in a wider marketplace and use segmentation strategies when it is well along in the growth phase.

This process applies similarly in ecommerce and catalog launches. For example, a business-to-business marketer begins selling a line of cutting tools by ecommerce and catalog to the universe of tool and die shops.

As competitors enter that market with their ecommerce and catalogs – some with sales-force coverage – the market matures and the marketer’s venture begins to lose market share.

Segmentation analysis reveals higher volume, and more frequent orders come from specific geographic areas where competitive personal sales coverage is weakest.

Also revealed are other segments that can be receptive to campaigns presenting one, featured product and other efforts of specific-purpose tool products.

The original single ecommerce and catalog activity now breaks up into different offerings for different market segments. The marketer’s concentration of marketing efforts on each segment specifically can have a healthier return on investment.

After segmentation analysis you will have some options:

1. To target a market by segmentation, or to not use segmentation at all.
2. To concentrate on one or a few segments with one basic product offer.
3. To diversify into several market segments with different product offers for each segment.

Some performance marketers prefer to go after bigger shares of B2B market segments with the same product and promotion mix rather than to go after a small share of a large market.

As a general rule, when competitors are going after the whole market universe with one general product offer, it can pay a firm that has a product that lends itself to product differentiation to counter with segmentation marketing strategies.

To gain maximum value from market segmentation, you must position the products to relate and appeal to specific needs and wants of the businesses that comprise the segment.

The product must fit the segment. If it does not, superficial positioning changes, such as packaging and advertising designed to relate only to how the market perceives the product, may not accomplish this objective in the long term.

Summary

1. The market segmentation process plays a dominant role in selecting target markets for business-to-business performance marketers who use targeting for sales support or to sell directly by mail or telemarketing.
2. Segmentation in business-to-business marketing responds to the B2B marketer’s demands for more profitable markets. The segmentation process divides a market into defined groups of current and potential customers.
3. The customer base can be segmented by three broad groups: geography, demography and behavior. The first two relate to statistical information readily available from many published sources.
4. Behavioral factors define the way a company operates, its purchasing patterns and special needs, as well as the decision maker’s personal characteristics. These factors are important to successful segmentation strategy but are more difficult to assess and more costly to identify.
5. Performance marketing strategies based on segmentation concentrate on pinpointing the marketing mix directly to the interests of the targeted segments. Your targeted appeal is directed at what the buyer really needs rather than on what the marketer may happen to be selling. You specifically select those segments for targeting that will have the best chance of producing the most buyers.
6. Your decision on which segments should be covered depends on the suitability and availability of company resources, the degree of homogeneity of the products and the market, the product life cycle stage, and the competitive positioning.