Market segmentation – what is it, how to start, segmentation criteria
Market segmentation (B2B)
One of the biggest sales challenges in business is understanding who your customers are. Good market segmentation can ensure that your sales and marketing efforts are undertaken in the most optimal way possible.
One of the biggest sales myths is that "a good salesman will sell anything to anyone, even sand in the desert". If your company sells "to everyone", it is actually unclear to whom and how you should direct your communication. Therefore, in order to properly build a message, it is worth taking a deeper look at the customers we address our offer to and what our market segmentation is. Knowing who we are talking to will make it easier to say the right things. Thanks to this, the effectiveness at particular stages of the sales process will be higher. The level of conversion at different levels of the sales funnel will also increase, as will the number of final closed sales. At the same time, customer satisfaction with the level of offer matching their needs will also be high, which will translate into loyalty and possible further references. We will base our discussion below rather on B2B sales relationships.
So what is the customer segment?
Simply put, it is the group of people (B2C) or organizations (B2B) that should most need the products or services we offer. It is these groups that will ensure our business profitability and survival on the market. Depending on the offer, the company may have one or more of these segments. The segments can be of different scales in different industries and niches. Importantly, on our side there is a conscious definition of "who we want to service". Usually, companies know what the main groups of recipients can distinguish on the basis of historical experience, but sometimes there is a need to enter a completely new market segment.
Market segmentation is the division of customer groups (consumers, companies) on the basis of their needs. The market contains a large group of different customers, which should be divided according to the relevant criteria (categories) of segmentation in order to find that part that will be interested in what our company has to offer.
Thanks to segmentation, we can also choose the product and product features (based on marketing research) that best fit particular segments.
Positive qualification of the market segment is one thing. It is also good to consider the negative criteria - who we definitely do not want to serve and why.
When can a group be considered a separate segment?
If the needs of this group are oriented around a specific, separable and describable element of our offer/value
A given market segment is reached through various communication channels
Customers within a segment expect a different type of relationship with them
Segmentation of customers - where to start with market segmentation?
Assuming that our organization provides valuable products and services that should bring benefits from the customer's point of view - we can think about our own needs as a business owner. This is because segmentation will be a good prelude to later qualifying potential customers. When thinking about market segmentation, you can start by answering the following questions:
What will be the value of the customer over time, i.e. what revenue potential in what unit of time can the separated segments give us?
What scale of services or products is our company able to provide (taking into account the complexity of the organizational structure or operating costs)?
What type/type of services or products do we want to provide in particular (e.g. those with the highest margin)?
What brand positioning do we care about (e.g. do we want to serve only luxury goods suppliers)?
What industry experience do we have, what implementations or clients can we boast of?
In simplified terms, what should the market segmentation take place, what should the market partition?
Not too big, not too small, achievable, justified in terms of business, possibly precisely adjusted to the values we offer.
If the segment is too small, it may turn out that we quickly exploit its potential and simply run out of new customers for the product. If it is too big, it may be difficult for us to address it organizationally and financially (we can then divide it into smaller sub-segments and narrow the market). Our clients may be located in, for example, India or Brazil, but the costs of reaching those locations, the cultural and language barrier, own resources and the potential (low) level of return on such investment may not justify the decision to enter various types of market segments. Finally, it makes sense to learn from past experiences - who has benefited most from working with us - or to make hypotheses about how individual product differentiation can meet customer needs. Which recipients' needs are of key importance to them.
Market segmentation criteria
When we consider what type of customers we want to attract, we can adopt specific market segmentation criteria that will guide us in qualifying for a given market segment. In simple terms, we will be answering the question "how will I know that this customer is the one who fits into the segment". Market segmentation within groups can be done, for example, by:
- Volume of turnover
- Employment level
- Complexity of the organizational structure
- Territorial range (geographically)
- Capital or ownership structure
- Type of market offer
- Type of customers served
- Possession of specific typical problems
- Decision-making model
- Market and competition
When considering groups of consumer segments, we will consider demographic segmentation, geographic segmentation, and behavioral segmentation, based on consumer behavior. We can then consider such characteristics of potential customers as:
- Age of the consumer
- Gender of buyers
- Purchasing power (earnings)
- Geographical location
- Household size
- Buyers' interests
- Buyers' lifestyles
- Life stage
These, of course, are not all the criteria a company can have. In market segmentation we have an open catalog of characteristics. The parameters we adopt to determine who should be assigned to which segment will depend on the specifics of a particular market case. Correct segmentation, finding the "ideal segment", is quite a challenge in sales activities. Especially young, innovative organizations with potentially breakthrough products or technologies can sometimes search for customer segments for a long time before they discover the right market segmentation for them. Often without success, which, if the product or service is not positioned in the right segment, can end up with them disappearing from the market. Therefore, at the beginning of the business and product life cycle, segmentation criteria aim to divide the market into segments and groups according to specific characteristics - e.g. demographic, geographic, economic, psychographic.
What to do next once we have segmented the market?
This is a topic for a separate post. However, it is worth considering: qualification criteria, the decision-making model, the profiles of decision-makers, the values which will guide them when choosing an offeror, what sets of emotions we want to influence the decision-makers with. Around which customer expectations we will build communication and conduct marketing activities.