Why do firms segment business markets?
This is a good question, particularly as business markets have a much smaller number of potential customers, as opposed to some very large consumer numbers. However, firms that market to other businesses will typically have a smaller number of customers. These customers are, as a result, more important to them on an individual basis, so careful customer selection becomes more critical.
In addition, the effectiveness of promotional methods often differs in B2B markets. For instance, the expensive and time-consuming process of personal selling is commonly used in business markets. Some complex or expensive products may have a sales lead-time of several years, which means a team of sales people may easily invest 100s of hours in gaining a sale. Therefore, getting the target market right at the start of the process is also important.
And finally, stronger relationships are more evident in B2B situations, as is the need for the two firms involved in a business relationship to have a good cultural fit. Again, an effective segmentation and targeting process will greatly assist here.
What are the more effective segmentation bases to use for business markets?
Segmenting by business description and/or geographic locations is the most cost-effective approach, as much of the information can be quickly and cheaply obtained. However, other than some descriptive measures about the firms in the market, not a lot of ‘inside’ information is being utilized, which may lead to an ineffective segmentation outcome.
By understanding the firms at a deeper level (that is, their behavior, culture and goals) is a more time-consuming challenge. But it is likely to result in a much better understanding of the market and enable a better fit between the organizations own offerings and the needs of the potential business customers, as well as resulting in a better cultural fit and stronger long-term business relationships.
How can the information to segment business markets be obtained?
As you can see, some of the information required to segment a business market, particularly on a cultural or behavioral basis, can be difficult to obtain at times. However, given the shift of many companies to list all their media releases on their website and engage in social media (with Facebook, Twitter, and so on), it is becoming much easier to observe and review their practices and get a good sense of their culture.
Of course, most established B2B firms would have experienced salespeople who are likely to have first-hand knowledge of many firms in the market. And also exploratory questions and relationship building with potential business customers frequently takes place at trade shows and industry conferences.
What segmentation bases are used for business markets?
Business market segmentation base examples
Overview of market segmentation
Markets, sub-markets and product-markets
A step-by-step guide to segmenting a market
Criteria for effective segmentation
Undertaking market segmentation: Main tools