Choose the Right Market Focus for Revenue Growth
For a B2B company seeking to increase its revenue, the first step is choosing the right market. Market focus is the single most important factor impacting revenue growth.
There has been a shift in expectations for B2B marketing departments in recent years. Today, nearly 70% of CEOs expect CMOs to lead revenue growth for their companies. In order to facilitate revenue growth, today’s marketers need to increase their understanding of their customer bases and better anticipate customer needs. In today’s world, marketers who fail to work toward the goal of revenue growth will fall behind their competitors.
This means that today’s B2B marketers have to take things back to basics and reevaluate the fundamentals of their marketing strategies in order to maximize revenue growth—and this process starts with defining the right market.
Choosing the Right Market: Broad vs. Narrow
When it comes to determining a target market, many companies make the mistake of defining their market in the broadest possible terms. This might make sense at first glance—one could rationalize that a broader market definition will include more potential customers—but in reality, this is the wrong approach for revenue growth.
With a broad target market, marketing content will have to appeal to a wide variety of individuals with differing needs and motives for purchase. This makes it difficult for a company to demonstrate its depth of understanding of a potential client’s needs and the workings of the client’s specific industry. In addition, with an unnecessarily broad target market, marketers risk wasting resources on customers who are unlikely to purchase the product. In the end, with a broad market definition, marketers will encounter difficulties when it comes to differentiating their business from competitors.
On the other hand, a narrower market segmentation is often correlated with an increase in revenue. Instead of trying to reach a large audience with a vague and general message, marketing content will be much more effective if it is geared towards one specific customer’s needs.
This might seem like a counterintuitive marketing strategy—how can a business be successful by targeting a single customer? It’s important to remember that companies within a market segment are in conversation with one another. By providing solutions to one specific company at the center of a market segment, marketers can simultaneously appeal to other companies with similar needs and goals.
Putting Market Focus Into Practice
To make this concept more concrete, let’s consider an example in the form of a hypothetical company that provides software for the healthcare industry. According to marketing expert Geoffrey Moore, there are three elements of a B2B market segment: industry, role in that industry, and geography. With this in mind, the target market segment for this company could be defined as Hospital Administrators in the United States.
A specific number of potential customers will fall into this category, which can be expanded to include more potential customers or narrowed even further, as demonstrated in the table below.
A. Hospital Administrators in California
B. Hospital Administrators in US
C. Healthcare Professionals in US
Managing value-based reimbursement
Managing value-based reimbursement
Regulations in healthcare
As discussed previously, it might initially seem like a good idea to target the broadest possible market—Healthcare Professionals in the United States—because of its 128,000 potential customers. But it is vital to consider the perspective of the buyer—will this software company provide value to all 128,000 US-based Healthcare Professionals equally? In addition, what messaging and strategies will be effective to reach all of these professionals with varying job descriptions, including Doctors, Nurses, and Hospital Administrators, to name a few?
At this point, the company faces a difficult decision: It can choose to go shallow and wide, or invest exorbitant amounts of money in building expertise in each specific profession. Most companies choose to go shallow and wide, rather than investing in a focused market—and they are ultimately beaten out by companies that choose to go narrow and deep—which explains why the costs of sales and marketing rise faster than revenues.
However, there is another option—companies can choose to go narrow and deep in one segment at a time. This is the best option for increasing revenues.
Evidence has shown that with a narrower market definition, marketers can maximize revenue growth. Instead of burning through resources to compete with hundreds of other software providers, the software company can simplify the marketing process by honing in on Hospital Administrators in California, for instance. With significantly fewer competitors and fewer conferences to attend, marketers can increase the depth of their content and differentiate their company from the competition more effectively. Plus, it is more feasible for sales reps to become experts on the issues faced by this smaller market.
When it comes to increasing revenue growth, choosing the right market is the single most important factor for marketers to consider. With the right market, B2B marketers can use their resources more effectively to increase revenue growth.
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