Market segmentation, at its core, focuses a company’s sales and marketing efforts. Simply put, it is a decision to pursue a specific market. Once a company identifies a target market segment, the company will channel all of its marketing and selling efforts into that specific market.
The purpose of market segmentation is to enable a seller to produce an unmatchable offer within that segment, making it the vendor of choice—and to do so profitably.
B2B market segmentation typically consists of three elements: Role, industry, and geography—in that specific order.
Making an unmatchable offer for these outliers becomes increasingly expensive until it becomes a losing proposition.
| Role | In a B2B context, products are sold to solve the problem of a specific business manager (also called a business driver). This person may or may not also be the decision maker in their respective company. Role is the single most important criterion for segmentation, as all features and capabilities of a product/service are targeted towards making that Role’s headaches go away. An example of a Role of a business driver might be “Head of HR,” “Head of Sales,” or “Head of Compliance.” |
| Industry | While Role is the most important segmentation factor, adding industry to segmentation will make it significantly more targeted, allowing for better optimization of limited resources. For example, while the heads of HR of the Hospitality industry have many things in common with the heads of HR of the Financial industry, the degree to which the two are regulated is different. Products for highly regulated industries need more controls built in. Some industries are also more concentrated than others. Concentrated industries tend to be more uniform in size and type, while more fragmented industries have significant variations in size . The concentrated nature of the former makes it significantly easier to mass-market to the whole of that industry. In fragmented industries, businesses may need to seek out more niches to market their products and services to, thus highlighting the importance of market segmentation. |
| Location | Segmentation by the geographic location of a company is important because the farther away the customer is from the provider, the higher the cost. The most obvious cost is that of travel, but there are additional costs of distance. These include differences in time zones, language, and local customs and laws. Itis often important to meet face to face with customers in order to build rapport. This process is expensive when the customer and sales rep are far apart. Either the provider has to incur traveling expenses, or it has to open and maintain an office near the customer. The issue of geography is typically not a problem in geographically concentrated industries. However, in fragmented industries, a provider will either have to pick a geographic location or find an optimal way to sell products and services on a national or international scale. |
In the end, the purpose of segmentation is to make it profitable to build an unmatchable offer for a specific segment.
Read about the second pillar of high quality lead generation – “positioning” – here.