B2B market segmentation is the process of dividing a large and heterogeneous market of business buyers into smaller and more homogeneous segments based on certain criteria, such as industry, size, location, needs, behavior, or preferences. B2B market targeting is the process of selecting one or more segments that offer the most potential and value for your business, and developing tailored marketing strategies and messages for each segment. B2B market segmentation and targeting allow you to focus your resources and efforts on the most attractive and profitable opportunities, and to create more relevant and personalized value propositions for your customers.
B2B market segmentation and targeting are important for several reasons. First, they help you understand your customers better, by identifying their characteristics, needs, pain points, motivations, and decision-making processes. This enables you to design more effective and efficient solutions that solve their problems and meet their expectations. Second, they help you differentiate your offer from your competitors, by highlighting your unique value proposition and competitive advantages for each segment. This helps you to build stronger relationships and loyalty with your customers, and to increase your market share and profitability. Third, they help you optimize your marketing mix, by aligning your product, price, place, and promotion strategies with the specific needs and preferences of each segment. This helps you to deliver the right message, to the right audience, at the right time, and through the right channels.
Having defined (and agreed-upon!) market segments is also crucial for Sales & Marketing efficiency and wider organisational alignment. A clear segmented approach informs team structure, activity and resource allocation—how are AEs and SDRs aligned and targeted against market segments? How is Marketing spend and activity mapping to them? Where is Product research and R&D being prioritised, and why? So, in addition to optimising the Marketing mix, market segments allow a business to focus its resources in a strategic and coordinated manner cross-functionally through the lens of customer needs. This ensures a cohesive customer experience, and avoids functional siloes undermining the effectiveness of the segmentation strategy.
The best sources for B2B market segmentation and targeting are those that provide reliable, relevant, and actionable data and insights about your target market and customers. There are two main types of sources: primary and secondary. Primary sources are those that you collect directly from your customers or prospects, such as surveys, interviews, focus groups, feedback forms, reviews, testimonials, or case studies. Secondary sources are those that you obtain from external sources, such as industry reports, market research, trade publications, databases, websites, social media, or blogs. Both types of sources have their advantages and disadvantages, and you should use a combination of both to get a comprehensive and accurate picture of your market and customers.
Don’t forget the gold you already have in your CRM or accounting system! Financial metrics such as customer lifetime value (LTV), expansion revenue and net revenue retention (NRR) among others are important indicators that can be reverse engineered to inform or validate your segments. For example, is there a correlation between deal size and company size? Retention and product usage? Is there a ‘sweet spot’ within your market segmentation to double down on, based on valuable lookalike customers you already have?
When it comes to B2B market segmentation and targeting, the most effective methods are those that let you identify meaningful and actionable segments that fit your business objectives and capabilities. Your product or service, industry, customer profile, and marketing goals can all influence the methods and criteria you use to segment your B2B market. Firmographic segmentation, for example, uses criteria such as industry, size, location, revenue, or number of employees to identify customer characteristics and potential. Needs-based segmentation uses criteria such as problems, goals, challenges, or opportunities to identify customer needs and pain points. Behavioral segmentation looks at purchase behavior, usage behavior, loyalty behavior, or satisfaction behavior to uncover customer patterns and preferences. And psychographic segmentation evaluates customer attitudes, values, beliefs, or personality traits to create more engaging marketing messages. When assessing each segment’s attractiveness and fit for your business, consider criteria such as size, growth, profitability, competition, accessibility, or alignment. You may also want to use SWOT analysis, Porter's five forces analysis, or BCG matrix to analyze your segments and position your offer accordingly.
Segmentation is theoretical unless it's connected to real people. In my experience, B2B market segmentation and targeting begins by determining the personas in your ideal business account. A persona is a fictional character representing a certain demographic in your target audience. B2B sales has multiple people involved in the buying process, so it is important to base your personas on real people. Ask yourself "If I were to have the perfect business as a customer, what would it look like? Who is in this business?" If you're struggling to make personas, start by thinking about who is in product demos, or who you wish were in demos. Personas enable you to craft your marketing message based on real people and sell more effectively.
To apply B2B market segmentation and targeting to your business, you need to follow a systematic and iterative process that involves four main steps. First, you should define your target market by identifying the broad market or industry that you want to serve and describing its characteristics, trends, opportunities, and challenges. Second, segment your target market by using one or more of the methods and criteria mentioned to divide it into smaller and more homogeneous segments, and profile each segment based on its characteristics, needs, behavior, or preferences. Third, target your segments by evaluating each one based on its attractiveness and fit for your business, then selecting the ones that you want to focus on with your marketing strategy. Fourth, develop a tailored marketing strategy and message for each segment that you target and align your marketing mix elements with the specific needs and preferences of each segment. Additionally, monitor and measure the performance and results of your B2B market segmentation and targeting strategy, adjusting it as needed based on feedback from customers and the market.
Market segmentation MUST be a companywide initiative to be successful in the real world. For example, If Marketing and Sales are using different segments or approaches to segmentation, this can fundamentally break the model. The application of segments, personas and targeting will be necessarily different based on function, but should stem from this same understanding of and insights into the target market. Anyone undergoing a market segmentation exercise must ensure strategic buy-in from the top, and across all customer-facing functions, for this to be effective.