How to Develop a More Effective B2B Customer Segmentation

Segmentation is one of the most important tools in a marketer’s toolkit, enabling marketers and their organizations to identify and target the most relevant and valuable parts of the market. A well-designed segmentation can become a source of competitive advantage, and a cornerstone for building a brand and a business.

Since its formal introduction in the 1950s1, consumer segmentation has increasingly become more meaningful and useful, based more in psychographics, purchase behaviors, and brand affinity than demographics alone. But the same cannot be said of customer segmentation, the approach of clustering a business’ B2B accounts by shared needs, benefits sought, and value to our business.

Most B2B customer segmentations remain woefully simplistic, typically defined based on basic firmographic characteristics (e.g. revenue, end market, geography) that do not sufficiently capture distinct needs, buying behaviors, or value. This issue is critically important for businesses and brands, considering the broad implications of a B2B segmentation for a company’s targeting, offer development, go-to-market strategy, and deployment of resources.

The good news for marketers is that several leading companies, from Google to GE to Kraft Heinz to the adidas Group to 3M to Xerox, are exhibiting a more effective approach to B2B segmentation that is focused squarely on defining customer types by their needs – and not just simple firmographics.

A concrete example can help from GE Healthcare, the $18 billion division of GE that sells medical imaging equipment and related services. In the past few years, GE Healthcare replaced its conventional B2B segmentation (i.e. segmentation based on firmographics only) with a needs-based segmentation, developed through customer research.2

Formerly, GE Healthcare would have grouped its hospital customers by total revenue, number of beds, and geography. Currently, GE Healthcare employs a more meaningful and actionable B2B segmentation that has resulted in robust growth as well as cost savings. GE’s segmentation is based primarily on the following customer attributes:

  • Decision-maker: Are we selling to a medical practitioner like a physician, or to an administrator?
  • Clinical differentiation: Does the facility seek to differentiate itself in the marketplace with its technology (i.e. GE equipment)?
  • Equipment productivity: What expectations does the customer have for how many exams it wants to produce each day?
  • Value-added services: Does the customer have interest in GE Healthcare services beyond this equipment alone (e.g. support, data management, adjacent equipment)?

The lesson from leaders like GE Healthcare is to approach B2B segmentation more thoughtfully – and more like we would approach B2C segmentation. As experienced marketers, we know to avoid consumer segmentations based purely in demographics. Yet too many of us have observed (or dare I say, even created) B2B segmentations based purely on firmographics. A better and more effective approach for B2B segmentation is within reach – it’s time for marketers to step up and show their companies the way forward.

 

Sources: 1 Smith, W.R., “Product Differentiation and Market Segmentation as Alternative Marketing Strategies,” Journal of Marketing, 1956; 2 Gupta, S., Harvard Business School, “Marketing Reading: Segmentation and Targeting,” 2014

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