A Market Segmentation Guide

One of the key marketing functions (for B2C or B2B) is to know your customer!

One tool to help you in the process is market segmentation (A market segment is a group of people or organizations sharing one or more characteristics that cause them to have similar product and/or service, from Wikipedia).

The following is a guide for the segmentation process

For the purpose of this guide we will assume we are marketing in the B2B environment (there are differences versus B2C but it is more in the ingredients versus the formula).

First here are some key initial steps in helping make the selection process.

1-     Is there information about the customers to be obtained?  

2-     Will these markets be accessible, i.e. can we reach them?

3-     Is the segment large enough to spend effort on them (this will lead to estimating profitability, but that is a different exercise).

4-     Does this segment “match” your enterprise goals and objectives?

Second, completely understand the Strategic Business Units (SBUs) strategies and product/service portfolios so that you have a firm reference point(s) on what segments best match up to their goals and objectives.

Third, know your competition and what are their strategy, products/services and their value proposition in these segments… it may be different for different segments.

Fourth, consider what I call the “surrounds” those aspects that can relate and impact a segment.   Two examples are: the mobile phone and how it impacted land lines vendors and suppliers. The internet and how the convergence of data and voice impacted traditional PBX vendors, tariffs and business applications.

Fifth, start with macro segmentation, which has organizational characteristics such as size, geography, and organizational structure. A helping structure is North American Industry Classification System (NAICS). For the NAICS codes 541511, a high level breakdown  looks like this; 54 is for technical services sector and 1511 is for Computer software analysis and design services.

Sixth, assuming you have the resources, dig deeper. A micro segmentation addresses areas like decision making, buying attributes, and user attitudes of the players in the segment.

In many cases of B2B it is important to know the buying habits of the end user or the buying procedures of the enterprise.  A marketer might be required to have messaging or value propositions that appeal to the purchasing organizations. An example is the buying cycle, if one can improve this cycle for its customers this could be an overall key factor.

Seventh, test your assumptions and segmentations before making any major investments.

Eighth, Now if you have done the above you are half way there. The next major step is the implementation of your strategies. Keep in mind that the strategy for B2B is NOT a short time or quick fix issue; it needs to be thought out such that it will last, at least long enough to have time for implementation and a buying cycle so you can analyze actual realistic results. An example of implementation is what type of service will be needed to support the business and marketing goals. Another example is how is the sales force organized relative to the market segmentations?

Here is just one example of an enterprise that utilizes segmentation with great success. Dell has at the macro level the Home segment (B2C) and the Business segment (B2B). Then within the B2B they have small businesses.  Within the small businesses they have solutions that range from laptops to high end servers. For each sub segment, Dell offers various packages.

Key point:  if you do not know your customer, and your competitor does, you won’t make a sale!

                        To see some examples of the implementation process, Click Here

RHL 3/30/10

4 comments to A Market Segmentation Guide

  • I have to state, you chose your words well. The ideas you wrote on your encounters are well placed. This is an incredible blog!

  • Thanks a ton for giving out this fine piece. Really inspiring! (as each time, btw)

  • After reading this I thought it was very informative. I appreciate you taking the time to put this blog piece together. I once again find myself spending way to much time both reading and commenting. What ever, it was still worth it !

  • mitali

    i have viewed ur information it was very informative…….cool keep it up

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