Given the similarities of the application of geography and benefits sought between B2B and B2C marketing, discussion of those segmentation variables will not be repeated in this lecture.
One approach for segmenting business markets is to focus on serving customers that are part of a particular industry or product category. The idea behind industry type segmentation is that buyers within the same category will have similar needs that can be met without having to adapt marketing mix elements (e.g., product features or advertising) to meet needs of most members of that category or industry. One way to search for opportunities to meet customer needs by industry is to examine the North American Industrial Classification System (NAICS). The NAICS was created by the U.S. Census Bureau that organizes U.S. businesses into twenty broad categories (known as two-digit classification level). Each of the twenty industry categories is broken down further into four three-digit categories of healthcare services with those four categories having even more specific categories of services. The decision on how to segment can be made at a broad level (e.g., healthcare and social assistance) or at a narrow level (e.g., offices of optometrists).
An example of how industry type segmentation is used can be found in the Nashville-based marketing agency cj Advertising. The agency has chosen to focus on serving the marketing needs of one type of client: personal injury lawyers. Clients find cj Advertising to be a one-stop shop for all of their marketing needs- brand strategy, advertising campaigns, website development, and call center services. Could cj Advertising use its expertise and serve clients in other industries like many agencies? Yes, but it has made the decision to serve one customer segment and become specialists in meeting needs of their attorney clients.
Using business size as a segmentation criterion is based on the recognition that firms have differing needs depending on the number of employees or annual sales volume. Segmenting markets based on customer size is done sometimes to set a minimum threshold for the size of business that a firm wishes to serve. For example, an employee benefits provider often segments the market based on customer size; the rationale might be that customers having less than say 10 employees or with less than $1,000,000 in annual revenue would be unprofitable for the firm to serve. Similarly, parameters might be set on the upper limit of customer size that a firm will target. In the employee benefits firm example, a smaller firm might not have the resources or personnel to service a client that has 50,000 members in its group. Thus, a firm might have as part of its target market definition that it focuses on groups with between 100 and 500 members.
A segmentation variable that often correlates with customer size is a buyer’s purchase volume. This approach to segmentation is based on the reality that all customers are not equal; they vary in terms of their worth to a firm in revenue and profit. Purchase volume segmentation in B2B markets is similar to behavioral segmentation based on usage rate used by B2C marketers.
A method used to implement purchase volume segmentation is known as ABC Analysis. This segmentation method is analogous to the heavy-user, moderate-user, and light-user classification scheme in B2C markets. Customer segments using ABC Analysis are:
· A Customers – Key customers that purchase frequently and/or in heavy volume. Retaining these customers is a must!
· B Customers – Purchase volume is less than A customers, but they are a profitable segment.
· C Customers – Low purchase volume; their profit contribution to the firm is marginal
B2B marketers can use purchase volume segmentation to devise marketing strategies to reach one or more segments based on their purchase behavior.
Segmenting customers based on buying behavior using ABC Analysis could lead to the decision to target one, two, or all three segments. Of course, the marketing strategies used to appeal to each segment would need to be tailored to a segment’s characteristics. An overview of the marketing implications of ABC segmentation would look like the following:
· A Customers – Assign dedicated sales personnel, often titled key account managers, to serve one or a select few customers. Offer customized incentive programs to these accounts to reward past purchases and encourage additional purchases. Some firms even involve key customers in product development decisions, getting input on needed product features and specs.
· B Customers – This segment represents accounts with a moderate purchase volume level. The primary goal when targeting B Customers is to escalate their relationship by incentivizing an increase in purchases. Another strategy used with B Customers is to focus on selling complementary products not being purchased currently as a way to increase share of customer (percentage of total customer purchases made with a single firm).
· C Customers – Reduce resources used to service customers if purchase volume cannot be increased. An example would be to charge for service calls when purchase level falls below a minimum threshold. In extreme cases, customers are “fired” when it is deemed unprofitable to continue selling to them. This last resort flies in the face of conventional marketing wisdom of “the more customers the better.” But, if accounts are not making money for a firm or even losing money there is no benefit in counting them as customers!
Like individual consumers, business buyers can be segmented according to the primary benefit sought from product usage. B2B buyers place varying importance weights on criteria that are used to make a purchase decision. For example, when considering buying a telephone system for an office, some buyers will be most concerned with how user-friendly the system is; other buyers will place a premium on customer support; yet other buyers will have price as their most important criterion. Using benefit segmentation in B2B markets requires insight into what buyers value and having a product or service that is competitive in delivering the desired benefit.
Marketers have leeway in determining how to segment business markets. And, the same rule for segmenting B2C markets applies that we do not rely on a single segmentation approach to define the target market. Despite similarities between B2C and B2B marketing, there are some differences. One of the main differences assumed between the two types of buyers is that B2B buyers will act rationally when making decisions. Why? They are acting on behalf of their organization instead of buying for themselves. The assumption is that B2B buyers will not act on emotions or impulse as individuals do when making buying decisions. For example, in many B2B buying decisions price is the main criterion, especially in situations in which the purchase process occurs via bids submitted by sellers. However, in those situations it is still important for marketers to communicate the value offered through product benefits, not just emphasize price. While differences exist between B2C and B2B buyers, one shared characteristic is found at the core of marketing to both audiences: Our charge is to meet the needs and wants of whatever segments we choose to serve.