Strategic Marketing: Market And Customer Segmentation For Your Business
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In many B2B companies, strategic marketing is a virtually unknown concept. Should it be in place, a lack of basic understanding frequently prevents it from working effectively. There’s often a lack of target-oriented, consistent, and systematically applied market and customer segmentation to really target the right customers. Here are the top five most frequently used excuses for doing nothing:
1. “We don't need that. We sales reps know our customers.”
2. “We treat all of our customers the same. We don't need segmentation.”
3. “Regardless of what we present to management, their decisions are always based on gut-feeling.”
4. “For me, a market segment means a country. It doesn't interest me if the same term means a sector to my colleagues.”
5. “At our company, market strategy means the market determines our actions.”
If these statements sound familiar, then you should take a look at your current market and customer segmentation approach. Likely, it’s missing, or falsely interpreting, many factors. Even if you’ve lost a clear view because you are working with too many irrelevant criteria, there’s still a need for action. Successful segmentation saves time and resources, and makes many internal discussions unnecessary. More importantly though, successful segmentation enables both top management and employees to steer marketing and sales activities in an active and differentiated manner, without having to consider each individual case, thereby promoting quicker and better decisions.
The following four points serve as a short step-by-step guide to approach market and customer segmentation:
1. Explain the benefits: Make it clear to yourself and your employees why segmentation is necessary. Insights such as “Then I can finally send the new product brochure without any waste,” or “Now, I can see at a glance which customer still has potential and where it's worthwhile to make another trip” are eye-openers that support the implementation of new segmentation from the start.
2. Avoid complexity: Start with the basics and don't get bogged down. If you only have a few hundred customers, company assignment and revenue or potential customer classification using the ABC method as a first step already goes a long way. The 80/20 rule needs to be used consistently, and additional categories need to be closely scrutinized.
3. Take a measure-based approach: Link segmentation with clear actions. If no direct measures can be derived from segmentation, then the segment should not exist. The statement from sales that “All customers are important to us” is nice, but large, potential customers should receive more attention than smaller customers with no further potential. Segmentation can even help you to prioritize production processes and/or market segments for your sales approach.
4. Simplify use: Integrate segmentation into reporting. If applying segmentation is too painstaking, its use will be limited to a short time period or to a few people in the company. For that reason, from the start, define a standard assessment for tracking measures in each segment.
This article was co-written with Mark-Daniel Rentschler, Senior Director at Simon-Kucher.