B2B Customer Segmentation: Process, Types, And Benefits
They say to succeed in a business, you need to understand your customers. This is very true, especially in B2Bs where buyer behavior needs are far more complex than direct consumer interactions.
However, there are an average of 3.6 buyers involved in the buying decision and you don’t know who the real end-user is.
Rather than treating all 3.6 buyers alike, B2B customer segmentation allows you to tailor their marketing, sales, and service efforts to better meet the unique requirements of each decision-maker and end-user.
In this article, you'll have more understanding on B2B Customer Segmentation and how best you can apply it to your business.
What is B2B customer segmentation?
B2B Customer Segmentation is the process of dividing business customers into different smaller groups based on shared characteristics or needs. It's like sorting customers into different categories based on their pain points, preferred contents, timing, behaviours, etc.
It helps you understand and target specific business customer groups more effectively. By dividing your customers into segments, you can tailor your marketing and sales strategies to meet the unique needs of each group. It's all about delivering the right message to the right people at the right time, which ultimately improves customer satisfaction and drives better business results.
B2B vs. B2C customer segmentation
While both B2B and B2C customer segmentation involve identifying and targeting specific groups of customers, the approaches and considerations differ significantly due to the nature of the target audience, decision-making processes, and relationship dynamics involved.
One major difference is their target audience. B2B segmentation focuses on businesses as customers rather than individual consumers. This means understanding the needs, preferences, and pain points of businesses as entities unlike B2C that focuses on catering to personal preferences or lifestyle choices.
More so, the decision making process of B2B transactions tend to be a lot more complex than B2C. You're not just selling a product to an individual like in B2C – you're dealing with businesses, which means there are usually multiple decision-makers involved such as procurement managers, department heads, or executives. Segmentation strategies need to account for these various stakeholders and tailor messaging or offerings to address their specific concerns and priorities.
Another big difference is the nature of the relationships. In B2C, it's often more transactional – you buy something, you use it, end of story. But in B2B, you need to build long-term relationships with clients as many B2B purchases are part of ongoing contracts or partnerships. That means your segmentation strategy has to take into account factors like trust, loyalty, and the overall health of the business relationship.
In B2B, businesses often have more complex and specific needs compared to individual consumers. B2B segmentation takes into account factors such as industry type, company size, geographic location, purchasing behavior, and unique business challenges or pain points.
B2B customers often expect customised solutions tailored to their specific business requirements. Segmentation enables businesses to identify distinct customer segments and personalise their offerings, pricing, and services to better meet the needs of each segment. While B2C segmentation often involves mass customization—creating personalized experiences or product recommendations at scale based on broad customer segments or individual preference
5 types of B2B customer segmentation
There are 5 different ways you can segment your customers as a B2B company
1. Firmographic segmentation
This type of B2B segmentation is used to group businesses based on the characteristics such as industry, company size, revenue, location, and ownership structure. This helps identify businesses with similar profiles and needs.
It's similar to demographics in B2C segmentation, except it focuses on the entire business rather than an individual.
Types of firmographic data includes company size, revenue, industry, number of employees, domain address, geographic location, etc.
You can gather firmographic data when your prospects or customers fill out a form for a lead magnet. For example, you create a free resource and ask prospects to fill out their company name and email address. You can also get firmographic data from existing customers. A good example for SaaS companies is during onboarding where your customers select their job roles and how they intend to use your application.
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Example of Firmographic data from Hushly
2. Behavioral segmentation
This is used to analyze how businesses interact with your products or services and can provide valuable insights. This could include purchase history, frequency of purchases, usage patterns, customer feedback, and engagement with marketing materials.
Here are three ways you can acquire data for a B2B customer behavioural segmentation
Website analytics: Track and analyse the behaviour of businesses visiting your website. Monitor metrics such as pages visited, time spent on site, downloads of resources, and interactions with contact forms or chatbots. Understand which industries or company sizes engage with specific content or features on your website.
Survey and feedback forms: Conduct surveys or feedback forms to gather insights into their behaviour and preferences. Ask questions about their buying process, decision-making criteria, challenges, and satisfaction with your products or services. Use feedback to segment your B2B customers based on their needs and behaviours.
Transactional data: Analyze transactional data from B2B sales records to understand purchasing behaviour and patterns. Monitor metrics such as order size, frequency of purchases, and purchase history. Identify B2B customers who make large, recurring orders versus those who make smaller, one-time purchases.
3. Needs-based segmentation
With needs-based segmentation, you can group customers based on their specific needs, challenges, and pain points. This allows for targeted marketing and product/service offerings tailored to address those needs effectively.
According to userpilot, there are four most common needs-based segments.
Price-focused segment: Price-focused segmentation involves charging different prices to different customers for the same product or solution.
Quality and brand-focused segment: The quality and brand-focused segment wants the best possible product and is prepared to pay for it. Companies in this segment are medium-size or large and regard the product/service as of high strategic importance to their business
Service-focused segment: The service-focused segment places high importance on product quality, range, and customer service. The companies in this segment tend to work in time-critical industries and can be small, medium, or large.
Partnership-focused segment: A partnership-focused segment gives priority to trust and reliability with the solution supplier as a strategic partner. Companies in this segment tend to be large and regard the product or service as strategically important.
4. Value-based segmentation
With this type of segmentation, customers are grouped based on their long-term value to your business. It helps prioritize high-value segments and allocate resources accordingly. Factors such as purchase frequency, average order value, and retention rate are considered.
Value-based segmentation can be useful for businesses that want to prioritize their marketing and sales efforts, and focus on the customers that are most likely to generate value for the business.
5. Geographic segmentation
Geographic segmentation in B2B involves dividing business customers based on their geographic location. This method recognizes that businesses in different regions may have distinct needs, preferences, and challenges due to factors such as local regulations, market conditions, and cultural differences. This type of segmentation can be relevant for businesses with location-specific needs or for targeting businesses in specific regions or markets.
Example of geographic segmentation data from Qualtrics
How to segment your B2B customers effectively
To effectively segment your B2B customer, certain steps must be followed.
1. Define your segmentation criteria
The first and most crucial step is to define the segmentation criteria. This can be achieved by identifying the key factors that are most relevant to segmenting your B2B customers. These factors can include:
- Industry: Different industries may have varying needs, challenges, and buying behaviors.
- Company size: The size of the company can impact its purchasing power, decision-making process, and resource requirements.
- Geographic location: Location can influence market dynamics, regulatory environments, and cultural preferences.
- Purchasing behavior: Understanding how customers buy, what influences their purchasing decisions, and their buying frequency is crucial.
- Needs and pain points: Segmenting based on specific needs, challenges, or pain points can help tailor solutions and offerings more effectively.
2. Gather and analyze data
Once you've defined the segmentation criteria and identified the relevant factors, the next step is to gather data.
This is where you decide which specific criteria you will use to segment your B2B customers. This could involve a combination of the factors mentioned above or other specific attributes unique to your business and industry.
You can collect data from various sources including CRM systems, customer interactions, sales records, and market research to select your segmentation criteria.
Then you analyze the gathered data by identifying patterns, similarities, and differences among your B2B customers.
3. Create customer profiles
After successfully collecting and analyzing data. The next step is to develop detailed profiles for each segmented customer group based on the characteristics, preferences, and behaviors identified during the segmentation analysis.
These profiles provide a comprehensive understanding of each segment's unique attributes and serve as a reference for targeted marketing and sales efforts.
4. Implement targeted and personalized marketing
After creating profiles for each segment, the next step is to implement targeted and personalised marketing.
This can be done by customising your marketing messaging, sales approach, product offerings, and customer service to meet the specific needs and preferences of each segment.
5. Prioritize segments accordingly
The next step is to prioritise segments. This is to determine the segments that offer the greatest potential value and align with your business objectives, focusing on those with the highest profitability or growth opportunities.
For example, a B2B software company may prioritise segments based on factors such as revenue potential, industry growth trends, and strategic fit with its product offerings. For instance, if the company specialises in enterprise-level solutions for the healthcare industry and identifies a segment of large hospital networks with a high demand for its products, it may prioritise this segment due to its significant revenue potential and strategic alignment with the company's expertise and value proposition.
6. Track and measure performance
The last step in effectively segmenting your B2B customers is to track and measure the performance of each segment.
Identify and define key performance indicators (KPIs) that align with your segmentation objectives and business goals. These KPIs may include customer acquisition rates, retention rates, customer satisfaction scores, revenue growth, and ROI from marketing campaigns targeting specific segments. This is essential to identify strengths, weaknesses, and areas for improvement across different segments.
Why should B2Bs segment their customers?
B2B customer segmentation offers different benefits to businesses and they include:
One of the major benefits of B2B customer segmentation is improved targeted and personalized marketing. When you divide your customer base into distinct segments, you know exactly who you're targeting, you can spend your marketing dollars more efficiently and you can best tailor your marketing efforts to address the specific needs, preferences, and pain points of each segment.
It's like fishing with the right bait – you're more likely to catch the big fish when you're using the bait they love.
Understanding the unique needs of different customer segments enables you to provide personalized experiences and solutions.
With segmentation, you understand what makes each segment tick. Armed with this knowledge, you can provide better customer experiences and keep them coming back.This, in turn, reduces churn rates and increases customer lifetime value.
Different segments have different communication preferences. Some like emails, others prefer phone calls, and some might even be into carrier pigeons (okay, maybe not).
Segmenting your customers lets you communicate with them in the way they prefer, which leads to better engagement, stronger relationships and delivering value.
When you know exactly what each segment wants, you can serve it up to them on a silver platter. And when you're giving people exactly what they're craving, they're more likely to whip out their wallets and say, "Take my money!"
For instance, if you're selling office supplies, you wouldn't try to sell a graphic designer the same product you'd sell to a tech startup, right?
Therefore, when you tailor your offerings to each segment's unique needs and pain points, you're hitting the bullseye every time. So, by dividing your customers into segments and serving up exactly what each segment wants, you're making more money into your pockets.
B2B customer segmentation provides you with actionable insights into each segment's behaviour, and preferences. With the information acquired, you can uncover hidden patterns and clues that help you make smarter decisions in everything from how best to sell and market products to how to design and improve them.
B2B customer segmentation is essential for the success of your business as it helps you to know who your customers are, and how to please them, without you wasting your marketing efforts.
However, you should know that customer preferences change over time. So you should stay flexible and adjust your strategies as market conditions shift.
Promote an environment of continuous improvement by regularly reviewing and analyzing performance data to know how things are going.
Gather input from team members and customers, and use those insights to fine-tune your segmentation tactics. B2B customer segmentation is most effective when you stay adaptable and keep your segmentation strategies fresh and effective.