The Ultimate Guide to B2B Market Segmentation
February 8, 2022 Edwin Kooistra
Being the owner of a business or a company whether in the B2B sector or the B2C sector requires you to put in marketing efforts to put your product or service out there. In these times the need for marketing especially for the service segment in terms of SaaS (Software as a Service), has grown over time. But just having a strong content marketing strategy supported by digital marketing tools is not enough.
Because you might have the right tactics in your tool kit but if they’re not targeted in the right way towards the right market segment then of course they’re not going to produce results. Keeping this in view, the importance of market segmentation in the B2B sector for SaaS businesses has grown by the minute and has become imperative.
Look at Grammarly, an online software that is ruling the internet and helping people communicate better, edit better and write better. Its target audience might seem to be a mixture of content creators, entrepreneurs, etc.
But what we can learn from Grammarly is that they have developed a specific strategy and content for each of these market segments and therefore the success of its market marketing strategy is striving based on effective marketing market segmentation.
Here today we will not only guide you towards B2B market segmentation but will also help you in developing the framework for your SaaS business and how you should segment its market given that you are operating in the B2B industry.
- What Is B2B Market Segmentation?
- B2B Market Segmentation Examples
- Is there a Need to Segment Your Customers?
- What Is the Marketing Funnel and Stages of The Funnel?
- How To Do Segmentation Based on Customer Needs?
- Difference Between B2B Segmentation and B2C Segmentation
- Types Of B2B Market Segmentation
- B2B Customer Segmentation Challenges
- Frequently Asked Questions
What Is B2B Market Segmentation?
B2B market segmentation refers to finding specific and sometimes even niche segments within a market consisting of customers or potential customers that share similar characteristics.
When as a business owner specifically in the software business, you’re able to define a segment in the market based on common behaviors, similar traits, and most important of all needs that can be fulfilled by your value proposition, then you have a market segment that you can target.
This practice not only helps you direct your effort in the right direction but also helps your marketing and sales team to take your product or service to its full potential and generate new sales.
If you don’t segment your market, you’re generically treating everyone the same which even on text does not sound right because every customer or client expects and deserves custom-built marketing efforts that are directed towards them.
Segmenting not only helps you and puts in concentrated and directed efforts but also reduces costs and helps you connect with your customers on a more enhanced level.
B2B Market Segmentation Examples
Let us now look at some examples of B2B market segmentation for us to further understand the core of this concept and how it proves itself pivotal in delivering excellent marketing content and achieving KPIs set by your business.
Spacemaker AI is the first company in the world to develop an AI-based software particularly targeted towards the real estate business sector. The software is further targeted towards a niche yet growing segment in the real estate sector that is environmentally conscious including real estate brokers, agents, architects, and construction leaders.
The software itself has different interfaces that target these individuals who are environmentally conscious about the carbon footprint and emissions of a certain house that is under the process of being constructed or is already constructed and is on the market for sale. Had they targeted this B2B software solution as it can only be purchased or licensed by business owners, not individuals, towards the general real estate market then of course they would have not been this successful.
CTO.ai offers to-stop class DevOps solutions that are serverless for teams across the world to help them shorten their product innovation cycles as well as transform their services. With the prerequisite of a workflow agent, the companies towards which this platform is particularly targeted can even develop their workflow arrangement within the software according to their businesses’ custom needs.
It is another DevOps platform that provides ultimate secure passages for businesses to run containerized applications on the cloud. This solution is targeted towards organizations that are working using the cloud and generally have access to and process sensitive data as a part of their operational needs.
A secured online platform seems to be all organizations need but Sysdig despite being open source, has used B2B market segmentation right down to micro-segmentation where they have handpicked the organizations to whom they want to offer their services.
Is there a Need to Segment Your Customers?
The obvious answer to this question is yes. We do know that without directed efforts that are based to fulfill the needs of a certain market sector with your value proposition, your business especially in the SaaS industry will not grow and gain the trajectory that it is supposed to.
For us to understand the effectiveness of market segmentation and how the need has now become a necessity we look at the example of MailChimp.
MailChimp ran an analysis on its marketing campaigns and derived outcomes from both segmented and non-segmented marketing efforts within its customers.
This research effort scanned over 18 million emails using different statistical analysis tools and techniques and was able to reach some very interesting findings that not only support the need to segment your customers as a business owner but rather make it an obvious choice.
It concluded the following.
- Click-through rates for segmented marketing campaigns were double as compared to non-segmented marketing campaigns.
- The unsubscribe rate was 9.5% lower in segmented marketing campaigns.
- Email campaigns that followed the segmented approach saw a 15.1% higher open rate in comparison to non-segmented marketing campaigns.
What Is the Marketing Funnel and Stages of The Funnel?
The marketing funnel refers to the different stages that make up a buyer’s sales journey. There are 5 stages in the funnel itself all of which conclude with a purchase decision. The funnel itself is a visualization of the process through which a sales lead is finally converted into a customer.
At this stage, the buyer develops awareness about the presence and existence of a product or service. The marketing efforts that had done at this stage of the sales funnel are focused on creating brand awareness and ensuring market presence.
This is a stage where, due to the marketing efforts that you have made in the awareness stage, the customer starts to look for information regarding your service or product, as you have been able to catch their interest.
At this stage in a B2B context, the customer compares your service with other brands and offerings and discusses the same with the important stakeholders and decision-makers in the process.
Once the analysis has been done at the consideration stage, the buyer or interested customer contacts you and asks you for a product demo or sample to make the final decision.
Once a service demo or product demo has been received, the customer lets you know regarding the purchase decision, and a purchase proposal/contract is sent out to the customer.
How To Do Segmentation Based on Customer Needs?
Directly jumping into need-based segmentation is not an easy task for any company. For any business to go towards need-based segmentation in their market, they need to go through a journey that spans across different types of customer market segmentation before finally reaching the pinnacle of need-based segmentation.
Need-based segmentation, always remember is developed using qualitative research and data. Customers and potential clients discuss their wants and needs and what they want from a product during group discussions or informal interactions with your marketing team.
From here the marketing team picks out the emotional facet of the benefits and then drives their focus on the emotional benefits.
In the next step, the customers then are asked to rate these emotional benefits based on their priority and importance, and with this data, the marketing team using different analysis tools can find clusters within this segment.
As this is done you have a complete profile description of what a typical customer in your target market segment looks like based on need-based segmentation, what exactly is their desired need from your product, and how you can serve them using your service or product’s value proposition.
Once you have clearly defined the market segmentation for your B2B product, your next target should be to find a strategic direction and validation for your product. It acts as a winning strategy in competitive markets, to help you quickly scale.
Let us now look at some major differences that you must be aware of between B2B segmentation and B2C segmentation, in your role as a SaaS business owner.
- When segmenting always remember that B2B customers are looking for a return on their investment and how the product or service helps them in achieving the strategic goal whereas, in B2C segmentation, marketing is more entertainment-based as it appeals to the customer’s personal needs.
- In B2B segmentation the customers are motivated by financial needs, while in B2C segmentation emotional needs drive the customer.
- In B2B segmentation keep the element of stakeholders and decision-makers in account, whereas for B2C segmentation remember that the customer solely makes the decision and hardly confers.
- When segmenting based on B2B characteristics, remember that the purchase funnel would of course be longer versus B2C segmentation where the purchase cycle is usually shorter.
- Always remember the purpose that your service or product would be serving to the segment, for B2B remember that the value proposition needs to serve the long-term requirements of the customer whereas in B2C segmentation the customer does not necessarily focus on long-term incentives.
Now we will look at the different techniques and approaches that B2B businesses use when segmenting their market.
In this approach towards market segmentation, B2B businesses define the market segment based on the characteristics of an organization or company. These characteristics can include the company size, the industry is operating in, and sometimes even the job titles of its employees and the company’s location.
In technographic segmentation, B2B businesses segments their market based on the approach of the customers present in the market, towards technology, communication, and gadgets in general.
In this technique, B2B business will segment their market based on how the customers’ behavior was towards this service website or even product. It is usually done by grouping customers into clusters showing similar behaviors.
Tier Based Segmentation
Using this approach, a B2B business segments its market based on the interaction and strategic importance of the customer in achieving future goals. It used the potential value of a lead while strategizing its importance as a segment.
In needs-based segmentation as discussed earlier B2B business would divide its market into different segments based on the different needs of a client, that can be fulfilled from the value proposition of its service or product.
In value-based segmentation, the market is segmented into customer groups based on the value of income that may be generated from them in the future versus the financial impact of the marketing efforts that would be directed towards them.
B2B Customer Segmentation Challenges
Now that we have developed an understanding regarding the need for B2B market segmentation as well as its importance and process, we shall now look at the different challenges that businesses face when segmenting their markets in the B2B industry.
Rationality of B2B Market Segments
Unlike consumer markets, B2B market segments are based and driven on rationale and information. As usually the investment in a B2B product is very high compared to a B2C product and there are several decision-makers and stakeholders involved in the process, the decisions are based on rationality and hence appealing to their emotional needs does not have any tangible impact whatsoever.
This of course makes it difficult for marketers because after all, we do understand that marketing in one way or the other does carry an emotional part that needs to be leveraged when reaching out to the market.
Complex Business Units in B2B Markets
When it comes to decision-making in B2B segments, the decision-making unit itself is very complex. It has multiple layers and with executives and sales managers enjoying and directing certain power towards a final decision.
It is of course justified as well because a single B2B purchase decision impacts the direction of a company and its strategic goal and if not, it does have a role in how effectively it can be achieved.
These segments are often raided with red tape which increases the buying process time and requires extra effort to push the process through because not only do you have to convince one individual, but you must convince a multitude of different stakeholders appealing to their different operational needs.
B2B Products Are More Complex
Usually, B2C products are not that complex or do not require a thorough thought process in deciding for example take the purchase of toothpaste or maybe a deodorant for daily use.
On the other hand, B2B products are not only complex, but they require substantial financial inflow as well therefore the decision is not that simple and to make it easier for the decision-makers the marketing team itself when segmenting the B2B segment has to put in not only extra effort but has to go down right down to the nitty-gritty that keeps the emotional aspects of things aside and focuses on rational information and facts especially supported by numbers.
Companies can segment B2B markets using a tier-based approach and need-based approach or even a value-based approach. It all depends on what suits appropriately with your business direction.
To identify B2B market segments, you must follow step by step approach, looking at the markets’ need as well as comparing it with your value proposition, followed by analyzing their behaviors and needs and finally drilling it down to how it matches best with your service or software.
The purpose of B2B market segmentation is to recognize market segments with similar traits and needs to help direct marketing efforts to derive profitable results and develop long-term customer relationships.
Four key factors that make B2B different from consumer markets are the complexity of the products, the difference in decision-making units, the involvement of stakeholders as well as the size and buying power of the market.
There are many ways of approaching your B2B customer, but the first and foremost step that is common in all approaches is this searching your B2B customer and its strategic needs as well as the stages in their decision-making units.
Marketing your B2B product first and foremost starts with researching your B2B segment using qualitative data and developing personas, once that is done you have to develop a rational and information-based campaign supported by numbers, and a tangible marketing strategy to reach out to the relevant stakeholders and decision-makers.
The B2B industry and market itself is not only different from the B2C sector and industry but is also way more complex especially when it comes to buying behaviors and decision making, let alone the nature of the products and services being offered especially when it comes to the SaaS industry.
Even though the process itself initially seems daunting for B2B market segmentation as you might have realized through this guide for B2B Market
Segmentation and the insights that we have presented from our experts at Chasm, the efforts being put in in B2B market segmentation is not only fruitful in the long run but will also help your B2B SaaS business to grow strategically and develop a name for yourself in the market not only due to the value proposition of your product or service but also based on how well you understand your customers. need based on their inbuilt and not so obvious characteristics.