Taking Segmentation Seriously

15 March 2005—Serious marketing strategies for IT services and solutions always begin with the customer, not the product. As soon as you look at any business-to-business market you find out it is not homogenous and everyone does not want the same thing—including the cheapest price. You have segmentation issues right away: Where are the segments? What do the different segments want? Which segments do we want?

While it is true that B2B businesses tend to be more product-focused than B2C businesses, too many B2B marketers seem to believe that this means customer focus somehow doesn't work—and that B2B marketing is mostly about events and brochures.

Nonsense! Customers are as important in B2B as in B2C. They might be called "professionals," but have no illusions—they are as emotional and uncertain as B2C customers. They have all the shortcomings and foibles that make us so happy to be in marketing in the first place.

If B2B customers are human beings, not machines, they are all individuals, too. The so-called mass market doesn't exist in B2B either, although too many marketers act as though it does. When the sales curve slows down and we get into mature markets like hardware, software, and IT solutions, either we learn to give groups of customers what they really want or we will end up "merging" with a competitor.

There are three broad ways of segmenting the market:

• Demographics. This includes all the easy stuff, like post codes, standard industry codes, company size, channels, and so on. This is a favorite approach for B2B marketers even though it rarely provides data that helps predict behavior.

The main advantage of demographic segmentation is that it's easy for the sales force to spot members of each segment. Using the popular vertical definition of financial services, for example, makes it easy for salespeople to decide which firms or prospects are in the segment and which are not.

The main disadvantage is that when the sales team approaches prospects in the segment, the prospects are unlikely to respond the same way to the same offer because their needs are different. So why bother?

• Usage. This emphasizes where and when different products or services are used. This approach is another favorite in IT. The world is split into two broad segments—existing customers and others. Again, this is an easy method to identify segment members from internal or sales records. But there is still the problem of whether or not firms in a given segment will behave the same way, which they often do not.

• Attitudes. This approach focuses on identifying the top issues from qualitative research on what customers really want and where it hurts. Although "attitudes" is really a misleading term, we are talking here about all the motivational and needs/wants-based issues that directly drive different buying behaviors.

The advantage of this approach is that you are likely to get a segment that responds the same way to an offer because you will (we hope) have developed that offer based on identified and understood segment needs.

The main disadvantage of this approach is that segments are almost certain to be spread over a number of different verticals, industry groupings, or other key demographics and are thus harder for the sales force to identify. But this can be sorted out, and the advantages are much greater.

If you continue to focus on segmentation by demographics or usage, segmentation will never progress beyond a neat way of focusing communications. Your products and services will look and feel the same as every other firm's, and you will be in a race toward commodity competition.

If you grasp the challenge of segmenting by needs and wants (attitudes), you will begin to see segments of customers who want different things, and you will be able to add real value to your offerings—and leave the commodity end of the business to everyone else.

Dr. Paul Fifield, a marketing consultant specializing in strategy and segmentation, can be reached at paulfifield@fifield.co.uk.

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