This blog is about segmentation, i.e., how to ensure that you target the right audience with your B2B marketing campaign, and ensure you make better use of your total marketing spend.
Segmentation is important. It may surprise you that there are at least nine ways to do market segmentation. The segmentation method – or methods – you choose to deploy will depend very much on your individual circumstances, but if done properly, all these segmentation methods will work.
It was John Wanamaker, the 19th and 20th century United States merchant, innovator and marketing pioneer, who is generally credited with saying, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half”. He was in a position to know because he is also credited with writing and running the first half-page and first full-page newspaper advertisements for his department stores. It’s telling that he later hired the world’s first full-time advertising copywriter, and his sales figures soon doubled. (Read into that what you will.)
But getting back to segmentation, as I suggested, there are lots of effective ways to segment audiences, but one of the great benefits of an ongoing programme of market segmentation is that the results improve in direct correlation to the performance of your marketing campaign. Although Wannamaker wasn’t sure what money he was wasting, my view is that with today’s marketing tools, you’re only wasting money if you’re showing your ads to the wrong people, and that’s usually because your segmentation isn’t very good.
How and when segmentation should take place
Some marketers segment their target audience by job title, and others segment by feedback on behaviour. The good news for now is that, although people do it different ways with different criteria, everyone is, in the end, segmented. That strongly suggests that, even though they do it differently, marketers understand the importance of segmentation. They’re not just fire-hosing their marketing materials at every customer on their database.
And it’s this generic oversaturation approach that is probably the biggest culprit in terms of throwing money away. If you’ve pointed your marketing budget at the wrong people, a lot of your money is going straight down the drain. It’s also probably annoying potential customers who, with a little more research and a subtle segmentation variation, might have been viable prospects.
So, let’s shut the money valve for a moment and clearly identify people who are actively buying “right now” and not just passers-by who “might” buy in the future. We can then provide them with a fresh stream of relevant marketing information that they’ve already indicated they have a thirst for.
Good segmentation means that campaigns are more likely to succeed. You might have different messaging based on the market or persona you’ve targeted, or you might segment simply by company size, but the most important part is that you have done the segmenting work.
You should always segment. Wherever you have an opportunity, focus on the people who are going to be really interested in your content. Whether that’s through advertising, email marketing, running social campaigns, or indeed, even going to trade shows, you need to be thinking about how you segment and how you will give a different, highly relevant, experience to different audiences who have different requirements.
There’s more than one way to segment an audience
The first is the classic firmographic and demographic segmentation, which is based upon who people are and who they work for. It could be based solely on seniority, job title, industry or company size.
You might only want to target enterprise companies, or you might only want to target SMEs. Location is obviously another important firmographic segmentation.
Customer tiering is also an important aspect of segmentation. Tiering reflects the strategic importance of revenue potential determined by the demographics and firmographics you’ve evaluated. In essence, you need to examine the data about the company you’ve targeted, determine how good a customer they’re likely to be, and tier them accordingly.
There are several ways to do this, but one of the most obvious tools for the job is LinkedIn. If you’re doing a campaign based on a specific company and the people who work for that company, LinkedIn is not only the best source of information about that company and its employees, but also a great platform to implement campaigns that will reach them.
Yet another way to look at segmentation is related to behaviour, and it’s very simple.
If people go to your website and look at certain pages, their behaviour on your site indicates a specific interest in certain product families. This tells you that you should only send them content about those products and not about others they’ve shown no interest in unless there are closely related goods or accessories that are commonly associated with their primary interest.
Don’t neglect existing customers
Don’t neglect marketing to customers who are already buying from you. Good marketing campaigns for software as a service (SaaS) tools use the data that they acquire to understand what different customers are already using their tool for, and then they market in a way that uses the current buying trend as a channel for new marketing campaigns. For example, a typical SaaS marketing campaign will aim to increase the range of features that existing customers already use because the more they use those features, the stickier that SaaS tool is likely to be.
Finally, you can look solely at the buying behaviour, i.e., how specific people buy. If you’re involved in selling a small number of very high-value products, you might want to model what a highly select group of customers do when they buy and then market to those specific individuals in a way that reflects their specific role in the buying process.
Typically, to determine the potential value of a marketing target you review the customer lifetime value, or the annual reoccurring revenue if you’re selling something that’s more subscription-based. Remember, you can look at actual revenue generated, but you should understand that it doesn’t necessarily reflect actual profits, so it’s often more useful to segment based on known profits.
Length of service matters
The length of a relationship with a client is hugely important for segmentation. The major calculation to look at when you’re thinking about segmentation is your average order value, multiplied by the frequency of purchase. That will enable you to calculate what it will take to retain a customer and give you a good feel for their lifetime value to your company.
Ultimately, when you know the potential value of a customer, you then know how much to invest in capturing, retaining and/or growing them. It has the added benefit of acting as a signpost for acquiring new, similar customers. This type of value-based segmentation model for existing customers might help you assess and generate value from a number of similar target companies. You simply allocate prospects into groups based upon their value characteristics.
The Fifth Element
Our fifth segmentation metric is psychographic segmentation, which divides consumers into sub-groups based on shared psychological characteristics. This segmentation method is really about understanding the psyche of the decision-maker.
It’s a classic way to segment and, simply stated, it’s about building “personas”. A good persona doesn’t just identify someone in terms of their demographics, how old they are, what their job title is, and things like that. What persona building really looks into are the challenges of that person’s role, how they feel as they progress in their role, how they prefer to get recognised and, therefore, what you can do to help them do a better job and gain that recognition.
So, for anyone using personas as a pillar of their market segmentation, psychographic segmentation is the right place to start. But it’s important to enhance those personas to get a full understanding of what you can do to provide your client with an easier life, by reducing or removing their biggest challenges and potentially getting them promoted as a result of enabling them to do their job better and more efficiently. One of the great things in marketing is that if you can get your client contact promoted, there’s a lot of incentive for that client to continue using you to assist with their successful marketing campaigns.
The detail is in the data
Related to psychographic segmentation is data-driven segmentation. There are lots of algorithms that can generate customer clusters based on certain defined characteristics. This approach is different because you’re not trying to understand the customer to build your segmentation. Rather, you’re gathering data for an algorithm to crunch and identify segmented groups for you. Sometimes these groupings are fairly obvious, but sometimes they can be unclear, so you have to be careful that the assumptions made by the algorithm make sense. Nevertheless, it’s very useful to do data-driven segmentation to test messages on a small sample of each segment. That helps you to identify the optimal message in broad terms. Even if you don’t fully understand why a particular market segment has been identified by the algorithm, it’s worth a test or two to find out.
It’s the journey and the destination
Customer journey segmentation is a method that’s often underrated and overlooked, but that’s because it’s often difficult to fully understand where someone is in their customer journey.
We often hear of top, middle and bottom-of-funnel content, which is essentially a very simple description of journey segmentation. But the more granular you can get in analysing their journey, the better your campaign will be because you can really assess, and address, where people are in their journey and what you’ve got to do to move them to the next stage. It does require a considerable investment in building customer journey models, but it’s worth it, and the results are often fascinating.
I hasten to add that referring to “top of the funnel, middle of the funnel, and bottom of the funnel”, and doing so frequently as a blanket term, tends to reflect the application of generalised content. It’s not market segmentation per se. When you create content to target people at different customer journey stages, you need to get it in front of people who are at that specific stage, rather than just throw it on the funnel pile and hope it filters through. The reality is there are people at all stages of their journey, and you can’t cast your message in a bottle onto the surface and hope it somehow navigates its way to your intended target. It needs direction. In other words, segmentation.
When in need, buy a solution
Our penultimate segmentation method is needs-based segmentation. There’s a classic theory called “jobs to be done theory”. Put very simply, it’s a theory that is based on the notion that people buy products and services to get a “job” done. In other words, people don’t buy products, they buy solutions to getting a job done.
The academic language for that is “hiring products to solve a problem”, i.e.., people don’t buy a drill, they buy the ability to create holes. That can be quite interesting because some customers might have been in separate segments under one model, but in a needs-based segmentation model they actually come together. It’s an interesting way to think differently when you segment disparate audiences.
Account-based marketing
The last segmentation theory is account-based marketing, which is a mindset that designates every customer as a segment, which enables you to be highly personalised in your communication. It enables you to really understand each individual customer and is one of the most popular segmentation approaches in B2B marketing today. And that’s because it’s one of the most effective segmentation strategies, whichever side of the aisle your customer’s on.
What will work best for you?
The bottom line to determine which segmentation method will work best for you is to test them, and that requires information. Data, and lots of it.
We have had a lot of companies come to us and say, “We have a lot of data, we just don’t know what to do with it.”
Our answer to that is, “You’ve come to the right place then.”
“How do you know?”
“Because our segmentation process predicted you would”.
There is no perfect way to segment. And there are lots of different approaches. Some of them are hard. Some of them are easy. Don’t go for the hardest approaches. Start in an easy and simplistic way then gradually build as you enrich your data. Keep testing different approaches and keep gathering data.
Hopefully, you have a couple of segmentation models that you can try with your customers. And if you’re interested, please contact us at Napier. We’re very happy to work with you to help you enrich your data, improve your segmentation, and ultimately, increase the performance of your campaigns.
