6 B2B Market Segmentation Mistakes to Avoid

In our work with market segmentation in the B2B space, we often see the same mistakes. Here, we would like to pass on the benefits of our experience to help you avoid them as well.

These are the classic six mistakes in B2B market segmentation:

1. Diving in before you have tested the water. Before you do anything else you need to define the market you wish to segment. What are the products or services that interest you and what are their alternatives from the customers’ point of view? For example, a few key accounts may make a significant proportion of the total market.  Therefore, it may be better to segment deeper within these accounts than perform a shallow analysis across the whole industry.  Scope the market carefully before segmenting it.
2. Not knowing where the ball is going.  So many segmentation studies go to great lengths to study recent customer behaviour but pay little or no attention to how this might change in the future. If the economy is about to change or if a new technology looks set to take-off, then behaviour could change as well.  If a new market, re-organization or procurement strategy is about to be implemented, this could change who the decision-makers are and what they are looking for.  Understand where the ball is going, not just where it has been.
3. Researching who you know rather than who counts. This is a particular problem in B2B where existing contacts are routinely surveyed for their thoughts – but they are often too low in the organization to make the big decisions or see the big picture. Use your senior contacts to setup interviews with the customer’s senior contacts, or use a third party company to help gain access to opinion leaders.  Ensure your research has the right quality of sources, not just the right quantity.
4. Gaining just a shallow understanding of needs.  In a simple interview, customers will nearly always score price as an important factor, yet price is rarely the only reason why a customer will swap supplier.  Good interviewers will follow up answers with further probing “why” questions to try to get to the bottom of their real needs, which the customer themselves will find a useful journey of discovery. Gain a deep understanding of customer needs and throw new light on the real drivers of the issues.
5. Forming segments that follow the norm.  Too many suppliers use simple segments that make life easier for them.  These could be industry-based, product-based or geographic-based segments.  But are there customers across these borders that actually have similar needs? For example, are there health & safety driven customers in Industry A, B and C which have similar needs and are not being served well by anyone?  Great segmentation will find ‘blue oceans’ of segments with little competition.   Use segmentation to see the world differently to your competition.
6. Not using the segments. The greatest sin of all is to come up with smart segments that sit in someone’s drawer.  We must remember that the purpose of segmentation is to help develop better market strategies. It is better to do a small pilot exercise and use the segmentation outcomes, than to do a grand segmentation study only to find the implications too big for the business to handle. Make sure you link market segmentation to market strategy and drive implementation (even if just a pilot).

These should help you get a bigger strategic bang for your segmentation buck!

Edmund Bradford