Customer segmentation is powerful because it allows marketers to draw an accurate picture of their customers, group them according to similarities, and devise pinpointed messages to specific segments of their customer base. Inevitably, these messages are personalized and tailored, which results in a significantly higher number of conversions. But there is no one single way of segmenting customers that is clearly the best option.
Depending on the products and brand you are marketing, one method of customer segmentation might prove more effective than another. Here are some of the most common segmentation methods for B2B marketers, along with the pros and cons of each method and relatable examples to help you make an informed decision about the best segmentation method (or methods) for your business.
1. Segmenting Customers Based on Firmographics
B2B marketers leverage firmographics in the same way B2C marketers use demographic data; it is a method of segmenting customers based on their shared qualities. Firmographic segmentation groups customers based on factors like business size (either by the number of employees or annual revenue), company location (i.e. inner-city Chicago versus rural Utah), industry, and even other technologies used by the targeted companies.
Marketers love firmographics because the cost to collect the data and use it for segmentation is fairly inexpensive. Additionally, firmographics are easily translatable to the sales team; marketers can convey the firmographic description of any particular customer segment to the sales department with little trouble.
On the downside, firmographics have the same disadvantages as demographics for B2C marketing. Just because a customer is a 40-year-old female does not mean she wants to buy dish detergent, and just because a company has 1,500 employees and an annual revenue of over $5 million does not mean they need a cloud service provider. The conclusions you can draw from segments based on firmographics are limited.
It is dangerous to make assumptions as a B2B marketer. You cannot assume all companies that opened up less than three years ago need a specific type of software, or that startups are not ready to purchase large equipment. Firmographics can lead you to mistaken conclusions about your customer segments.
Ultimately, firmographic segmentation works best with top-of-the-funnel marketing campaigns. While no two businesses operate identically and making assumptions based on firmographic data can be risky, common problems inevitably crop up for businesses of a similar size, in the same location, or operating within the same industry.
As a result, campaigns designed to raise brand awareness and draw potential leads into your pipeline through genuine thought leadership (often in the form of blogs, webinars, video content, or even podcasts) tend to have the biggest impact when segmenting customers along firmographic lines.
2. Segmenting Customers Based on Tiering
Customer tiering is a method of segmentation based on how well the customer matches the goals of your business. For instance, you can use customer tiering to segment customers based on how much revenue you can expect them to bring to your business during the duration of your relationship, or by how closely that customer matches your own sales and marketing strategies.
This is a forward-thinking approach to segmentation because it ranks the importance of a customer or lead based on how much that customer can potentially bring in terms of value. Many businesses have taken tiered segmentation to a whole new level in the last few years in the form of account-based marketing, a strategy that focuses sales and marketing activities on a limited number of accounts believed to yield the highest potential value for your business. Rather than leveraging the power of big data and marketing automation to scale campaigns across a broad range of potential leads, account-based marketing turns the sights of both the sales and marketing teams toward a common goal of maximizing the potential return from a shortlist of accounts.
Demand generation marketers also recognize the potential value of tiered customer segmentation when it comes to working with your existing customer base. While marketing efforts have historically focused on lead generation activities, savvy teams leverage big data to uncover the potential value of the customers already buying from their business. Tiered segmentation allows demand generation marketers to divide existing customers based on their customer lifetime value.
Of course, like firmographic customer segmentation, the potential downside is that you cannot assume the needs of all the customers in a specific tier are the same. As a result, developing a marketing message to suit any particular tier may prove difficult.
3. Segmenting Customers Based on Needs
Does a particular customer segment need to spend the least amount of money? Perhaps this segment needs the most powerful features or a product that outlasts the competition. Needs-based customer segmentation groups your customers according to what they are looking for in a product.
This model segments customers based on their needs. Of all the methods of segmentation, this one offers the marketer the most accurate way to target customer segments. It is highly scalable because the marketer can designate as many needs-based segments as preferred. Needs-based segmentation often derives from what drives potential leads toward your business in the first place. If you are a cloud service provider and a site visitor comes to you through a blog post on file sharing, then you may determine that prospect needs a solution that simplifies file sharing. As a result, you might target that prospect with additional content surrounding that concept to help usher the user further down your sales funnel.
The drawback is that the needs of customers can be difficult to define. It is also hard for marketing to express to the sales reps who will be working with each customer segment.
We are glad you have chosen to keep exploring inventive ways to segment your audience and drive results. Here are the two bonus segmentation methods as promised!
Bonus Method #1: Segmenting Customers Based on Customer Sophistication
As the name suggests, segmenting based on customer sophistication means dividing your target audience based on their product or industry acumen. Like other methods included in this post, segmenting by customer sophistication offers the opportunity to tailor your campaigns toward a lead's specific needs. However, instead of splitting customers by their needs, firmographic information, or potential value to your business, customer sophistication looks exclusively at a target company's awareness of the problem your product solves.
To use the cloud service provider example again, an unsophisticated lead may be one that still keeps hard copies of every document in filing cabinets. Or, it may be a brand new startup that has not encountered the massive storage complexity associated with running a tech company yet.
Alternatively, a sophisticated target customer may be one that already leverages cloud services, albeit through a major competitor of yours. In such an instance, the goal of your contact would not be to explain why companies need a cloud service provider because your sophisticated lead already knows that. The goal should be explaining how your services differ from the competitor they currently use.
As with the other methods, marketers risk making faulty assumptions about customer sophistication. A new startup may know very well they need a cloud service provider and might find your top-of-the-funnel product explanations tedious and, frankly, annoying. Likewise, a presumably sophisticated customer may be using a CSP currently, but without any real idea of what would happen if the service was stripped away completely.
Bonus Method #2: Segmenting Customers Based on Behavior
For demand generation marketers, behavioral segmentation acts as a strong complement to tiered segmentation for maximizing the value of your existing customer base. Behavioral segmentation looks at the ways your current customers interact with your product or solution to determine two critical things:
- Could this customer benefit from expanding their current solution?
- Is this customer at risk of churning our solution?
In other words: is there upsell potential or do we risk losing this customer completely? In either case, a good demand generation marketer can recognize those trends and plug the customer into an appropriate segment designed to either nudge them toward buying more, or in the case of churn, mitigate risk by improving the health of their product usage.
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