How buyer segmentation changed B2B marketing forever

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Originally Posted On: https://www.alexcroucher.com/how-buyer-segmentation-changed-b2b-marketing-forever/

A rugged, tanned cowboy in a red shirt sits confidently on his horse. The sun beats down on his beige cowboy hat, highlighting his chiselled jawline. He lights a cigarette.

“Come to where the flavour is.”

This is the iconic scene from Marlboro’s Rugged Cowboy campaign, deemed by many to be the most successful advertising campaign of all time. It’s almost certainly the most recognisable.

Fans of Mad Men may be feeling a sense of de ja vu right now.

The Marlboro Man was a character used by Phillip Morris & Co to popularise its filtered cigarette brand with men. Marlboro Man represented working-class men across the world, synonymous with the male image of the time: tough, resilient, hard-working.

The truly sad irony of the Marlboro Man is that four of the actors who played the character died of smoking-related illness.

It might be brimming with cringe-inducing hypermasculinity by today’s standards, but the Marlboro campaign was a textbook example of market segmentation.

It was also a complete success in changing the perception that filtered cigarettes were “feminine” to something that every smoker – especially men – should have. As a result, the Marlboro’s sales shot up 300% from $5 billion to $20 billion in just a couple of years.

In a B2B marketing setting, customer segmentation is the process of separating companies or buyers into groups based on certain common characteristics. This allows B2B marketers to:

• Create a more effective marketing message for each segment
• Focus on the most important segments first

You might be thinking: “Gotcha. But isn’t that just targeting?”. Well, yes and no. Bear with me.

It’s no secret that marketers need to group customers into segments to target them. At the most basic level, these segments might include customers and non-customers. Or customers and lapsed customers. Or men and women. You get the idea.

The sad fact is that most B2B companies aren’t very proficient at segmentation, relying on a one-size-fits-all strategy that’s simple to execute but not that effective at generating results.

A well planned segmentation strategy provides far superior results. It gives you a competitive edge. It enables you reach customers more efficiently. It can improve your entire marketing operation from the ground up.

Customer segmentation helps B2B companies:

• Target their customers more accurately and more effectively using unique messages that resonate with each customer segment.
• Improve sales effectiveness by making it easier to focus on the right people at the right time.
• Dramatically boost customer loyalty by providing a customised proposition, message, product, or service.
• Communicate with each segment through their preferred channel or platform.
• Meet the needs of each segment more effectively.
• Identify new opportunities for products and services.

Examples of buyer segmentation date back as far as the year 1800 when German book sellers developed market segmentation techniques to increase sales. But its evolution was sluggish; more than a century passed before the first socio-economic segmentation system (the ABCD household typology) was officially developed.

Today in 2021, segmentation is to B2B marketing what the DeLorean is to Marty McFly. And if you haven’t got a clue what I’m talking about then I implore you to watch the film.

For B2B marketers, segmentation comes in eight different models:

• Demographic: Gender, age, income, or a combination of these.
• Firmographic: Like demographic but company specific. Often includes company industry, job title, company size, revenue, and number of employees.
• Geographic: Location of the person or company (usually the latter).
• Psychographic: Psychological characteristics that can influence buying behaviour such as motivations, interests, beliefs, and opinions.
• Technographic: Preferred technologies, devices or platforms used by the buyer, decision maker or buying group.
• Behavioural: Tendencies, habits, and behaviours commonly exhibited by the company, buyer, decision maker or buying group.
• Needs-based: What the company, buyer or influencer wants or needs from a product/service right now.
• Value-based: The value that the company provides, or is likely to provide, to your business in terms of spend and profitability.

For me, firmographic segmentation is typically the best way to start segmenting customers into groups. It means I can zero in on both my ideal target companies and the individuals working in them.

Firmographic segmentation also provides the bedrock to build a campaign around each industry type and job function – ideal for purchase decisions involving more than one decision maker (as they often do).

To refine things even further, different segmentation models can be combined with firmographic segmentation to create advanced customer segments. More on this later.

It’s important to note that the major influencing factor to how you approach segmentation is money; it’s near impossible to work with advanced segments if you’re operating on a paper-thin marketing budget with very little resource to scale.

If your organisation has deeper pockets then you’ll find advanced segmentation – also known as hyper-segmentation – a great way to propel your marketing effectiveness.

There are four questions that you should ask yourself before creating a new customer segment.

• Can we easily identify and place people / companies within the segment?
• Is the segment large enough to work with?
• Is the segment easily accessible through the usual range of marketing channels?
• Will the segment remain stable over a long enough period?

To be effective, a buyer segment should be small enough for you to address the audience’s need directly in your marketing, but large enough to generate sufficient revenue for your business.

For instance, if you are an employee management software company that sells to businesses with fewer than 100 employees, you’ll find plenty of opportunities to create several nicely rounded segments that are industry specific, location specific, or a combination of both.

A word of warning though: hyper-segmentation can kill your campaign if it’s taken too far. Remember rule number two:

• Is the segment large enough to work with?

As I mentioned earlier, firmographic segmentation focuses on who the customer is rather than how they behave. This segmentation model is generally my primary entry point when planning a new campaign.

It’s important not to discount the other segmentation models without examining them first however. There could be some golden nuggets of insight in there.

Firmographic segments can be beefed up with a bit of help from some close neighbours: psychographic, technographic, and behavioural segmentation.

If you have a list of customers who’ve recently purchased from you or signed up to express interest in an event, product, or piece of content, that information can form a segment based on certain specific behaviours – the channels they used to interact with you or the types of content they’re likely to respond to, for example.

The outcome of combining firmographic data with behavioural data is a hyper-segment of potentially interested buyers from a specific industry, location, or company size bracket.

Things to consider:

• Behaviour-based segmentation data tends to be limited in scope, so you’ll need to have lots of data to begin with.
• Behavioural data can’t change a person’s behaviour. It’s more of a guide as to which groups of people are statistically more likely to act on your message based on previous behaviours or interactions.

Using value-based segmentation:
The best buyer segments are those that are constantly buying. By constantly, I mean that they don’t stop buying because of seasonality or passing trends. There is also durability in their purchase behaviour; they aren’t merely buyers for one quarter and dormant the next. Their purchases are long-term. Such a market gives you the reliability that you will maintain a revenue stream all year round.

Admittedly this is a step most of us would rather avoid. Market research is generally tiresome and dull, but the outcome can add huge value to your segmentation plan and general marketing strategy.

The first step is to get to grips with qualitative and quantitative research. Once you’ve done that, you’ll need to embark on a few rounds of market segmentation research to understand things like:

• Typical behaviours and behavioural patterns that you’ve identified your best customers doing. It could be their online behaviours, the time of day they open emails, their typical device usage, or even what time they go on LinkedIn.
• Most common needs or pain points, and how customers expect them to be met. This could be insight from existing customers or feedback from non-customers. This type of analysis, usually gained from qualitative research (interview and focus groups for example) can help you identify new segments or segmentation trends.
• How your customer segments might impact the positioning of your proposition or message.

Research comes in many forms. You can start basic by sending questionnaires or you can dig deep at an in-person focus group or telephone interview. Whichever way you choose approach it, set clear goals first and ensure that you know what information you need before starting out.

The 2020 B2B Buyer Behaviour Study by Demand Gen found that 76% of buyers want to receive personalised content. Unfortunately for them, 42% of B2B marketing teams haven’t adopted full personalisation yet.

The report also found that buyers are more inclined to share their data and information when exposed to personalised communications. Ultimately this means higher levels of engagement and better conversion rates.

The Expert Institute is a great example of this. They reported a 200% increase in conversions after their personalised emails replaced nearly half of their irrelevant emails.

They brought down the number of emails they sent from once every two weeks to one message per month, which also helped increase their open rate from 30% to 60% during the testing period.

“People felt that they were connecting with a high-level member of our team and really speaking to them one-on-one,” said Michael Morgenstern, Vice President of Marketing, The Expert Institute.

Personalisation doesn’t need to be drain on your marketing team either. There are some fantastic tools out there to help. Read my article on the latest MarTech tools for B2B marketers to find out more.

For the more seasoned B2B marketer, customer segments can be created using buyer intent data.

Buyer intent data often influences a campaign targeted at buyers towards the end of the buying cycle, particularly in the consideration stage.

The intent signals you choose might be based on each buyer’s level of exposure with your brand, or could be sourced from on an external data provider specialising in that type of information.

Buyer intent segmentation can help you create a specific offer or promotion for buyers that are already exposed to your brand or those who are in search of a similar solution to solve a need.

Ergo, they have expressed intent to buy. They might know who you are or have already tried your product. They might be nearing a purchase decision, with the requirement for just a little nudge before agreeing to sign on the line.

The benefit of building segments using buyer intent information is that you’re essentially streamlining your entire segmentation operation down to pre-qualified groups of interested customers.

This is often easier said than done of course; most companies don’t have a definitive list of ready-to-buy prospects.

But there are tools that can guide you along. Cyance helps B2B companies generate growth using accurate intent data generated by 24 billion data events each month.

The idea is that its advanced platform can predict when a person is interested in a product or service based on their online behaviour.

Yes, segmentation can help you tighten the loose ends in your marketing strategy, but if your acquisition funnel has holes in it then it’s like trying to fill a sieve with custard.

The simplest way to measure customer acquisition cost is to divide all the costs spent on acquiring more customers by the number of customers acquired. For example, if your company spent £1,000 on marketing and acquired 100 customers, the acquisition cost could be £10 per customer.

As the saying goes, there’s more than one way to skin a cat. And it certainly applies here. There are so many ways to improve conversion rate that I could write another 2000-word article on only the basics.

Landing pages are a good place to start. A simple exercise of A/B testing a campaign landing page could boost conversion rates from 1 to 2%, which can halve customer acquisition cost instantly.

When most businesses talk about buyer segmentation, they put a lot of focus on product and price and little else. But that’s exactly why they aren’t as profitable as they should be. Rarely do I hear companies talking about reducing customer acquisition costs.

Customer acquisition costs an eye watering 5x more than customer retention. And countless companies have higher acquisition rates than their retention rates, often because most of their acquisition activities are based on loose segmentation strategies.

Case in point:
When Genesys focused on account-based marketing in 2019, they decreased their cost per lead by 30% while their new customer bookings rate rose by 30% year on year. They also saw a 64% increase in their revenue at the end of the financial year.

Buyers use multiple channels to research products, compare pricing, and ultimately make purchases. But there are normally only a couple of channels where they spend most of their time.

Knowing which channels your customers are using the most can help you determine where should focus your budget and what kind of messages you should produce.

For example, if your prospective B2B buyers prefer actively browsing LinkedIn for information, promoting your offerings through relevant newsfeed ads would make better financial sense for your business than trying to reach them through Facebook or email.

This is where market research can add tremendous value by providing insights into buyer behaviour and trends that you can generally only find out by conducting market research.

Without segmentation, you are probably going to revert to a one-size-fits-all spray and pray approach, and that isn’t good!

Segmentation helps you boost profitability and improve relevance. Ignoring it is essentially saying to your customers: “We don’t really know who you are but do you want to buy our stuff?”.

Imagine how Back to the Future would have panned out if Marty never met Doc Brown and got a ride in the DeLorean. Tragic!

Hopefully this article helps you out a little.

For more information on personalisation have a look at my article on the latest MarTech tools for B2B marketers.

If you’d like to talk about your B2B marketing strategy needs, or you’re looking for an experienced B2B marketing consultant, call me or send a WhatsApp message on +44 (0)118 324 7770.