Whether due to lack of knowledge, time, budget or planning, many companies fall short of the mark when it comes to targeting the right audience. It is essential that marketers know how to define, segment and target their prospects in order to maximise ROI.
More and more businesses are realising the importance of segmentation the process of subdividing customers and prospects according to common attributes and to characteristics relevant to the product or service.
Rolf Hickmann, managing director of business analytics company PH Group, explains: Segmentation is the act of identifying market segments. A segment is a part of the market consisting of a group of customers or prospects which is homogeneous to itself, has a similar need and which can be addressed in the same way, using the same strategy and distribution channel.Segmentation is also about identifying which product or service a customer is likely to buy from you and understanding how to communicate with them. It can even tell which customers and prospects are not for you, Hickmann adds.
By splitting a customer base into meaningful sections, segmentation enables businesses to carry out much more profitable exchanges, bringing with them operational efficiencies. Because a business is communicating with customers in a more appropriate way, they feel better understood and that their needs are being met better. The result is a level of interaction impossible pre-segmentation.
Treat your customers differently
Sue Walters, a data analytics consultant in the B2B marketing division of Experian, says that segmentation also allows companies to better understand what is working from a marketing perspective. She explains: You can sell the same product in different ways by altering the messages going out to different segments of your market, based on what those segments find most applicable to them. In some segments it may be the price they’re particularly interested in. In another segment they may be more interested in the fact that the product is ground-breaking technology. Another segment might be more interested in the reliability of the product.
Walters continues: If you’re treating all your customers the same, you’re not getting that distinction. By knowing how big your segments are, and what size the market is, you’re creating a benchmark across UK industry as a whole so that you can see what the opportunities are for each channel and put the resources where they’re most needed. You may feel you’re doing well in a particular sector, but if you see how large the sector actually is, you might realise that your market share is actually pretty poor. So segmentation can increase response rates.
Walters was the driving force behind the development of the segmentation tool Commercial Mosaic, which uses Experian’s national business database to segment over 1.8 million UK businesses to enable B2B clients to use the same level of sophistication as B2C marketers to better target their campaigns.
Segmentation can be central to a company formulating its overall strategy. By breaking the market into several pieces, each one corresponding to different patterns of demand and supply, companies can choose a segment in which they are capable of competing.
Sue Walters says: A segmentation exercise does not happen in isolation. It will have an impact on the business as a whole, not least in terms of operational efficiency. It can actually change the strategy of the business and how it’s going to manage customers going forward: for example, putting more resources into the development of ecommerce or changing the nature of its sales force.
Get depth on your customers
Gathering the information to segment in depth is the real challenge. Compared to B2C, segmentation in B2B is more complex, with a smaller customer pool and limited sources of company information.
Existing customer data is a starting point, but it can be a false or incomplete picture. The data you have on them may not accurately reflect their overall status. For example a customer may be a big company which has just done a small amount of business with you.
Companies that want to understand their customers better need to acquire information from the outside world. It is therefore important to combine internal intelligence with commercial intelligence from external sources to provide a more powerful segmentation result.
A key source of external information is Companies House, where limited companies file their accounts. Importantly, this is dynamic information, reflecting whether a business is growing or declining.
However, Companies House does not capture information from sole traders and partnerships, which constitute roughly half of the estimated three million companies in the UK and which are not required to make their financial information public. Nor does Companies House necessarily reveal a company’s actual trading address, which may be different from their registered address. (The UK is the only country in the world where this discrepancy exists.)
To be sure you are mailing the companies themselves (as opposed to their lawyers, accountants or mothers-in-law), you need to go to database providers who verify trading addresses. (This also extends the net beyond Companies House to sole traders and partnerships.) Here, the three main sources are Dunn & Bradstreet, Thomson Business Directories and the Yellow Pages.
Each of these sources holds approximately two million records and while each source has records which the others do not about two-thirds of the databases are common to all of them. This means that there is a high risk of a company paying for the same information twice.
Exploit the data
Once data has been collected, the next step is to analyse what it all means. Gary Selby, joint managing director of B2B database marketing company Information Arts, says: Data in itself adds no value. In trying to give an organisation real intelligence they can start doing things with, you need technology to exploit the data.
This can give you business-changing management information. For example, you might identify a segment of the market where you don’t have a product to fit, find that your distribution network is wrongly structured, or identify areas which you’re under- or overemphasising, Selby adds.
Reassuringly, the technology does not have to be that complex or expensive. An Excel spreadsheet is a simple tool, but a lot can be achieved with it. Useful address management software and analytical tools include TPS and Smart Focus.
Selby says: Don’t get wrapped up in technology. The only basic skill required is the ability to manage and manipulate data. Technology is no barrier to entry.
Outsourcing has a place where some analytical skills are required. Outsourced companies bring their own commercial insights (as opposed to just looking at your files in isolation), and they are up-to-date with new techniques.
Supplemental: Five steps to segmentation
Merge and purge Your data must be clean, current and comprehensive and captured by employees across all company divisions using an agreed universal format. Creating one master database by merging files from different departments enables you to assess the state of the market and create a customer-centric view. What you put into the process has a significant effect on the quality of your final results.
Identify variables Segments can be compiled using a multitude of factors, such as geographic location, purchasing behaviour, SIC (Standard Industry Classification) codes, turnover, business type, size and length of time established, etc. If there are gaps in your data, you can purchase demographic enhancement data from a database supplier, who will match your customer list against their constantly updated files.
Divide and conquer Determine the requirements of each company on your database and divide these into segments of businesses with similar profiles.
Analyse Devise an analytical programme or enlist a data specialist to conduct statistical analysis. This will help you identify trends among prospects and determine the important characteristics of each segment. Through analysis, the segments should fulfil the following criteria: Are they different from each other in a meaningful way, ie. from a marketing perspective, are they targetable? Are the segments large enough to justify your time and resources? Is there potential for the segments to grow over time? You should then be able to identify varying levels of market potential for each individual segment. This enables you to select the most relevant targets and develop a marketing strategy tailored specifically to the requirements of each.
Apply Match the segments against your business objectives. For example, prioritise prospects according to actual or potential economic value. Analysing the segments allows you to make informed choices on the appropriate route to market, including product development, promotion channels and customer support initiatives. Using segmentation as an ongoing part of your marketing strategy equips you with the intelligence to fine-tune your database and turn customer information into competitive advantage.
