Why segmenting your customers right is imperative for sustained growth

Companies should be constantly analysing what their customers need and provide products and services accordingly.

A recent research study reveals that only 41 percent of B2B companies are actually using sophisticated tools to do customer segmentation. This is a major barrier for most companies to create new products and innovation. Customer segmentation helps in delivering the relevant and important benefits to the customer groups in a consistent manner and will drive competitive advantage. Imagine producing and delivering a one-size-fits-all product to your customers in today’s world when customization is key.

The choices and alternatives available today for any customer are plenty. Because of these choices in features, substitute products, different price points and so on it is difficult to command loyalty of customers even in a B2B situation. If we know the detailed needs of our key customers we will be in a position to develop and deliver products and services that appeal to them and earn their loyalty. Most marketing books teach us that segmentation is what marketing is all about. Marketing science has no relevance without it. Yet many B2B clients we have struggle in building great customer experiences and loyalty. And we know for sure they lack the ability to do proper customer segmentation. The traditional vertical based segments are common even today.

Most clients of ours in the B2B industry have taken the easy route: play the status quo of basic segmentation that groups customers on the basis of turnover, industry vertical, the number of years in business, geographical location, and so on. Such demographic segmentation is common in consumer industry too. However, it is fast becoming irrelevant with the new media and consumption patterns. Not that there is anything wrong with such segmentations. These are easily understandable dimensions and are important for the sales and marketing plans. The issue is that this basic method will not take into account the current and future needs of the customers. It is better to have a segmentation that also considers the needs, attitudes and behaviour of the customer, which will be more helpful in driving specific product portfolio matrix and better success with customers and their long-term partnership.

B2B customer needs should be a basis for segmentation. You can become a market-oriented company from a product-oriented company in this way. And you may even become a service-oriented company. As we all know companies should be constantly analysing what their customers need and provide products and services meeting those needs in order to sustain the growth. If you can group customers based on their needs, they could be targeted with appropriate communication and offerings. In our work with AIM Institute and its founder Dan Adams on new product blue printing, we typically help companies identify the preferences of customers by using various techniques. This is being done in multiple levels: Unstructured interviews, one-on-one sessions with different stakeholders, focus groups and so on.  These steps help in identifying the current and anticipated future needs in detail.

If needs-based segmentation looks difficult, one can get into the intermediate behaviour-based segmentation. This can unearth unspecified requirements. As a simple example, you may have noticed that in your business, some of your clients are very loyal to you for supplies, while others keep switching back and forth between various competitors and you. Clearly, some of the loyal ones prefer long-term partnerships and are investing in it for a reason. The switching ones are constantly looking at price benefits. So it will help you to segment such customer behaviour for formulating marketing plans. Here is another example: Some companies will go for a tender with clearly defined specs while others are open to discuss and take suggestions in getting their needs met. The one going for tender is probably looking to benefit from the lowest prices and are ok with basic product specs while the other ones are open to recommendation and are willing to pay a higher price for the benefits they can get in terms of quality, service and value.

What after completing the segmentation based on needs or behaviour? Identifying the customer value proposition for each segment is key. This must be with recognisable differentiators and must be unique to each segment. The value proposition must be defendable and demonstrable for sure. Once this is done the next step is planning the value chain and the ways to deliver the same to your customers. You may need a tool such as Balanced Scorecard to drive this and to align all the different stakeholders from sales, supply chain, service and others. At the front end, for instance, sales people must be trained to ask the right questions to the customers to determine the segments they belong to and also to understand the benefits of doing this. At the start of the new strategy implementation, the process must be monitored and improved upon to ensure alignment and successful execution.

By doing the new way of serving your customer needs through such sophisticated segmentation, you will command the loyalty and sustained growth that you deserve even in a matured industry.