Segmentation of B2B Markets – How to segment Business Markets?

Marketing theory is very concerned with market segmentation. In almost every marketing book, you will learn about the STP model to successfully select and capture target markets. However, most theory introduces variables for the segmentation of consumer markets only. In this article, we will take a look at the segmentation of B2B markets. How should business markets be split up, what are the decisive segmentation variables, and how does B2B segmentation differ from consumer market segmentation?

Process for the Segmentation of B2B Markets

When considering variables for the segmentation of B2B markets, you will notice certain overlaps with consumer market segmentation variables. Variables such as geography, benefits sought, and usage rate still work. However, business marketers also use other variables. These variables fall into five categories: Demographic, Operating variables, Purchasing approaches, Situational factors, and Personal characteristics. In contrast, we commonly consider 4 types of variables when segmenting consumer markets: demographic, geographic, psychographic, and behavioral variables.

In the case of B2B market segmentation, demographic variables are the most important, followed by operating variables. These capture the most relevant characteristics of potential target customers and define their substantial demands. However, a holistic segmentation approach should take all five categories of variables into account and be as specific as possible.

For each category, marketers should ask major questions to determine which segments and customers to serve. For instance, a tire company can sell tires to manufacturers of cars, trucks, tractors, forklifts, or aircraft. Within a chosen target industry, it can then further segment according to company size and set up separate operations for supplying small and large customers. A company can continue segmenting by purchase criteria. For instance, government laboratories require low prices and special contracts, university laboratories need equipment that requires little servicing, and industrial labs need highly reliable and accurate equipment. This segmentation process should go on and on until the target segment is as clear-cut as possible. Ideally, the company should have a clear picture of the typical target customer it targets.

Segmentation for B2B markets generally works best when following a sequential process. It may be easiest to start with macro segmentation and select an end-use market to serve, such as automobile, residential, or beverage. Within a specific market, it may then be best to determine the most attractive product application, such as semi-finished materials or components. Going on, customer size may become a relevant question. In the second stage, microsegmentation can be done. This may involve distinguishing customers buying on price, service, and quality. For instance, if the company has a high service profile, it may decide to concentrate on the service-motivated segment of the market.

Segmentation Criteria for the Segmentation of B2B Markets

After introducing the process used for the segmentation of B2B markets, we will now provide an overview of segmentation criteria that can be used to select target business markets.

Demographic

1. Industry: Which industry/ industries should we serve?
2. Company size: How large should the served companies be?
3. Location: What geographical areas should we focus on?

Operating Variables

1. Technology: What customer technologies should we focus on?
2. User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?
3. Customer capabilities: Should we serve customers needing few or many services?

Purchasing Approaches

1. Purchasing-function organization: Should we serve customers with a highly centralized or decentralized purchasing organization?
2. Power structure: Should we focus on companies that are engineering-dominated, financially dominated, …?
3. Nature of existing relationship: Should we serve customers with whom there is already a strong relationship or go after new customers?
4. General purchasing policies: Should we focus on companies that prefer leasing/ service contracts/ bidding/ …?
5. Purchasing criteria: Should we serve companies that are primarily seeking quality/ service/ price?

Situation Factors

1. Urgency: Should we serve companies that require quick delivery?
2. Specific application: Should we focus on certain product applications?
3. Size or order: Should we concentrate on customers who place large or small orders?

Personal Characteristics

1. Buyer-seller similarity: Should we serve companies whose people and values are similar to ours?
2. Attitude towards risk: Should we serve risk-taking or risk-avoiding customers?
3. Loyalty: Should we serve customers that are highly loyal to their suppliers?

Source: Adapted from Bonoma, Thomas V. and Shapiro, Benson P. 1983. Segmenting the Industrial Market. Lexington Books.