Daily News Monday, June 25, 2007

Can you "Divide and Conquer" the B2B Market?

By: Emma Warrillow, Emma Warrillow & Associates Inc.

Customer segmentation is a well-established and well-accepted activity in consumer marketing. Organizations regularly segment their customers on behavioral, demographic and profit dimensions in order to increase the return on their marketing investment. The tactics they take vary but the basic premise is the same; by understanding distinct groups, specific marketing and servicing activities lead to better results.

But does the same hold true in the B2B world? B2B marketers struggle with this question because dealing with business customers poses some interesting challenges.

Data Availability

Any segmentation of the customer base requires up-to-date clean data about customers. This has traditionally been a huge challenge in B2B.

Data collection typically falls to the sales person dealing directly with the customer. This is not an activity for which they are paid (not directly anyway) or enjoy. Often outside sales people don't feel the need to input the correct address (when an intersection or street number is enough) and often write free-form notes on client interests or family matters. This can be adequate for them to prepare for client meetings, but not so useful for head office to analyze. The good news is that companies are getting better at collecting data; CRM and SFA applications have often created a more structured format for imputing information (pull-down menus, for example) and more scrutiny over what is collected.

Overall, even when data is reliable and clean, the extent of customer information for B2B is typically much smaller than in the consumer world. Long purchase cycles for many products mean transactional data can be very sparse. In addition, individual contacts change frequently rendering fields like email address invalid.

Many organizations augment their databases with third party external information. In B2B this tends to be limited to firmographics such as industry classification code (SIC, NAICS), number of employees and revenue. This data can be very helpful but is much less extensive than consumer overlay data and is not typically available for all customers. The one advantage it does have over the consumer overlay files, however, is that it is typically at the customer, not the postal code, level.

Isolating Customer Behavior

Consumer segmentation systems typically place considerable weight on how customers behave - the channels they use, the frequency of shopping, whether they respond to offers and discounts, for example. The challenge in B2B is that the customer is neither one individual nor an inorganic entity - but rather a collection of individuals with different triggers, interests, and relationship to the products the firm is trying to sell.

This is particularly true when customers are large organizations. The users of products or services may cross a number of departments and may be distinct from the decision makers or buyers (who may be from strategic sourcing departments or the executive ranks). This makes drawing inferences from customer behavior difficult.

In addition, dramatic differences in size and product usage between customers may overshadow all other dimensions of segmentation. A computer hardware manufacturer whose customers include Royal Bank of Canada and Joe's Dry Cleaning will likely find that any segmentation will have to be driven by customer size.

Conversely, for some companies there truly is very little variability in the client portfolio; consider, for example, a firm selling specialized dental equipment to root canal specialists.

Applying segmentation

B2C companies typically use their segmentation to create distinct marketing and product offerings for their customers. In their book Angel Customers and Demon Customers, authors Larry Selden and Geoffrey Colvin state that, "A customer segment is a group of customers with sufficiently homogeneous needs that the segment members can be won with a common value proposition and common marketing."

Implementation can be somewhat more difficult in B2B. Often in these organizations, marketing acts as a support to sales by providing Web sites, brochures and trade magazine advertising. Most communication with customers comes through the sales channel. Marketing may have limited control over the value propositions and messages being delivered.

When each of a number of segments has different offers, it can be difficult for front-line personnel to keep track; furthermore it is almost impossible to keep them from offering the "better offer" to customers in the wrong segment.

So is there any point?

Despite these challenges, segmentation can be very effective in the business market. B2B marketers do, however, need to be realistic about the complexity of the segmentation that they can implement. They need to consider the state and availability of data on customers and their behavior, and their ability to implement.

The realities of their often diverse customer bases can make even fairly simple segmentation very impactful. In our next article, we'll provide some examples of successful strategies for this market.

Emma Warrillow runs Emma Warrillow & Associates Inc. (www.emmawarrillow.com) and helps companies articulate their analytic strategies and make the most of their customer data. She can be reached at emma@emmawarrillow.com

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