picture_market_segmentation 10-4-13-resized-600The terms market segment and market segmentation are usually used to mean a subdivision, and a system for subdividing a market by customer types. In this context, a definition of market segment is:

An identifiable group of customers with requirements in common that are, or may become, significant in determining a separate product or service growth strategy.

Customer segments, to be meaningful for the purposes of formulating a business growth strategy and business development plan, must have some characteristics that are common to members of a market segment and, as important, that differ from the characteristics of other segments. Moreover, as suggested by the above definition, the differences must be ones that are significant for the design of a business growth strategy. But, not just anypicture market segmentation 10 4 13 resized 600 differences will do.

How may segments be distinguished from one another?

There are many possibilities. Typical segmentation approaches generally focus on certain demographic characteristics, such as company size, SIC code, sales volume, and the like. This is a start, but it’s like wielding a meat cleaver rather than a scalpel. Demographic, firmographic and psychographic profiling, after all, tell you relatively little about a company’s specific needs, its interests, or its ways of doing business. Two customers, who look virtually identical, according to these criteria, may in fact buy from you for very different reasons. One may be among your most loyal and profitable customers – while the other is hardly worth the effort.

Over the years almost all marketing variables have been used as a basis for segmentation. However, some characteristics for segmentation are more useful than others.

Twelve characteristics commonly used in defining B2B customer segments

  1. How the product or service is used: functions performed by it, context in which used, relative importance of product features and benefits derived from product or service
  2. Needs, met and unmet
  3. Volume of purchases (heavy users vs. light users); average transaction amount
  4. Past purchasing behavior
  5. Methods of purchase: where and how purchases and purchase decisions are made
  6. Geographic location
  7. Receptiveness to innovations
  8. Price sensitivity
  9. SIC industry group
  10. Service requirements, including: installations, repair, credit, etc.
  11. Identity of decision maker(s) and influencer(s) within the organization
  12. Brand loyalty