Last week I was invited to join The Network of Aspiring Woman, Birmingham Group. I was tempted. After all, “it’s where networking feels like a party”. However, I declined for two reasons. I live in London. I’m a man.
Clearly the Network’s execution fell short, but their strategy is smart. Rather than trying to be all things to all people, they’ve segmented the market and targeted a niche group.
Contrast this with another experience.
The call was from a data centre “specialising in the SME segment”. This struck me as the B2B equivalent of targeting a FMCG product at everybody under the age of 70. It’s far too broad and essentially meaningless.
SMEs, especially in relation to IT, are not one homogeneous mass. Some are luddites; others are at the cutting edge. Some have a dedicated IT function; others rely on third party expertise. Some view IT as mission critical; others could temporarily survive without.
There is no such thing as the SME segment. Rather, the data centre should have followed four principles to create a more valuable model: narrow, segment, profile then apply.
The four steps: Narrow, segment, profile, apply
“SME” is a useful starting point but only to narrow the focus. Having set this broad parameter, the next step is to identify meaningful sub-groups by contrasting customers:
- Do they have different behaviour and consumption patterns?
- Do they have different motivations, needs and preferences?
- Do they have different supplier selection criteria?
- Do they have different attitudes and personalities?
Answering these questions reveals real segments. Groups containing individuals similar to each other on dimensions that can be used to create a more resonant proposition.
At this point, firmographic variables like company size and industry sector become relevant again as each segment can then be profiled on this basis to support targeting.
Finally, apply. Commercially attractive segments should be chosen as a focus. Offer, message and channel strategy should be tailored. Segments should be brought to life so those on the front line, especially sales teams, can easily grasp and apply them. Here, models are better replaced with engaging illustrations such as memorable segment labels, pen portraits and video vox pops.
That’s the theory, but how does it work in practice? Let me introduce Sage.
B2B segmentation in practice: A case study
Although its solutions are diverse, Sage is possibly best known for one thing – accounting software for SMEs. However, you don’t build a £1.4 billion, top 50 B2B Superbrand with such a simplistic approach to segmentation. Rather, Sage are a good example of the “narrow, segment, profile, apply” approach in action.
Sage, I suspect, began by recognising that the SME market is diverse and narrowed it down based on attitude and behaviour. They target not all SMEs but those pre-disposed to their solutions. SMEs meeting three criteria:
- They have a desire to better understand and control their finances
- Their finances are of a sophistication that closer management is justified
- They are willing to invest in software, staff and/or third party support to achieve this
Having narrowed the parameters, Sage has then identified discrete segments based on several factors. For example:
- Level of sophistication. Some businesses require simple book-keeping whereas others require a full blown accounting and forecasting package. Sage has tiered solutions meeting needs across the spectrum
- Management preferences and resources. Some businesses have a preference to manage financial reporting in-house, some to partially outsource and others to outsource entirely. Sage targets the former directly whereas the latter are targeted indirectly through software packages sold to their advisers
- Accounting practices. Different businesses need to explore their financial health in different ways. For example, expert time is the raw material of professional services firms and they need to account for this rather than manufacturing input costs. Sage has tailored solutions designed to meet the needs of particular business types
The result? Deeper understanding of what makes the market tick, products that better meet requirements, messages that resonate and optimum use of resources as only genuine prospects are targeted.
I’d love to hear your segmentation stories. Please do share them in the comments box below.
Read more about our approach to business-to-business (B2B) market segmentation.
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