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B2B Discovers Market Segmentation
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B2B Discovers Market Segmentation

B2B2

Michael Mancini, Vice President of Data Product Management, Nielsen Claritas

SUMMARY: All customers are not created equal. Now, market segmentation models are enabling business-to-business marketers to develop more efficient strategies for identifying and reaching high-potential clients. From prospecting to sales territory mapping, from advertising channels to collateral messaging, segmentation models help analysts pinpoint high-value customers and marshal resources where they’ll be most effective.

For business-to-business (B2B) marketers under increasing pressure to better target customers and prospects, segmentation can be a powerful tool for strategic and tactical applications. Although marketing segmentation systems have enjoyed widespread acceptance in the consumer world for decades, B2B segmentation systems have languished due to the limited availability of accurate data, marginal technical expertise, an inability to develop high quality leads and poorly differentiated advertising.

Enhanced datasets and segmentation techniques developed by Nielsen are helping companies create informed strategies for prospecting new customers, re-aligning sales territories, cross-selling existing customers and predicting future opportunities.

Segmentation solutions

The challenge for marketers has always been the same: know your customer. But with limited information on most companies—especially small- and mid-sized firms—marketers traditionally have concentrated their efforts in the consumer world where ample data exists to craft effective target marketing solutions.

For B2B marketers, getting to know end-buyers is not so simple…

But for B2B marketers, getting to know their end-buyers is not so simple. Unlike demographic data, accurate information about businesses—so-called firmographic data such as addresses, financials or staff titles—have been harder to come by due to the number of business start-ups, closures and unpublished information for private firms.

Fortunately, B2B marketers are now getting their due. Comprehensive databases give marketers access to accurate and current data within a consistent framework on 13 million business establishments—critical information such as a company’s total headcount and industry classification. By appending these data to its business customer file, a company can create a robust business segmentation approach to guide prospecting, sales territory mapping, advertising and target marketing.

Classifying info

In a typical segmentation analysis, business customers are sorted into categories based on company size and industry, though other defining characteristics could also be added. Using figures from a proprietary database and their own information, analysts calculate sales per employee within each business, estimate its market potential value, and rank it against all other customers and prospects.

Business segmentation can also drive changes to marketing communications and advertising. Instead of relying on intuition and tradition—using the same channels and messages that have been around for decades—marketers can develop initiatives based on hard data that address the needs of their business customers and reach them in the way they will be most receptive.

Valuing prospects

Acquiring new customers is a perennial challenge for most companies, but it is vital for growing the business. Windstream Communications, a telecommunications company serving three million customers, didn’t have a systematic way to prioritize prospects, a strategy for packaging its services, or even a protocol for initiating contact with companies.

This catch-as-catch-can approach didn’t allow Windstream to develop an understanding of the prospect’s profit potential or its potential wallet share.

Classify business customers into segments and determine the opportunity of each segment…

Divide to conquer

To improve that understanding, Windstream worked with Nielsen to create a segmentation system that classified business customers into segments and determined the opportunity of each segment. Windstream’s existing customer records were first matched against the Business-Facts database to identify each company’s Standard Industrial Classification (SIC) code and employee count. Analysts then divided the companies into three buckets based on size and further segmented into seven industry segments using SIC codes. Finally, analysts looked at the preferred products and revenue associated with each business to determine the potential demand for each segment—and the sales potential per employee in that segment.

Setting priorities

Comparing Windstream’s customer base to a universe file of all businesses within its service area, marketers prioritized all the prospects for every business segment, taking into account the estimated value and prior success at landing a similar account. The segmentation analysis then drove Windstream’s marketing strategy, determining the number and type of sales contacts from direct mail to in-person visits. Windstream also differentiated its marketing messages, product offerings and delivery method by industry segment.

In the year since Windstream adopted segmentation analysis, direct mail response rates have risen 50% to 70% and telemarketing sales have jumped nearly 500%. The direct marketing group even hired a campaign manager and began devoting more resources to B2B marketing.

Determine whether a commercial area offers enough of the right kinds of customers…

Bright prospects

New segmentation applications are being developed all the time for B2B marketing. Nielsen recently unveiled a “business density model” that allows users to map the number of businesses and their employees in one-, two- and three-mile rings anywhere in the country. Developed for site selection support, the model can help a company determine whether a commercial area offers enough of the right kinds of customers—with few competitors—to support a business expansion. In the past, that kind of information was known only by local commercial real estate agents. The business density maps can be linked to any business segmentation analysis so companies can score site locations based on the surrounding business segment density—and their establishment and employee counts—for any U.S. trade area.

Achieving success

The growing list of successful business segmentation projects suggests principles that any company can adopt for B2B marketing success:

     

     

  • Leverage the value of two pieces of basic company information: size and industry classification.
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  • Make sure your segmentation model classifies customers into segments of similar businesses—so the science drives the strategy. A business database can help compare customer files to a known universe to calculate market penetration by size and industry segment.
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  • Use data on existing business customers to score profit potential, prioritize acquisition, retention and cross-selling initiatives.
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  • Measure the effectiveness of segmentation-based sales and marketing programs using metrics like quarter-over-quarter sales, cost to convert prospects into customers and direct mail response rates. Then fine-tune marketing based on these metrics.
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Just as innovative applications drove the acceptance of segmentation systems in consumer marketing, successful B2B programs will lead more marketers to explore how information products can help them gain an edge in an increasingly competitive world. The data is out there, and your business customers are waiting.

Read the full white paper report B2B Segmentation Solutions.