Segmentation for B2B

B2B firms will segment their customers differently, due to different buying habits and procedures between businesses and end-users.

LEARNING OBJECTIVES

Analyze B2B marketing segmentation characteristics

KEY TAKEAWAYS

Key Points

There are five major ways to segment the B2B market, including: type of customer, Standard Industrial Classification codes, end uses, common buying factors, and buyer size/geography.
SIC classification provides a useful way for marketers to segment the market.
By determining how the end-use of a product differs according to different users, the manufacturer can modify the product so that it appeals to different segments.
If the first four approaches are not useful, a marketer may still have success in segmenting by customer size and geography.

Key Terms

Standard Industrial Classification (SIC): A set of codes published by the United States government that classifies business firms by the main product or service provided.

B2B Segmentation

B2B firms sell not to ultimate consumers but to other businesses. While businesses and final consumers behave similarly at times, there are also several differences. Most business buyers view their function as a problem solving approach, and have formal procedures, or routines, for their purchasing.

A B2B marketer must be able to distinguish between the industries it sells to and the different market segments that exist in each of them. There are several basic approaches to segmenting organizational markets, including: type of customer, Standard Industrial Classification codes, end uses, common buying factors, and buyer size and geography.

Type Of Customer

Industrial customers can be classified into one of three groups:

Original equipment manufacturers (OEMs), such as Caterpillar machinery or Gibson guitars
End-users, such as farmers who use farm machinery produced by OEMs
After market customers, such as those who purchase spare parts for a piece of machinery

Similarly, industrial products can be classified into one of three categories, each of which is typically sold only to certain types of customers:

Machinery and equipment (e.g. computers, bulldozers) are end products sold only to OEM and end user segments.
Components or subassemblies (e.g. pistons, spark plugs) are sold to build and repair machinery and equipment, and are sold in all three customer segments.
Materials (e.g. chemicals, metals) are consumed in the end-user products, and are sold only to OEMs and end users.

Standard Industrial Classification

This approach employs the Standard Industrial Classification (SIC) codes published by the United States government. The SIC codes classify business firms by the main product or service provided. There are ten basic SIC industries which firms are classified into. Within each classification, the major groups of industries can be identified by the first two numbers of the SIC code (see example).

By using SIC codes, a marketer may identify the manufacturing groups that represent potential users of the products it produces and sells. takes the two digit classification and converts it to three-, four-, five-, and seven-digit codes.

A diagram that shows different SIC code classifications - basic industry (2 digits), major group (2 digits), industry group (3 digits), specific industry (4 digits), product class (5 digits), and product (7 digits).

SIC Classification: SIC codes have two-digit to seven-digit classifications.

End Uses

Industrial marketers may segment markets by looking at the different ways and situations in which a product is used. Here, the industrial marketer typically conducts a cost / benefit analysis for each end-use application. The manufacturer must ask: What benefits does the customer seek from this product?

For example, an electric motor manufacturer learned that customers operated motors at different speeds. After making field visits to gain insight into the situation, he divided the market into slow speed and high speed segments. In the slow-speed segment, the manufacturer emphasized a competitively priced product with a maintenance advantage, while in the high-speed market product, superiority was stressed. By determining how the end-use of the product differed according to different users, the manufacturer was able to modify the product, and the marketing of the product, to appeal to these different segments more effectively.

Common Buying Factors

Marketers may segment markets by identifying groups of customers who consider the same buying factors important. Five factors are typically found to be important in most industrial buying situations: product performance, product quality, service, delivery, and price. Identifying a group of customers who value the same buying factors as important is difficult, as industrial organizations’ and resellers ‘ priorities often change.

Buyer Size and Geography

If the previous approaches are not useful in a particular situation, market advantages may still be realized by segmenting based on account size or geographic boundaries. Sales managers have done this for years, but only recently have organizations learned to develop several pricing strategies for customers that are close and for those who are far away. Similarly, different strategies can be developed for customers of different sizes.