Wednesday, October 29, 2008

Guiding Principles for Segmentation for B2B Markets

I was reading through Row Moriarty's 1980 thesis (Row in on the MarketBridge board of directors) last week to get some old (good) ideas about segmentation of B2B markets. I'm sure there has been a lot of newer research on the topic, but there were three key ideas that really resonated in the work. Most B2B marketers intuitively know these things, but putting them down on paper really helps. And, I like odd lists (3,5 and 7 are the best) for some reason.

  1. You need to think about the work from both the perspective of yourself and your customers. Customer perspective = needs based or latent. Your perspective = "observable" market segments like "by geography" or "customer size" or "total sales." Row realized it doesn't have to be one or the other--create segments that are actionable but also have unique customer needs profiles. Row showed that this was possible.
  2. You need to think about companies as customers but more importantly you need to understand decision making units inside the companies--the group of people who actually have the needs, influence and ultimately make the decision. It's these groups of people that truly have needs, read marketing material, and meet sales reps. Truly profiling the DMUs and segmenting on the basis of personalities inside these groups is where real insight comes in. This reminds of some work my friend David Bradley did at IBM back in the late 1990s. They found that DMUs with "self integrators" bought totally differently from those that mainly "needed help." This corresponded nicely with several industry segments and other firmographic data so IBM was able to make the segmentation actionable.
  3. It's critical to put all segmentation through the lens of the transaction in question. The framework used in 1980 was "new task," "modified rebuy," and "straight rebuy." New tasks obviously require much larger DMUs with different personalities involved; straight rebuys are typically done by one person and are more or less automatic. Only major shocks can disrupt an incumbent in a straight rebuy situation. Anyway, having a segmentation for "new tasks" vs. "straight rebuys" can make a lot of sense.

So, these three ideas are really nice framers when embarking on any B2B segmentation work. Hope you found it helpful.

Source:

"The Use of Organizational Buying Behavior in Assessing Industrial Markets." Row Moriarty. Harvard University Graduate School of Business Administration. 1980.

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