Choosing Business Customers

The previous issue of Raffrey Insight, Business Market Challenges, looked at the fundamental nature of business markets and how they differ from consumer markets. Client feedback was strong, with many asking for further insights into business markets.

This issue, we will focus on choosing business customers or segmenting the business market. At Raffrey Consulting we always ask the question of clients, ‘Which customers do you wish to serve?’ We often get a vague or ill-defined answer to this most important of questions. How well has your business defined its chosen customer base? Surely the key questions for a business marketer are:

  • Which customers should we serve?
  • How will we serve our chosen customers?

This issue, we will focus on the first of these questions.

Consistent with the Spring 2013 Raffrey Insight, Business Market Challenges, we will draw upon the concepts from Business Marketing Management: B2B (11th edition) (Hutt, M.D., and Speh, W., 2012, Mason, Ohio: South-Western Cengage Learning).

We use these concepts almost daily, whether servicing our consulting clients or in teaching roles at Macquarie University and the University of Western Sydney.

Hutt and Speh (2013, p. 96) note that successful and growing companies:

  • Select well-defined groups of potentially profitable (attractive) customers
  • Develop distinctive value propositions which meet customer needs better than their competitors
  • Focus marketing resources on acquiring, developing and retaining profitable customers

Macrosegmentation focuses on the characteristics of the buying organisation, product application and purchasing situation, whereas micro segmentation focuses primarily on the organisation’s decision-making unit.

 

According to Hutt and Speh (2013, p. 100), business customers may be segmented based on characteristics of the buying organisation, including:

  • Size
  • Geographic location
  • Usage rate
  • Structure of procurement/purchasing

Additional macrolevel segmentation bases can include:

  • End-use application
  • Value in use
  • Purchasing situation

The above macrosegments should then be divided into the following microsegments:

  • Key criteria
  • Purchasing strategies
  • Structure of the decision-making unit
  • Importance of purchase
  • Organisational innovativeness
  • Personal characteristics

Effective segmentation isn’t just an academic exercise. It is undertaken to identify customers (or clients) with common characteristics and those which are likely to respond to your distinct segment marketing strategies. An important point to note: These characteristics need to define what’s important to the customer in order that we may satisfy their expectations.

From the business marketer’s standpoint, there are four criteria for evaluating segment desirability or attractiveness (Hutt and Speh, 2013, p.97):

  • Measurability
  • Accessibility
  • Substantiality
  • Responsiveness

Identifying legitimate and attractive segments and crafting offers to appeal to these segments can be considered the cornerstones of the business marketer’s efforts.

Now think about your own business:

  • How well have you segmented your own market?
  • Has this segmentation been undertaken with the customer truly in mind?
  • Does your segmentation meet the above four criteria?
  • Have you developed distinct and targeted offers which speak very specifically to your segments’ needs?

REFERENCES

Hutt, M.D., & Speh, W. (2013). Business Marketing Management: B2B (11th edition). Mason, Ohio: South-Western Cengage Learning.

Hutt, MD & Speh, W, Business Marketing Management: B2B, 11th edition, South-Western, Mason, Ohio, USA.

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    Information contained in this document constitutes general comments only for the purposes of education, and is not intended to constitute or convey specific advice. Clients should not act solely on the basis of the material contained in this document. Also, be aware that changes in relevant legislation may occur following publication of this document. Therefore, we recommend that formal advice be obtained before taking any action on matters covered by this document. This document is issued as a guide for clients only, and for their private information. Therefore, it should be regarded as confidential, and should not be made available to any other person without our prior written approval.