Firmographics– Engaging B2B Target Market Segmentation: Matchmaking, Customer Profiling, Finding Market Subtleties…

Firmographics are descriptive attributes of organizations that can be used to aggregate individual organizations into meaningful market segments, for example, industries, non-profits, government entities… Think of demographics as helping organizations group ‘consumers’ by shared characteristics, then picture firmographics as helping businesses characterize ‘customers’ by shared business attributes.

Essentially, firmographics is to business-to-business (B2B) as demographics is to business-to-consumer (B2C). According to Tim Smith; companies use firmographics to define their target market, which enables them to focus resources on organizations that are more likely to be receptive to their individual messages…

In U.S. alone, there are roughly 28 million businesses as of the end of 2012, according to the U.S. Census Bureau. Of these firms, roughly 75% have no employees and have little business activity, leaving only 6 million businesses in the U.S. with meaningful business activity… Firmographics can describe these organizations along many different dimensions and the most commonly used descriptive dimensions include; e.g., industry, location, size, status or structure, performance…

However, ‘Does knowing a business buyer’s revenue size tell you exactly how they manage their budgets or what types of products/services they purchase?’ No. Hence, firmographics alone is hardly adequate when trying to get a deep understanding of markets… If firmographics or demographics are all that you are using in targeting, then you must consider adding other dimensions of information, e.g., psychographics, sociographics, ethnographics… to the mix.

According to Daniel Korten; firmographics is not a one-size-fits-all approach and a go-to-market strategy based on firmographics alone will  have limited impact, e.g.; markets change, technologies change, competitors change, new distribution channels are uncovered…

For effective segmentation consider ‘best practices’: Create profiles and personas–know who’s more likely to buy by understanding current customers. Gather firmographics data and also include; demographics, behavioral… Target specific segments–tighter the fit, the better… Measure frequently–adjust as needed and evolve… Don’t get complicatedkeep it as simple as possible…

firm thCAIVQ1KZ

In the article Understanding Core Customer and Building Personas by Christian Vanek writes: Most organizations define ‘most valued customers’ as any customer who has spent a large amount of money with them. If that’s how your organization works, it’s perfectly valid and that’s an easy list to pull, but here are some other factors you might want to consider before you, run off to your finance manager for a lifetime value export from your CRM and base your decisions off that alone. Here are several firmographics and behavioral factors that you might also consider in your analysis:

  • Average purchase size: How much do your customers spend in a single purchase?
  • Lifetime Value: How much money has your customer spent over their entire lifetime?
  • Acquisition Cost: How much was spent to acquire your customers?
  • Support/Retention Cost: What services do your customers use? How frequently do they need support and training? Customers that spend the most might also cost the most!
  • Customer Happiness: How happy are your customers with product, services… If you have a group of happy customers and a group of dramatically unhappy customers, what’s the difference between the two groups?
  • Value/Mission Alignment: What is the North Star for your business? Are you serving the customers you want to? If you are targeting a specific segment of market, but all core customers are in another segment instead, then you are out of alignment. That’s good to know!

Segmentation & Targeting: The ability to create and sustain a meaningful competitive advantage requires a deep knowledge of customer needs and disciplined business process to ensure that the ‘needs’ are effectively addressed. Market segmentation is a strategic process for achieving alignment between product offerings and customer ‘needs’.

Hence, the market segmentation essentials are: Optimize allocation of business resources by targeting high-value customers… Guide product development and customize service offerings to accommodate ‘needs’ of target segments… Increase promotional impact by positioning products, customizing messages to align with segment-specific orientations… But even so, successfully bridging the gap between segmentation principles and successful application is a major challenge for organizations…

Choosing the right approach requires both a clear understanding of organization objectives and intimate familiarity with the methodological options… There are literally hundreds of market-sensitive segmentation frameworks, including blended, tiered (or hierarchical), and multi-faceted segmentations, wide range of statistical techniques…

Segmentation frameworks are designed using several types of basic building blocks, often in combination, for example; demographics and firmographics or institutional characteristics, behavioral, needs and motivations, attitudes and ethos, usage or purchase occasion characteristics…

Market complexity or organizational objectives frequently require multi-dimensional segmentation schemes that draw on combination of variables to properly reflect or illuminate market structure… Hence, successful outcomes require matching a segmentation approach to a set of specific strategic market objectives and market environment…

A particular challenge posed in business market segmentation is the complex decision-making process that tends to drive selection of suppliers-products. Often, within organizations, many individuals are involved in decision-making process, each with different orientations, needs, motivations…

The challenge is to create market segmentation that properly reflects and differentiates between business customers, while simultaneously recognizing the heterogeneity of decision-making drivers that may exist within each organization. The ability to identify complex decision-making processes and mapping these interrelationships, within customer organizations, is a key concern…

firm segmentation_1

Like so many buzz words in business, ‘segmentation’ is one of those that are interpreted by folks to mean many different things. If the word ‘segmentation’ were blurted out in a room of 20 business people, chances are it would conger up 20 different images of all colors, shapes & sizes…

So, what is segmentation and how can you use it to propel your business? According to Doug Goldstein; customer segmentation is simply the grouping together of customers based on similarities they share with respect to any dimensions you deem relevant to the business. Dimensions could include; customer needs, channel preferences, interest in specific product features, customer profitability– the list goes on… The key is to determine ‘how to segment (or group) customers?’ in a way that will have the biggest impact on your business… Some experts say that ‘goal-directed segmentation’ is the only segmentation worth pursuing. It’s purely a means for achieving business ends…

The only way to answer the question of; ‘how to best segment customers?’ is to first define what your objective is for the segmentation. In other words, you must first define what you want the segmentation ‘to do for your business’… Common segmentation objectives might include; develop new products, create segmented ads and communications, develop differentiated customer servicing and retention strategies, target prospects with greatest profit potential, optimize sales-channel mix… Segmentation can be tricky and complex, and no doubt requires real expertise & experience. Putting in place a flawed segmentation strategy can be far more detrimental to a business than not having one at all…

Segmentation is by no means a cookie-cutter process and when designed the right way– segmentation strategies can provide tremendous returns relative to the default, ‘one-size-fits-all’ approach. No generic description of segmentation can be comprehensive, because of the infinite variety of permutations the concept invites. Just as each company is unique, so its segmentation plan will reflect that diversity– guided by your business imagination. However, there are certain guiding principles that provide a framework for segmentation process:

  • Identify best customers: Apply principles of profiling– firmographics, demographics, psychographics…
  • Identify customer needs and concerns: Identify the– what, why, when, how much…
  • Compare customer needs to strengths: One customer’s perception of value you add may be another’s disincentive to buy; and it’s important to know which is which and for whom.
  • Develop segments based on customer needs: You’re hunting for other current or potential customers who ‘look’ as much as possible like your best core customers, those whose needs best coincide with your strengths – because it is within their ranks that you’re most likely to be able to develop still more loyal, profitable customers…Here’s      where firmographics data comes into play, you may for example, discover that many of them share the same geographical, SIC code, company size, or other characteristics…
  • Grade customers within each segment: Grading is done within a segment, defining various levels of economic value within that segment. It’s a means of estimating the revenue currently and potentially available from that segment, allowing you to identify which groups are not only most responsive to what you have to offer, but can also help you to increase profits – and are therefore really key to the success of your business….
  • Validate segmentation model: Before you take action, you’ll want to validate your conclusions… the segmentation model you’ve devised should, first of all, make intuitive sense based on your marketplace experience …
  • Target resources in proportion to potential return: The reason we are combining targeting, segmentation, and grading is to optimize your ‘market-coverage strategy’.      We want to invest limited resources in inverse proportion to the return expected.      This mindset goes back to the fact that we cannot be all things to all people. Essentially, we are trying to identify best core customers and to add more of the same kind, while solidifying relationships…