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The Ultimate Guide to Micro-Segmentation in B2B Marketing

Posted by John M. Coe: President, B2BMarketing, LLC on Wednesday, December 8, 2021


B2B Micro-Segmentation: The “Head” Position of Marketers

In marketing, as in many other disciplines, the first question is, “where do I start?” Frequently, marketers start where their strengths lie or feel comfortable.

Database marketers start with data, creative types start with creative, etc. Frankly, that’s why so much marketing misses the mark, and does not produce the desired results. Years ago, I was watching Ron O’Brien (a two-time NCAA diving champion and coach of many of our Olympic divers including Greg Louganis) learn a new dive. After his many attempts to “hit” a 3 ½ forward somersault with 2 twists, I asked, “how do you learn a new dive?” His answer was insightful, and one that I’ve taken to heart – Ron said, “If I put my head in the right position, the body soon follows.”

When we develop marketing campaigns, we should take Ron’s advice. But what’s our head position? My advice to marketers is that micro-segmentation is the “head” position. If we get it right, the relevancy of our communication will follow, break through the clutter, engage the individual and start the sales/buying process or as Ron would say – “you hit it”.

Micro-Segmentation for Communications

Salespeople have always been making their messages highly relevant, as they choose what they say based on their in-person knowledge of the individual and their company – in essence true one-to-one communications. Unfortunately, due to Covid, salespeople have not been able to deliver these one-to-one highly relevant messages in person, so we are faced with developing an alternative method and process.

Eight Micro-Segmentation Approaches

There are many different approaches for developing micro-segments or clusters for marketing communications, whether the target is a potential or current customer. The following eight micro-segmentation approaches could be useful for your marketing and sales situation, but not all of them. Select from those that make the most sense, and then build your process and database around those micro-segments.

1. Demographic and Firmographic Segmentation:

This is the most common way to segment and should be done by every company, as it becomes one of the basic elements for micro-segmentation. Here are 5 of the common demographic and firmographic data elements to consider:

Geographic: We all know that the ZIP code describes the geographic location. The problem with ZIP codes in B2B is that they are too small a geographic area to use even if you’re targeting small businesses. The first three digits of the ZIP code are called the SCF or Sectional Center Facility – an arcane post office definition. Thus, the SCF generally becomes the smallest geographic description that is useful in B2B. Don’t forget that the telephone area code is also a form of geographic description, even though they are now being revised frequently and do not define postal geographic areas.

Industry type or SIC/NAICS code: These descriptions are well known to marketers and are basic data to segment any B2B market. For detailed descriptions of either SIC (the old standby industry coding system) or NAICS (the newer industry coding system started in 2000), just contact your data compiler like MNI. MNI also houses a proprietary business classification system that you can't find anywhere else, making it easier to search for your industrial niche. See here for a sample profile or set up a free demo and try it out for yourself. 

• Company size: Typically, when marketers think of company size, they default to sales revenue. While this is the standard measure of company size, there is a problem. Most companies (99% of US firms) are not public and do not report sales revenue. Data compilers either need to obtain this highly confidential information directly (e.g., D&B) or estimate it – not an easy job. Yet, most firms will more easily divulge how many employees they have, as it’s not considered confidential. Just look on LinkedIn to see the range of employees. Therefore, this is a better gage of company size.

Location type: The type of facility may be an important piece to help define your marketplace. Most companies are single-location firms, but as the size of the company grows so does the variety and type of locations. Here are the most common site definitions for larger companies:

Headquarters or HQ
Research Center
Store or franchise location
Regional or District Sales Office

Most compiled databases contain these definitions or similar ones. Your decision is to determine if site definitions are important.

• Fiscal Year: Most companies are on a calendar fiscal year. For example, the IRS requires that any private or Sub S Corporation conforms to a calendar fiscal year. On the other hand, C Corporations are allowed to select their fiscal year, and about 80% are also calendar/fiscal. The other 20% are spread among the other three quarters for their fiscal year.

Why could this be an important demographic data element? Well, if you’re selling a product or service that needs to be in the budget, then you better communicate to this company before their budget cycle or you will miss the budget biorhythms.

Year Founded: Over the years I listed this as a firmographic element to consider, but it began to seem meaningless. That is, until I mentioned this in a speech. By coincidence, the marketing manager from National Pen Company piped up, and said that it was their approach to segment their potential customer base, as they sold pens and other items to companies on their 1-, 5- or 10-year anniversary date. So, I continue to list it. Also, some people claim that newer companies need different products or services than older ones – could be!

2. Relational Firmographic Segmentation:

This is an enhancement on firmographic segmentation and is defined as “factual information that is related to the sale of your product or service”. The most common relational firmographic elements are equipment or process used by the micro-segment. This single piece of information may well completely change your message, offer, and even your overall marketing approach. It can be an extremely powerful piece of information, as it certainly will make what you say much more relevant to the audience. In fact, salespeople have been using this type of information for years without ever calling it by this name. It’s just smart selling to adjust the approach and presentation based on this kind of information about the company.

While there may be numerous relational demographic facts for consideration, I recommend the following process. Talk to several of your best salespeople and ask them the following question – “What single piece of information would you like to know about a company that would make the most difference in your sales effort?” Make sure they know you are looking for fact-based information. This will be your best input.

3. Sales Cycle Segmentation

One of the most logical forms of micro-segmentation is where a prospect or customer sits in your sales cycle. As the customer typically also knows where they are in this sales cycle, this message will resonate.

Here’s a common definition of a sales cycle, and if yours is different - use it.

Suspect: These are companies that you have some reason to believe should want or need your product or service. They have not indicated that they are interested, but do have the proper profile or as some would say – ideal customer profile (ICP)

Inquiries or prospects: An inquiry or prospect is an individual who has “raised their hand” in response to some form of marketing communication. They are not leads, as you have no idea at this junction if they have serious interest or can even qualify to buy your product or service. This is particularly true for trade show visitors, as many may stop by the booth to get the give-a-way and are not interested in the product or service. One of the biggest mistakes for marketers is to call an “inquiry” a “lead” as this greatly lowers marketing creditability with sales.

When salespeople hear “lead”, it means a near-term opportunity to sell. There is a big difference between an inquiry and a lead! Based on industry statistics there are generally 10% of inquiries that prove to be real leads.

Lead: Now we come to the common term “lead.” There may be several lead definitions, including the always famous “hot lead.” Frequently, companies define leads into “marketing qualified” or MQL and “sales qualified” or SQL. I’ll assume these differences are well defined in your company. These two micro-segments should obviously be treated and communicated to differently.

• Proposal/quote: In most B2B situations, there is a proposal or quote step. This is where the process of obtaining new customers is quite active and handled by the sales group. Two points to make here:

As this is such a sales-intensive process, it may be appropriate to cease marketing communications during the proposal phase, as not to confuse or disrupt the “close.” This has typically been the practice.

But, in these Covid days, it now may be more appropriate to team with sales and support the “close” with marketing communications that reach all the members of the buying team with supporting communications and information. Be sure to coordinate with sales.

• Customer: Companies that buy are defined only as “customers”. There should be several definitions of customer, and here is a basic micro-segmentation:

First purchase customer. The reason that this “first purchase” category is important is that when someone buys from your company for the very first time, there may be a need to focus even more marketing communications on them to obtain the second order and/or to retain the business.

Repeat Customer: Simply, a general customer definition that distinguishes this customer group from the “first purchase” group. Here’s an opportunity for more granular customer definitions based on your business model.

Loyal Customer: There are various ways to measure whether a customer is loyal, and the most common is to use the Net Promoter Score (NPS) detailed in Fredrick Reichheld’s book The Ultimate Question. It doesn’t measure a company’s loyalty, but rather the individual’s loyalty.

Past Customer: Here’s a question all marketing and sales departments must answer – when does a customer become a “past customer”? Is it some artificial accounting period like a year? Or is it when the customer feels they are not going to buy from you again and, in their mind, are a past customer? Don’t communicate to who you might think as a “past customer” when they think they still are one!

4. Buying Stage Segmentation

While most firms can identify the sales cycle stage, it’s far more difficult to switch the perspective to the buyer’s stage of their purchase process (too often called journey). Here’s why. In the past 5-10 years a lot has been documented and written about how far along the buyer is in their purchase process before the seller is even aware of their interest. Some statistics quoted go as far to say that 60-80%+ of the purchase process is completed online before vendor contact is initiated. This can be true for some categories of products, but certainly not for all. The more complex and expensive the purchase the more likely they buyer will seek early contact with the vendor. This has been confirmed by several studies.

First, for each micro-segment, outline the typical buying process, and the job functions of who would logically be involved in each state of the process. Be aware that the buying process will likely differ greatly from your selling process. There are typically more steps and people than in your sales process. In addition, the buying process may well be longer in time to purchase than the desired. One of the more common demands placed on the marketing and sales department is to shorten the sales cycle. Yet, buyers don’t care about your sales need.

Secondly, create offers that would interest buyers at each stage of their buying process (not your sales process). The development of compelling offers is another topic and will not be covered in any depth here. Just remember that the further along in the buying process, the more likely they will provide information and commit to a conversation – either online, by phone or even in-person.

Once the buyer has accepted one of these offers, it can be reasonably assumed they are at or close to the theorized stage of the buying process. Once determined, then the further messages and offers start at this identified stage.

5. Behavioral Segmentation:

It’s more important what people do vs. what they think! I’m a direct marketer and this is music to my ears and should be to yours since we spend our marketing energy to drive behavior or as some refer to it - responses.

I know advertising and public relations experts are concerned with creating top-of-the mind awareness and positive brand image, and there is much value in that goal. But we want to cause individuals to do something vs. just thinking about doing something or worse yet, putting it aside for another day. To be effective, we need to drive behavior, capture it, and then respond to it fast and appropriately. Here are typical behaviors.

• General inquiries: At times, advertising, PR and SEO generate general responses or inquiries. While it is difficult to determine why or what they responded to, there is “gold” in these inquiries. They may arrive by phone or from a registration or inquire on your website. Record the media that the individual used to inquire on the database.

• Responses to specific offers: As most marketing communications should have a specific offer or call-to-action, it is important to not only record the data on the inquirer, but also the offer they responded for. They likely will remember what they requested, and so should you.

• Trade show “booth visits”: I call this category “visits,” as that’s exactly what these meetings are – nothing more than someone stopping at the booth and allowing their card to be taken or badge swiped. While there are leads in these “stop-byes,” many will not even remember doing so. Just ask yourself how many booths you visited at the last industry trade show and how many you can specifically recall a week after? Not many! Thus, this should be a separate category of behavior, and followed up quickly either while the show is still in operation or no more than 24 hours after.

• Webinar or seminar attendance: Whether it’s a webinar or traditional seminar event, the experience is quite different for the individual vs. just inquiring for an offer or stopping by a trade show booth. This category of behavior also shows a more serious commitment on the individual’s part, as everyone’s time is scarce, and to attend a webinar or seminar means that they are very interested in the topic. There is much written on webinars, and I direct you to On24, WebEx or Zoom for content.

Multiple responders:

Individuals who respond multiple times, and in a variety of ways may be, by themselves, another important category. Rather than just keep all individual behaviors separate and therefore miss individuals who are multiple responders, their actions all should be brought together. This group may, in fact, be the most likely to buy as they demonstrate continuing interest.

Firms where multiple individuals from the same firm have responded over a relative short period of time, such as1-3 months, may also represent a good sales opportunity. The old phrase “where’s there’s smoke, there must be fire” applies.

Digital behavior: An opportunity to track digital behavior exists, and most now call it “intent data”. Much has recently been written about intent data, and I refer you to MNI, which houses exclusive first-party intent data so you can see where to focus your efforts to maximize sales. Bombora, TechTarget and Aberdeen also provide similar options. While this is a good source of someone’s behavior, it cannot be tied back to the individual in the company taking the action but only the company’s URL. A good source of intelligence when the company is small, but as employee size grows large; it’s like seeking a needle in a haystack – e.g., IBM

• Calls to Customer Service: Here’s a behavior that many marketers miss, as they are focused too heavily on the acquisition side. Customer service requests may just be calls for assistance. On the other hand, they may represent additional up-sell or cross-sell opportunities, depending on the nature of your product or service. One word of caution here, be careful in tasking customer service people with up- or cross-selling responsibilities. They won’t like it and will not do it well, as it’s not in their nature to be salespeople.

Other behaviors: There may be many other behaviors unique to your company that should be recorded for future reference in communications to those individuals. As an example, attendance at company-sponsored events like golf tournaments would be valuable, as those who played a round of golf or attended a pro tournament as a guest of your company can be communicated to in a highly relevant manner.

Think of all the behaviors relevant to your sales process and allow for them to be recorded on the marketing database, as it will pay dividends.

6. Competitive Segmentation:

All products and services are sold in a competitive environment. While we tend to focus on direct competition, there are three others. Here’s a quick summary.

Direct competition: This form of competition is the one everybody focuses on, as it’s the most obvious and consumes the attention of product management and sales. No need for further explanation here

Indirect competition: One of the most difficult competitions to defeat is indirect. As an example, years ago FedEx faced indirect competition from fax machines, and now from the Internet. One of the reasons they bought Kinkos.

• Budget or lack of it: Not competition exactly, but more of a roadblock. Many times, your target customer does not have the budget to purchase your product. It may be that they will never be able to spring loose the dollars, but more than likely it is a matter of timing. Recording the details behind the budget roadblock can lead to a value-based messages or ROI communications.

• Status Quo: “Why should we change?” is a very tough form of competition. In fact, recent studies by Tim Riesterer of Corporate Visions show that the “status quo” competition is the most difficult competition to beat. Unless your product or service fills a specific need, and assuming it’s not a breakthrough, then the need usually has been satisfied by an existing “solution”. Yes, your solution is better in your opinion, but the prospect is asking – why change and why now?

Defining the competitive set and recording it on the database provides great opportunity for micro-segmentation and highly relevant marketing campaigns.

7. Analytical Segmentation:

This is not blog on advanced database marketing, but a brief mention should be made on the use of analytics to segment the market. The problem in B2B is that the data supporting analytic techniques can be poor, and therefore the results can be inaccurate or worse - misleading.

RFM: The primary purpose of this analytic model in direct marketing is to predict the likely response rate and/or conversion to sale between one set of customers vs. another. In other words, which segment of the customer database might respond better to a specific offer or message?
RFM, or Recency, Frequency and Monetary is an extremely important segmentation process in the catalogue business. It applies only to customers, as an actual sale is necessary to perform the RFM analysis. Here’s a brief summation of the technique.

First take the customer file and order it from most to least as follows:

Recency – the customers who have bought the most recently are at the top and cascade down to the oldest purchase date.

Frequency – the customers who have bought the most frequent are at the top of the list and those who purchased just once are at the bottom.

Monetary – the customers who have purchased the most in dollars are at the top and decline to those who have bought the least.

For each list, cut it into quintiles, or fifths, and assign a score to the top fifth of 5, then 4, etc. until all customers have received three scores – one each for Recency, Frequency and Monetary. The ones with the total highest score will more likely respond to your next promotion at a higher rate than those with lower scores.

The problem is that many business models don’t fit just data on purchases. As an example, what about customers who are on yearly contacts and release shipments monthly – have they bought once or 12 times? How about distributors who are, in effect, buying to meet end-user demand and/or inventory? What about sales of capital equipment where one sale can be in the millions, and will not be repeated for several years if not longer? But, if RFM fits your business model then use it, as it can be a very powerful predictor of future behavior.

Artificial Intelligence or AI: The latest “shining object in the sky” is AI. You can’t read a marketing trend report or hear what’s new in B2B without being “sold” on the usage and future of AI. While I agree in the theory, be sure that the underlining data is both as accurate and complete before going down the AI road. For this blog on micro-segmentation, I’ll leave the subject of AI for you to investigate and determine if it fits your firm.

8. Job Functions and Personas:

As we market to individuals who play various roles in their organizations, an excellent way to market is to think of all the individuals who share the same function as a micro-segment. Then instead of marketing vertically to companies with different individuals and functions, segment horizontally and develop campaigns directed at functional job segments across all companies. The message to a CFO vs. a plant manager about your product or service may be quite different, even though the product is not.

Recently, the development of personas has become a hot topic among B2B marketers. While there is much potential in this approach for more relevant communications, no one persona definition will fit all! Use this approach when other data or behavioral based information is not available.

In Summary:

In my 35 years in B2B sales and marketing I’ve seen both mistakes and successes in using micro-segmentation. When this process was smartly applied, the successes far outnumbered the mistakes. Today with the increasing demands to measure results, it is almost inconceivable that success will be achieved without micro-segmentation. Also, this approach leads to an ability to personalize communications which is another market demand today.

As mentioned in the beginning of this blog, choose from among these 8 micro-segmentations approaches the ones that fit best, and then be maniacal on getting and keeping the underlining data accurate and complete. Hopefully, this report starts you on the road to increased marketing success. View it as the start and not the finish!

About John M. Coe

John is also Co-Founder and President of B2BMarketing.com. His background includes experience in both sales and marketing. On the sales side, John was a field salesman, national sales manager and executive in charge of both sales and marketing for three major B2B firms. On the marketing side, he was president of a B2B direct marketing agency for 10 years, was National Campaign Manager at IBM, Sr. VP of B2B at Rapp Collins Worldwide and President of Protocol B2B. John is also the author of The Fundamentals of Business-to-Business Sales & Marketing, published by McGraw-Hill. He can be reached at John.Coe@B2BMarketing.com or by phone at 602-402-6588.

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