Smart Targets

It pays to segment your markets into groups of similar customers

everyone knows that data is the most important element in business-to-business marketing. Right?

Not quite. Of equal importance is how you segment the data to identify smart targets.

Smart targets? That’s the term used by Experian, the Orange, CA-based marketing information company, to describe your best market segments. (It’s also the brand name for one of Experian’s products.)

According to Experian, which helps hundreds of clients segment their files, there is value in dividing your market into groups of similar customers so you can target offers that match the needs of each group.

“Determining smart targets allows mailers to minimize mail costs,” says Donna Sears, an Experian regional director. “It enables them to better target their markets, learn more about their databases and mimic their best customers.”

It is also good mental exercise, for B-to-B companies often know their products better than they know their customers, according to Brigham Hardy, an Experian product manager. “That’s why the most important step in analyzing a market – from a strategic viewpoint – is to develop useful market segments.”

So how does it work?

Bob Dunhill, president of Boca Raton, FL-based Dunhill International List Co., a major wholesaler of Experian data, defines segmentation as simple selection.

“Segmentation is chosen by who you want to sell to and how you reach potential buyers,” he says.

And what are some of the choice segments?

“There are 16,000 different SIC codes and 6,000 different types of businesses, all of which are segmented by type,” Dunhill says. Any of these variables can be used to support a segmented mailing.

It also pays to segment by which products companies buy and why, says Hardy.

Size is also a factor. Most marketers should aim for the large customers because “they are most likely to buy,” says Hardy.

Size segmentation generally is based on the number of employees rather than sales volume, adds Dunhill. This also has a bearing on “who to reach in a specific company.”

“In small companies, for example, you want to reach an owner, the president or a chief contact, but there’s a wider choice of people to contact in larger companies, says Dunhill. “You’ve got to know your market and then make appropriate selections.”

In fact, a two-stage segmentation process is now widely accepted. Stage one involves the process of defining and selecting from different target sectors. Stage two focuses on the process of defining and selecting customer groups at different levels within a sector. How much further a company goes beyond these initial stages depends on its overall objectives and marketing thrusts.

The bottom line? To be truly effective, segments should be measurable, accessible and substantial, says Hardy.

But that’s only one part of the process. The segments can only be evaluated – and the most relevant variables determined – using cluster analysis. This should be followed with discriminant analysis, which determines how individual cases should be classified once the significant variables have been identified.

“Once having set the number of customers worth targeting, your company should focus on them and begin doing advanced modeling,” Hardy points out. “It makes sense to create models that precisely look at the key info on file, such as years in business, annual sales, credit lines, how bills are paid, and so on.”

Segmentation can also play an important strategic role in helping you develop or shore up markets, and in building customer relationships. As markets mature and become more competitive, companies must choose segments for concentration. A segmentation strategy for a product or brand specifies the market niches it intends to dominate and details how the brand will meet the unique needs of those segments. The better your segmentation plan, the more you will be able to keep rivals at bay in your prime niches.

But it requires a flow of information. Smart companies scout new markets and assess the need for new products or services through inquiry analysis. They also rely on field reports, discussions with customers – and simple engineering hunches.

Lead generation, qualification and power report analyses can profile customers and prospects by geography, customer type and size, application and any other factor that might influence a purchase. The data will reveal which market segments show greatest interest.

For example: Does geography best differentiate prospects? Is it the type of application? Does customer size make a difference? Will changing the creative of media strategy in a segment boost response? Can you afford to drop an unprofitable product from the line without jeopardizing your market share in a key segment? “In a nutshell,” says Hardy, “design the questions and use your lead system to find answers.”

GLOBAL MARKETING For global marketers, the most common form of segmentation is by country – experienced firms vary overseas campaigns to meet the needs of each national identity.

On the consumer side, segmentation takes many forms: language, ethnic groups, gender, locality and age group. (More sophisticated segmentation involves pyschographic measures of lifestyles, loyalty factors and whether customers are followers or laggards.) In all cases, marketers are recognizing that customers differ, so that even if the whole world could be marketed in one go, it would not be economic to do so.

“Defining a narrow section is something else to keep in mind, because it simplifies positioning, distribution and the marketing mix,” suggests Hardy.

“As a brand grows in popularity within the initial segmented target group,” he says, “the marketer is now faced by a choice of continuing to increase share there or include other segments or go for the whole market. The good thing about segmentation is that it opens up the middle ground between the niche and the mass market.”

Most importantly, the effects of specific marketing programs aimed at specific clusters can be measured – up to a point – and marketers can identify the particular segments that should be addressed. The more precisely they can assess the customer in their mind’s eye, the better they can present key benefits. Moreover, segmentation can be a very powerful weapon in the battle to get more from less marketing spending, especially in situations where marketing and materials functions are deficient.

“You’ll find many companies that have no appreciation of the principals and benefits that lead companies to the world-class status,” Hardy points out.

It all comes down to this: Segmentation allows more efficient use of resources than a single niche or the entire mass market.

But keep in mind that segmentation can also have disadvantages due to the complexity of differing programs for the same product brand. Theoretical benefits have to be balanced against planning and execution, which means that separate marketing systems may prove necessary.

Do you want your firm to be a world-class marketer?

It is essential to do an in-depth, non-biased assessment to identify and prioritize opportunities for improvement and to develop a useful action plan. That’s what segmentation is really all about.

A young dot-com person recently exclaimed: “B-to-B is so cool – it’s much bigger than B-to-C.”

That was refreshing to hear for someone who remembers when consumer marketing didn’t even have its own initials.

But that brings us to a contradiction: B-to-B marketers have led the way in so many areas, but they still suffer from the perception that they are way behind consumer DMers.

For example, we’ve heard from infancy that B-to-B lists and database are not as good as their consumer counterparts. There is a grain of truth in this – the churn in job titles alone makes it harder to maintain the accuracy of a B-to-B file.

But B-to-B marketers do have some sophisticated segmentation tools – for example, SIC codes, NAICS codes and numerous variables based on the size and make-up of corporations. And they are probably more relevant than many consumer variables.

We hope to debunk some of these myths in btob datafile, a supplement sponsored by Experian, Orange, CA. And we hope to provide some basic education for B-to-B firms that do need some input.

Our overview is a primer on segmentation – the cornerstone of target marketing. Then we have a profile of Delta Education, a B-to-B marketer that does state-of-the-art segmentation.

Companies also need information from other channels, and so we also report on Seitz Corp., which benchmarks to make sure it is meeting its customers’ needs.

No periodical on business-to-business would be complete without a story on the Web. And so we offer some tips on how to brand your company online.

In the end, we agree with our dot-com friend – there’s no more exciting place to be than B-to-B.

Experian offers a wide array of products to business mailers

experian, which advises B-to-B marketers to enhance their files, has done some work of its own.

“There has been a huge influx of data in the last six months,” says Brigham Hardy, an Experian product manager, speaking of the firm’s National Business Database.

For example, the Orange, CA-based information company has just finished compiling all of the Yellow Pages directories in the United States. This will provide “a lot more depth in our SIC [Standard Industrial Classification] coding,” Hardy says.

Experian has also expanded its coverage of new business filings from counties and states, doubling the number of startups on its Hotline file.

The Business Marketing Database now lists 14 million firms. And it’s accurate, for Experian calls about 10 million businesses a year to verify information.

The compiler also offers several products that can help B-to-B marketers better use the Business Marketing Database, and segment their own files.

One is Experian Profile Analysis, a basic profile analysis tool for smaller companies. It will tell the mailer which customers fall into a certain SIC code, and how this compares to the business universe.

“If a mailer does not have a lot of knowledge about which segment they should be targeting,” says Hardy, “we could take their current customer file and – using our National Business Database – profile their database.”

Haven’t mailers moved over from the SIC system to the North American Industry Classification System (NAICS)?

“NAICS has superseded the SIC system as far as the government is concerned, but the majority of marketers still use SICs,” Hardy says.

Experian has its own system, which “takes the SIC and expands it out to eight digits,” he says. “It’s a lot more detail than you get in the base NAICS system. It has more granularity.”

But Experian also is now developing an expanded NAICS system that will have all the advantages of NAICS.

SMART TARGETS Another segmentation tool is Smart Target for Business, a cooperative product developed with Ruf Strategic Solutions, Olath, KS.

Ruf has contributed economic data and other information, and combined it with a system for dividing the marketplace into hundreds of distinct segments. Hardy likens it to cluster analysis.

“Using these Ruf segments, you can go in and say that 8% of your customers, say, fit into this segment, and so on,” he says. “We can give them top segments based on the representation on their file.”

Finally, Experian offers custom modeling using data supplied by customers.

These tools are of increasing use to Experian’s client base, which has widened from its original base of large financial companies to include manufacturers and companies in other segments, and a growing number of smaller firms.

Hardy scoffs at the myth that B-to-B data isn’t as good as consumer data, and B-to-B marketers not as sophisticated.

“In some ways, they are not as sophisticated,” he says. “But in other ways, they have to be more sophisticated. With the same level of sophistication, you get better results using consumer data.”

Why is that?

“It starts with the complexities of defining a business,” Hardy answers. “There’s no one definition. Then there’s the high turnover you see in businesses themselves. Look at the number that go out of business within the first five years.”