In the wholesale target market, customer segmentation is the refining of potential customers in a certain market into smaller groups.
Within B2B marketing, the segmentation of customers can be as simple as dividing existing customers from prospects.
Depending on the sophistication of a business’s marketing organization or technology infrastructure, other segmentation factors can include:
- Industry or subsegment
- Size of the company
- Past purchased goods
The topic of customer segmentation is not new – wholesalers have been doing this for decades. Customer groups are needed for pricing, assigning sales reps, and sales reporting. Customer hierarchies are often used to represent the complex structure of an individual customer’s organization.
But thanks to digitalization, new business models and commerce practices have created opportunities to further process improvements in the wholesale target market area. Streamlining the process of analyzing customer subgroups and utilizing proper digital technology allows distributors to reduce costs and keep customers happy while scaling growth.
The wholesale target market: Benefits of customer segmentation
Customer segmentation plays an important role in marketing and sales, as it can drive and scale sales activities.
For example, a B2B organization could use segmentation for personalized marketing activities like:
- Suggesting complementing products to a subsegment of people on an e-commerce website
- Creating up-sell campaigns for loyal customers
- Retention efforts for at-risk customers
Segmenting these customers allows sales reps to direct their time and resources to the most promising, high-potential customers.
There’s little sense in trying to sell a new service offering to customers with a more conservative buying policy. Instead, it’s likely much more productive to address customers with a high early adopter score.
Boost customer satisfaction via customer segmentation
Segmentation can also be very useful in measuring and improving customer satisfaction.
Instead of surveying all customers, far more information can be gleaned by addressing specific customers with personalized questions.
Let’s take a look at lesser-known areas where customer segmentation can be of importance:
Even if demand was estimated correctly and inventory ordered on-time, shortages can happen. Unfortunately, an order may have already been confirmed with delivery dates by the time this issue is uncovered.
The simplest way to handle this is to distribute the stock to the orders according to the original delivery day requested by the customer. Alternatively, the B2B organization could distribute the stock across all open orders, trying to serve as many customers as possible, even if not with the desired quantities.
Protecting business interests might require other options, like considering the importance of customer groups.
With this approach, the stock might be taken away from already-confirmed sales orders of C-customers and re-distributed to orders of A-customers.
Alternatively, the stock may be taken away from orders with credit issues and re-distributed to orders of reliable customers with a track record for on-time payments. The opportunities are endless when using segmentation data to course-correct the effects of inventory issues.
The impact of segmentation on value-centric pricing
Customer segmentation also plays an important role in the area of pricing.
Wholesale distribution pricing is complex
There are hundreds of thousands of pricing conditions, thousands of customer incentives and promotions, and frequent price list updates.
Today, pricing is mainly cost-based, and margin visibility for the sales rep is key so they can decide on the appropriate discount per sales transaction.
Sales prices are often assigned to customer groups using price lists. For example, there may be one price list for new customers, one for long time customers, and so on.
With digitalization, pricing becomes more dynamic – not only in consumer industries – but also in B2B, starting with B2B marketplaces.
When organizations implement new pricing strategies, they often start with a new price strategy for a specific customer group that needs to be carefully identified and monitored for optimum performance.
How technology can enable outstanding B2B customer segmentation
Various approaches to cluster customers into groups for increased sales/customer satisfaction and optimized pricing strategies are available.
So, where to start?
I’d suggest starting with a simple grouping exercise based on size and revenue. This allows you to analyze past performance from particular customer segments and test their reactions to new products and services.
Once comfortable with the basics, your organization can move to a more sophisticated approach, where customers are segmented based on an early adopter index, growth potential, or innovative power.
Do you understand your customers?
Learn how to build hyper-personalized, meaningful customer relationships HERE.
When more and more characteristics are combined, the process becomes more complex. Machine learning is key to operationalize the way your organization segments customers, as it can recognize patterns and similarities in a data set without personal bias or preferences. A machine learning algorithm can group objects according to similar properties – in the case of customer segmentation, it would group customers with similar attributes.
Customer segmentation is not only relevant for traditional marketing activities like sending out emails – there are more use cases in supply chain and logistics that are also worth considering.
Via ML algorithms, sophisticated segmentation that not only considers several characteristics, but also predicts characteristics like buying propensity can be achieved.