Achieving market segmentation from B2B

sectorisation
Lyndon Simkin
Warwick Business School, University of Warwick, Coventry, UK
Abstract
Purpose The creation of a target market strategy is integral to developing an effective business strategy. The concept of market segmentation is
often cited as pivotal to establishing a target market strategy, yet all too often business-to-business marketers utilise little more than trade sectors or
product groups as the basis for their groupings of customers, rather than customers characteristics and buying behaviour. The purpose of this paper is
to offer a solution for managers, focusing on customer purchasing behaviour, which evolves from the organisations existing criteria used for grouping
its customers.
Design/methodology/approach One of the underlying reasons managers fail to embrace best practice market segmentation is their inability to
manage the transition from how target markets in an organisation are currently described to how they might look when based on customer
characteristics, needs, purchasing behaviour and decision-making. Any attempt to develop market segments should reect the inability of organisations
to ignore their existing customer group classication schemes and associated customer-facing operational practices, such as distribution channels and
sales force allocations.
Findings A straightforward process has been derived and applied, enabling organisations to practice market segmentation in an evolutionary
manner, facilitating the transition to customer-led target market segments. This process also ensures commitment from the managers responsible for
implementing the eventual segmentation scheme. This paper outlines the six stages of this process and presents an illustrative example from the
agrichemicals sector, supported by other cases.
Research implications The process presented in this paper for embarking on market segmentation focuses on customer purchasing behaviour
rather than business sectors or product group classications - which is true to the concept of market segmentation - but in a manner that participating
managers nd non-threatening. The resulting market segments have their basis in the organisations existing customer classication schemes and are
an iteration to which most managers readily buy-in.
Originality/value Despite the size of the market segmentation literature, very few papers offer step-by-step guidance for developing customer-
focused market segments in business-to-business marketing. The analytical tool for assessing customer purchasing deployed in this paper originally was
created to assist in marketing planning programmes, but has since proved its worth as the foundation for creating segmentation schemes in business
marketing, as described in this paper.
Keywords Market segmentation, Marketing strategy, Corporate strategy, Business-to-business marketing
Paper type Conceptual paper
An executive summary for managers and executive
readers can be found at the end of this article.
Introduction
The creation of a target market strategy is widely viewed as
integral to developing an effective business strategy (cf. Doyle,
2006; Grant, 2004). The concept of market segmentation is
often cited as pivotal to establishing a target market strategy
(cf. Kotler and Keller, 2005), yet all too often business-to-
business marketers utilise little more than trade sectors or
product groups as the basis for segmentation. This is not what
is meant by exponents of market segmentation, who believe
segmentation involves grouping customers so that those in
one segment share common characteristics, purchasing
behaviour, needs, usage and attitudes and are reasonably
homogenous, while customers allocated to a separate market
segment share a different set of such traits and behaviours (cf.
Engel et al., 1972; Bonoma and Shapiro, 1984; Weinstein,
2004). Leading strategists argue that product, product market
and customer characteristics alone are poor indicators of
customer behaviour and that target market strategies should
be more aligned to the behaviours and attitudes of targeted
customers (cf. Christensen et al., 2007).
There are various approaches possible for creating market
segments, including survey-based quantitative studies of
customer behaviour, more ad hoc qualitative approaches
such as intuitively interpreting sentiments expressed during
customer focus groups, to the macro-micro evolution to newly
dened segments based on assessing existing customer
groupings or classications. Irrespective of the approach, the
organisation faces change. Customers inevitably will be re-
allocated, with implications for management structures, sales
force allocation, distribution channels and contracts with
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0885-8624.htm
Journal of Business & Industrial Marketing
23/7 (2008) 464474
q Emerald Group Publishing Limited [ISSN 0885-8624]
[DOI 10.1108/08858620810901220]
Received: June 2007
Revised: March 2007
Accepted: July 2007
464
intermediaries, new product development and service
delivery, marketing communications executions and pricing,
as well as performance metrics and internal reporting. While
radical change orientated to an externally analysed
segmentation is possible (cf. Dibb and Simkin, 2008), there
can be signicant resistance to associated managerial and
procedural changes, with resulting failure to fully adopt the
proposed segmentation solution.
Experience has revealed that particularly in B2B markets, a
more softly-softly evolutionary approach to creating and
adopting market segments segmentation by stealth is
minimally disruptive, while still able to provide the
organisation with the accepted benets of market
segmentation (cf. McDonald and Dunbar, 2004). This
paper presents such an approach, which facilitates an
evolution from an organisations existing customer groups
towards re-dened homogenous groups of like-minded and
similarly behaving customers in market segments. In creating
market segments, this approach also develops a better
understanding of customers, which is a rather crucial
requisite for effective marketing (Vandermerwe, 2004). This
process also engenders commitment from the managers
responsible for implementing the eventual segmentation
scheme. An illustration is provided based on the
agrichemicals market, helping to outline the six stages
required.
Segmentation enables an organization selectively to target
good business (Anderson and Narus, 2003; Dibb et al.,
2002). Weinstein (2004) very comprehensively argues a
persuasive case for practising market segmentation, which is
not the purpose of this paper. Here, the focus is on outlining a
means to developing segments while minimising internal
resistance to the associated changes. There is relatively little
published applied guidance for conducting market
segmentation, which is becoming more of a weakness at a
time when an increasing number of senior executives are
lauding the benets feasible from effective segmentation
(Dibb and Simkin, 2001). Views of leading business
executives as to the value of market segmentation show that
many senior managers believe it matters, as illustrated in the
following list:
.
Segmentation-based strategizing is at the heart of value
creation (Business development VP of a global IT
services business).
.
Segmentation is about knowing which customers are not
worth targeting. Sure, you will sell to them if they come
calling, but you will not invest in chasing them
(Marketing VP of a global energy player).
.
Mass marketing was in the 1950s; brand-led marketing
dominated the 1980s and 1990s, but today successful
businesses must aggressively attack target markets and
niche segments, focusing on customer behaviour (CEO
of the worlds largest producer of consumer beauty and
food brands).
.
Segmentation is just common sense it gets you closer
to the right customers and helps you to after them
properly. It made us a major global business (CEO of a
construction equipment giant).
.
We offer superior products and a top-rated brand, but
they do not guarantee commercial success: shrewd
customer targeting is imperative (CEO of a major
German automotive producer).
.
The books tell us that segmentation means knowing
your customers, giving them exactly what they want or
may want, building strong relationships in the distribution
chain, and targeting our sales and marketing programmes.
Surely this is common sense? Our segmentation-led
strategy will be our salvation (CEO of a leading US
automotive producer).
.
Segmentation is the only way we can tailor propositions
cost effectively for groups of our smaller accounts
(Business development VP of an international gas
business) (cf. Dibb and Simkin, 2008).
Research by Pennsylvania States Institute for the Study of
Business Markets identied market segmentation as the top
desired competency out of a pool of 153 issues. The
Marketing Science Institute places understanding customers
and addressing their needs central to the market
segmentation concept as tier one research priorities
(Weinstein, 2004). The practical benets of market
segmentation are stated in the literature to include:
.
focusing on customers needs, expectations, aspirations
and share of wallet!;
.
building relationships with the most attractive customers;
.
creating barriers for competitors;
.
delivering focused product and service propositions,
differentiated from rivals propositions;
.
increasing revenues and share of their wallet from targeted
customers;
.
determining who not to chase for business;
.
prioritising resource allocation and marketing spend on
the most worthwhile opportunities; and
.
establishing commitment and single-mindedness within
the organisation one vision, one voice, harmonised
messages.
However, in order to derive such benets, organisations must
be able to adopt segmentation effectively.
If market segmentation is as important as implied in the
literature and stated by many leading practitioners, why is the
concept not more universally and consistently deployed
(Yankelovich and Meer, 2006)? One of the underlying
problems is that organisations often struggle to move from
their existing scoping of target markets to a purist view of
customer need focused market segmentation (Badgett and
Stone, 2005; Birkhead, 2001). Even when market segments
are identied, many organisations struggle to operationalise
these segments (Craft, 2004; Dibb and Simkin, 2008; Hassan
and Craft, 2005; Palmer and Millier, 2004). This paper does
not offer all of the solutions, but it does present a relatively
straightforward and proven approach to creating segments
genuinely aligned around customers behaviour, which also
encourages organisational commitment (Simkin, 2000, 2002)
and agreement to the emerging newly dened market
segments.
Methodology
The approach outlined in this paper and the associated
guidance stem from prolonged studies of many organisations
deployment of market segmentation and the process proposed
here. Case study analysis, which supports this paper, was
deemed appropriate because of the need for an in-depth
appreciation of the creation of market segments and the
subsequent implementation process (Blaxter et al., 1996;
Achieving market segmentation
Lyndon Simkin
Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
465
Burgelman and Grove, 2001; Yin, 1994). A multiple case
design was adopted, with the aim of achieving theoretical
replication across the organizations studied. These were
embedded cases, with data being collected through frequent
meetings with senior and line managers over several years.
Some of these meetings were regular departmental meetings,
while others were set up with individuals or groups of
managers specically to evaluate the segmentation and target
marketing activity. Over 20 organisations were so studied. A
wide range of issues was monitored, including:
.
the existing operations, performance and target markets of
these organizations;
.
corporate strategies and marketing objectives;
.
the functional structures of the corporations studied and
their decision-making regarding target market strategy;
.
the composition and behaviour of the markets currently
addressed;
.
market dynamics, trends, competition, channel structures
and relative capabilities;
.
personnel and their behaviour regarding segment creation
and operationalisation of the emerging target market
strategy; and
.
outcomes of the segmentation process.
A deliberate decision was made to study the practices of large
corporations with well-established marketing functions,
because it was felt that exploring their approaches and the
problems faced by more experienced marketers would provide
a rich source of insights. Ready access over a prolonged period
was available to senior and line managers, policy makers,
customer-facing personnel and product delivery staff across
national borders and business units. Access was also
negotiated with other stakeholders, including clients,
suppliers, business partners and advisors. The opportunity
for prolonged and open access to such large corporations was
critical to the insights outlined in this paper, and to the
authors belief that the proposed process facilitates relatively
painless adoption of market segmentation.
The segmentation by stealth process proposed here has
been applied in many markets, from defence, to banking,
construction equipment, insurance, utilities, IT services,
manufacturing, the health sector, grocery producers selling to
retail corporations, telecommunications providers,
management consultancy and higher education, to name but
a few. In each project, the analysis of customers and their
behaviour as illustrated in the following led to a
reconsideration of how best to group like-minded customers
for sales and marketing purposes. The issues encountered in
creating and implementing the segmentation solution could
readily be observed and any rollout problems and successes
appraised. Specic sessions with these organisations leadership
teams and line managers responsible for operationalising the
newly created segments were built into the segmentation
programme in order to diagnose problems, prescribe
appropriate solutions and assess the use of this process.
Evolution not revolution
Engage with most business-to-business (B2B) marketers and
they will enthusiastically scope out their customer groupings,
often citing the term segments. However, these customer
grouping or target marketing schemes, often are based only
on product group classications, geographical location of
customers and/or the business sector activity of the client or
customer. For example, IT services business Fujitsu has
management teams separately handling clients in local
government, utilities, health, nancial services, retailing,
manufacturing, and so forth. Such sectorisation is not
strictly what is meant by academic market segmentation, yet
many marketing managers routinely refer to these sector-
based or product-based customer groupings as segments.
While technically incorrect, there is no doubting that these
executives believe that they are addressing market segments
and practising market segmentation.
B2B practitioners require a process that readily creates
market segments containing only customers sharing
characteristics, needs, buying behaviour and decision-
making attributes (cf. Dibb and Simkin, 2008; McDonald
and Dunbar, 2004; Weinstein, 2004). In order to minimise
conict or cause confusion amongst participating managers,
the proposed process commences by reecting an
organisations existing denition of markets and operations
for serving these markets. With an evolution rather than a
revolution, leading to market segments, there will be fewer
implementation barriers and less resistance amongst the very
managers required to endorse and live the resulting target
market strategy.
A six-stage sequence is able to move from an organisations
existing sector-view or product group-based customer
classication towards a true market segmentation scheme.
Generally this process is deployed in a workshop setting,
supported by validatory marketing research concerning
customers needs, purchasing behaviour and inuencing
forces. A cross-functional team of managers, including those
with a detailed appreciation of customers purchasing
behaviour and needs, is well placed to conduct the required
analyses. At the heart of the process is the buying proforma,
as rst developed by Dibb and Simkin (1996). This proforma
is illustrated in Figure 1, which outlines the buying process for
civilian airlines acquiring Airbus passenger aircraft.
The buying proforma was created to assist marketers to
develop a thorough understanding of their customers when
producing marketing plans (Dibb et al., 1998). It holds true to
the best principles of buying behaviour in that it analyses
customers buying decision-making processes, the inuencing
factors impacting upon this decision-making, the needs of
customers, the prole and characteristics of the customers in a
sector or segment, and for B2B markets the composition
of the buying centre (Engel et al., 2006; Hutt and Speh,
2006). In addition to the analysis of customers
characteristics, needs and buying behaviour facilitated
through the buying proforma, the full strategising process
includes an examination of external market drivers and
challengers, competitors strategies and standings, as well as
the organisations own capabilities: without these analyses it is
difcult to determine which segments to prioritise (cf. Kotler
and Keller, 2005).
The cross-functional team starts by detailing its existing
customer groups/sectors/segments. For each one, a buying
proforma similar to that in Figure 1 is produced in a
brainstorming workshop. If the existing customer group
contains only similar customers, the executives involved will
be able to readily produce a proforma, without much
disagreement or debate. However, because the existing
classication is rarely based on homogeneous customer
behaviours, usage and attitudes or reaction to marketing
Achieving market segmentation
Lyndon Simkin
Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
466
mix programmes, managers often fail to agree on the
customer description, composition of the buying centre or
even the ranked list of key customer values (KCVs) or needs.
These are the left-hand column items of the buying proforma,
illustrated in Figure 1. As a result, the participating managers
opt to further breakdown their customer groups, until they are
able to generalise comfortably about the proles and needs of
a group of like-mined customers. It may be that further
disagreement occurs when completing the centre and right-
hand columns of the proforma, considering these customers
typical buying decision-making process and the inuences
impacting upon such purchasing behaviour. In such instances,
further sub-division of these customers may be prudent. As
explored in the following, in the illustration of agrichemicals,
there follows a phase of re-aggregation so as to group together
similar proformas and thereby the customers they portray into
homogeneous market segments.
By commencing with an examination of each pre-existing
customer group in the context of the buying proforma
analysis, managers are at ease and themselves recognise the
instances when dissimilar customers have been grouped
together previously by the organisations sales and marketing
personnel. The very personnel who may nd their remits and
responsibilities altered as a result of the process such as
sales personnel, marketing managers and marcomms
executives are part of this analysis team: they create their
own destiny, which generally subsequently smoothes the path
of implementation of the revised target market strategy and its
resourcing.
In the example above, based on the agrichemicals market in
South America, the agrichemicals corporation previously had
grouped farmers into so-called segments based on the crop
type grown. Most of the farms in this region are single-crop
entities, many of very large size. All soya farmers were treated
as being in one segment, whilst all tomato farmers were in a
second segment, maize farmers were in a third segment,
rice farmers in a fourth, and so on. When the sales, business
development and marketing team came to analyse soya
farmers, they failed to agree on a single customer prole,
buying centre composition or list of KCVs. Ultimately, in
order to disaggregate their soya farmers into homogenous
groups, they produced ve separate buying proformas. Two of
these are presented for comparison in Figures 2 and 3.
Even a rudimentary examination of Figures 2 and 3 reveals
little similarity in the nature of buying, customer needs and
buying centre personnel between these two illustrative types
of soya farmers (no-till and till-based). The no-till soya
farmers are younger innovators, environmentally aware,
employing professional managers and agronomists, focused
on product performance of the pesticide or herbicide and
interested in technical information. The role of the farm
manager and agronomist is important within the buying
process. For till-based soya farmers there is no manager or
agronomist: these are older more traditional family run units,
which are resistant to changing their practices. Evidently with
such dissimilarity, a single marketing mix could not apply to
both sets of soya farmers and their buying behaviour as
outlined in Figures 2 and 3. However, the agrichemicals
corporations all treated these two types of soya farmers along
with the other three as one market segment with one sales
and marketing approach.
Figure 1 The buying proforma
Achieving market segmentation
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Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
467
When Figure 2 and Figure 4 are compared, there are strong
similarities between the no-till soya farmers and the plantation
tomato farmers: these innovative, buying centre-led,
environmentally-aware soya and tomato farmers are in fact
part of a homogeneous segment, both heavily dependent on
technical information, the roles of their scientists and farm
managers, and hungry for cutting-edge product development.
For marketing purposes, these soya and tomato farmers may be
grouped together. There are no such similarities between the
proles and buying behaviour of the soya farmers in Figure 3
and the tomato farmers described in Figure 4. For marketing
purposes, these dissimilar farmers should not be grouped
together as each requires a different marketing mix programme.
The sectorisation around product types and customers
sectors of activity, evident in this global agrichemicals
corporation, is typical of the so-called market
segmentation practised in many business-to-business
organisations, from telecommunications, banking to
healthcare provision and defence systems. Hence, this
agrichemicals application illustrates well the benets of the
process proposed here for creating market segments. While
operationally convenient and capable of steering the activities
of sales and marketing personnel, the agrichemical
organisations previous approach failed to group like-minded
customers together, with resulting diseconomies of effort and
marketing for those marketing to these customer groupings.
The pre-existing customer classication had been used by
this corporation for several decades, and a rapid revolutionary
re-classication of customers and key accounts could have
generated signicant resistance amongst customer-facing
personnel. The process described in the following, instead
led to a market segmentation solution being readily adopted
by those managers tasked with selling to and servicing these
business customers. The process should not include only
marketers (Abratt, 1993; Dibb and Simkin, 1997; McDonald
and Dunbar, 2004; Simkin, 2002). Product development,
customer support and sales colleagues should be involved.
Remember that the aim is to create a non-threatening yet
desirable transition from the corporations existing
sectorisation or product-led customer grouping to a more
genuine customer-focused segmentation solution.
The required six stages
The six stages for moving from the organisations existing
denition of customer groupings to market segments are
relatively straightforward, if wrapped around the illustrated
buying proforma. As demonstrated with the example of soya
and tomato farmers, the six stages of the process are:
1. Convening the team
Convene for a workshop a cross-functional, cross-hierarchical
group of managers, including those sales and operational
executives with a sound knowledge of the customers. Key
executives whose remits will probably alter as a result of the
re-denition of customer groups and targeting priorities
Figure 2 The buying performa: no-till soya farmers
Achieving market segmentation
Lyndon Simkin
Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
468
should be included. In the example of the agrichemicals
manufacturer, marketing, product development, scientic,
customer support, sales and key account management and
marcomms personnel were involved, supported with
distributor personnel and industry analysts.
2. Describe current customer groups
Detail or list the current customer groupings, how ever
classied by the corporation undertaking the segmentation
analysis: sectors, product groups, geographic territories, sales
volumes, marketing channels, life stage, or whatever the
nature of the customer classication scheme currently
deployed. For the agrichemicals corporation this was the
broad crop segments, including soya, tomato, rice, maize,
and so on.
3. Analyse the customer characteristics and buying
behaviour in each group
Within the workshop, use the insights and marketing
intelligence of those present to complete the buying
proforma as depicted previously in the illustration for
agrichemicals for each of the existing customer groups or
sectors. If there is any uncertainty, it is straightforward to brief
a market researcher to validate the views expressed on the
proforma by engaging directly with these customers. Often
there is no requirement for additional research, given the
combined insights from managers within the meeting.
4. Further proliferate the number of distinctive
customer groups
The buying proforma should be completed from left to right.
When, inevitably for a particular existing sector or customer
grouping, the team cannot agree on: customer prole
characteristics; buying centre composition and roles; or key
customer values (KCVs) or needs the left-hand column of
the buying proforma separate buying proformas should be
produced to accommodate the emerging differences in
customer characteristics and buying behaviour.
Faced with the inevitable disagreement and inability to fully
describe one group of apparently homogeneous customers on
just one proforma, the team should continue to split up
current customer types or sub-groups in the so-called existing
segment until there is agreement. Each customer type,
based on the information in the left-hand column, warrants a
separate buying proforma. It is important that dissimilar
customers, in terms of their prole and needs, are not forced
to share a proforma. In this way, the number of customer
groups proliferates, but each resulting group will be
homogeneous in terms of its member customers.
For example, the agrichemicals corporation initially had
eight crop-based market segments (the executives termed
them wrongly market segments), but produced 28 buying
proformas reecting 28 different types of customers in terms
of their characteristics, KCVs, buying decision-making and
inuencing factors. Figures 2, 3 and 4 are three of these 28
proformas.
Figure 3 The burying performa: till-based farmers
Achieving market segmentation
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Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
469
Once there is agreement on the customer groups based on the
left-hand column of the proforma, the team should examine
the buying decision-making process of the agreed set of
customer types, and the inuencing factors, to ensure there
genuinely are no differences within each groups customers.
Sometimes, because dissimilar customers are still grouped
together, there may be difculty in generalising with a single
buying process or set of inuencing factors. Therefore, there
may be further division of a pre-existing so-termed
segment, in order to derive truly homogeneous groups of
customers.
5. Re-aggregate the customer groups to form market
segments
The team should identify common/similar traits across the
many proformas now produced and re-group customers
accordingly. There will be proformas completed for
apparently separate sectors or product group-based
segments that in reality are presenting identical KCVs,
buying processes and inuencing factors. The customers in
the context of delivering sales and marketing programmes
with such similarities may be grouped together in a
homogeneous market segment. This is irrespective of the
different sectors, product groups or customer groups in which
these customers started off the analysis.
In the previous example, some of the tomato and some of
the soya farmers could be so grouped together for the
purposes of sales and marketing, sharing as they did buying
behaviour and purchasing characteristics: the farmers in
Figure 2 and Figure 4 were grouped together. For the
agrichemicals corporation, there resulted in the creation of 14
customer-facing market segments. Within each segment,
customers shared common characteristics, key customer
values and buying behaviour. Each newly created segment
contained a homogenous set of like-minded, similarly
behaving customers. In the case of the agrichemicals
corporation, eight initial crop-type based customer groups
were found to contain twenty-eight buying proformas when
considering the farmers characteristics and buying behaviour.
Re-aggregation of similar buying proformas resulted in the 14
market segments.
6. Select the segments to target and develop marketing
programmes for engagement
The process does not conclude with the identication of
market segments. Few organisations have the capabilities or
resources to address all of the resulting segments. Financial
analysis, risk assessment, t with corporate strategy,
supported with analytical assessments such as the segment
attractiveness matrix or directional policy matrix (cf. Dibb and
Simkin, 2008) are often utilised to select which segments to
prioritise. A clear positioning strategy and the specication of
an appropriate marketing mix must then be formulated for
each of those segments targeted. For example, the
Figure 4 The buying performa: plantation tomato farmers
Achieving market segmentation
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Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
470
agrichemicals corporation used its scientic personnel to
build up stronger relationships with the farms scientic
personnel in the segment containing the farmers from Figure 2
and Figure 4, while also directly engaging with the farm
managers and the farm owners, but using different personnel
and messages as appropriate for these different stakeholders.
By involving in the process and the workshops those
managers likely to have to implement the revised strategy,
notably sales and operations staff, the process encourages
buy-in from line managers, sales executives and customer-
facing staff. Experience shows that usually the apparent
irrationality of previously having grouped dissimilar customers
together becomes quickly evident to the team, who are
directing the reallocation of customers into the newly created
homogeneous market segments. The team readily identies
which customers should in fact be grouped together,
irrespective of the customers industry sector, products,
location and existing allocation to the corporations sales staff.
From the analysis of these customers needs, buying centre
composition, buying decision-making and the inuences upon
this process, the sales and marketing personnel within the
team generally are quick to identify the most appropriate ways
for engaging with the customer segments now deemed to be
priority target markets. As indicated in Figures 5 and 6, the
process may be applied to most industries, including the
service sector and to consumer markets.
The details in Figures 5 and 6 have been disguised to
protect the corporations concerned. However, Figures 5 and 6
demonstrate how readily this process led by understanding
customer buying behaviour leads to a clear appreciation of
customer issues, so that commonalities and dissimilarities can
be acknowledged in the grouping of customers into target
market segments, based on the accepted benets of the
concept of market segmentation. The insights into customers
and their buying behaviour also readily direct the creation of
appropriate sales and marketing programmes.
Implications
This approach to market segmentation is based on an analysis
of customers proles, buying behaviour, decision-making,
inuencing forces, needs and the personnel involved in the
buying centre. Poorly composed existing groups of in effect
heterogeneous customers can be reassigned so that the newly
produced groups instead place together similar customers in
terms of their buying behaviour and the expected response to
sales and marketing activities. The customers eventually
grouped together share similar needs and buying behaviour,
irrespective of their commercial sectors of activity or the
products being purchased from the organisation. In this way,
the organisation applying the process benets from the
accepted benets of market segmentation as reported in
literature, but in a process that is relatively unthreatening or
disruptive to the managers currently handling customers.
Those responsible for creating the new-look segmentation
strategy work from within the organisations existing customer
groups, to build on the skills of those already involved with
customers. The newly dened customer segments are
adequately homogenous. In addition, their logic is
appreciated by those managers involved throughout the
Figure 5 Financial services
Achieving market segmentation
Lyndon Simkin
Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
471
process, including sales and marketing personnel, plus
operations and support staff.
By establishing a team of cross-functional managers to
apply this process, there is high likelihood of acceptance
within the organisation of the resulting segments. This team
includes the sales, distribution channel, operational,
aftermarket and marketing personnel with responsibility for
implementing the resulting segmentation scheme. These are
the personnel likely to have their remits altered, accept
different responsibilities or modify their sales and marketing
programmes, in order for the proposed segmentation solution
to be rolled-out effectively. They will have contributed to the
creation of the new-look market segments, resulting in revised
target market strategy and suggestions for the subsequent
marketing programmes required to address the selected
priority market segments. The consequence is an enthusiastic
response to the modied target market strategy.
The creation of a clear target market strategy is at the heart
of an effective business strategy. Despite the acknowledged
benets of the concept of market segmentation, many
organisations fail to adequately embrace the concept. Too
often, business-to-business marketers utilise little more than
trade sectors or product groups as their basis for so-called
segmentation, which is not what is meant by genuine market
segmentation. Such sectorisation or product groups may be
operationally viable but do not exhibit the full acknowledged
benets of market segmentation. Managers fail to embrace
best practice market segmentation largely due to a lack of
customer orientation and to their inability to manage the
transition from how target markets in an organisation are
currently described to how they might look when based on
customer characteristics, needs, purchasing behaviour and
decision-making. The softly-softly evolutionary approach
proposed here brings the benets of market segmentation and
establishes homogeneous customer groups, without causing a
rebellion or a level of organisational re-alignment difcult to
contemplate for those whose responsibilities will change.
The six steps of the process recommended here overcome
these problems, delivering an effective segmentation solution
to executives creating a target market strategy. The steps
should be worked through sequentially, by a cross-functional
team of managers, utilising those with a good knowledge of
the customers needs and purchasing behaviour. The starting
point is the application of the Dibb-Simkin buying proforma
to each currently dened customer group. There will initially
subsequently be proliferation of the number of customer
groups, but then re-aggregation as similar customers
irrespective of their previous classication are grouped
together in fewer segments. Other marketing analyses, such as
the marketing environment, competitor arena and
capabilities, are required in order help the organisation
select the market segments on which to focus its sales and
marketing muscles.
This process for embarking on market segmentation focuses
on customer purchasing behaviour rather than business
sectors or product group classications, and is true to the
concept of market segmentation. The steps of the process,
however, are not intimidating for participating managers. The
Figure 6 IT services
Achieving market segmentation
Lyndon Simkin
Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
472
resulting market segments have their basis in the
organisations existing customer classication schemes and
are an iteration to which most managers readily buy-in.
Despite the size of the market segmentation literature, very
few papers offer step-by-step guidance for developing
customer-focused market segments in business-to-business
marketing. This paper has endeavoured to contribute to the
how guidance for business-to-business market
segmentation. The analytical tool for assessing customer
purchasing deployed in this paper originally was created to
assist in marketing planning programmes, but has since
proved its worth as the foundation for creating segmentation
schemes in business marketing, as has been illustrated for
agrichemicals and other business markets.
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About the author
Lyndon Simkin is a Reader in Strategic Marketing at one of
Europes leading business schools, Warwick in the UK.
Previously he was Director of Warwicks MBA Programme,
ranked in the worlds top 50, and now is Director of the
Schools MSc Programme in Marketing and Strategy. In
addition to many journal articles, Lyndon has authored
numerous books, including two addressing the theme of this
paper, market segmentation. Lyndon is consultant to many
blue chip corporations, including EDF Energy, Fujitsu,
Raytheon, Royal and SunAlliance and AstraZeneca, plus he is
a recognised High Court expert witness in cases of marketing
and business planning litigation. He is also co-chair of the
Academy of Marketings Special Interest Group in Market
Segmentation. Lyndon Simkin can be contacted at:
Lyndon.Simkin@wbs.ac.uk
Executive summary and implications for
managers and executives
This summary has been provided to allow managers and executives
a rapid appreciation of the content of the article. Those with a
particular interest in the topic covered may then read the article in
toto to take advantage of the more comprehensive description of the
Achieving market segmentation
Lyndon Simkin
Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
473
research undertaken and its results to get the full benet of the
material present.
The creation of a clear target market strategy is at the heart of
an effective business strategy. However, despite the
acknowledged benets of the concept of market
segmentation, many organizations fail to adequately
embrace the concept. Too often, business-to-business
marketers use little more than trade sectors or product
groups as their basis for so-called segmentation, which is not
what is meant by genuine market segmentation.
Such sectorization or product groups may be operationally
viable but do not exhibit the full acknowledged benets of
market segmentation. Managers fail to embrace best -practice
market segmentation largely due to a lack of customer
orientation and an inability to manage the transition from how
target markets in an organization are currently described to
how they might look when based on customer characteristics,
needs, purchasing behavior and decision-making.
Focusing on a means to develop meaningful segments while
minimizing internal resistance to the associated changes,
Lyndon Simkin gives an example from the agrichemical
industry where a global corporation lumped all soya farmers
into one segment, tomato farmers in another, maize
farmers in a third, rice farmers in a fourth, and so on.
Yet one group of soya farmers were younger innovators,
environmentally aware, employing professional managers and
agronomists, focused on product performance of pesticides
and herbicides and interested in technical information. They
had far more in common with innovative, buying-center led
and environmentally-aware tomato farmers than with older,
more traditional family-run soya farmers who were resistant
to changing their practices. For marketing purposes the like-
minded soya and tomato farmers should be grouped together,
rather than with dissimilar farmers who just happened to farm
the same crop.
While operationally convenient and capable of steering the
activities of sales and marketing personnel, the agrichemical
organizations approach failed to group like-minded
customers together, with resulting diseconomies of effort for
those marketing to these customer groupings.
Simkin says the sectorization around product types and
customers sectors of activity, evident in this example, is
typical of the so-called market segmentation practised in
many business-to-business organizations, from
telecommunications, banking to healthcare provision and
defence systems. Consequently, the agrichemicals application
illustrates well the benets of the authors process for creating
market segments by means of a softly softly approach which
minimizes internal resistance to the associated changes.
The process starts with a reection of an organizations
existing denition of markets and operations for serving them.
With an evolutionary rather than revolutionary approach
leading to market segments, there will be fewer
implementation barriers and less resistance among the very
managers required to endorse and live the resulting target
market strategy.
The sequence is able to move from an organizations
existing sector-view or product group-based customer
classication towards a true market segmentation scheme.
Generally this process is deployed in a workshop setting,
supported by validatory marketing research concerning
customers needs, purchasing behaviour and inuencing
forces. A cross-functional team of managers, including those
with a detailed appreciation of customers purchasing
behavior and needs, is well placed to conduct the required
analyses.
At the heart of the process is a buying proforma which
analyses customers buying decision-making processes, the
inuencing factors impacting on this decision-making,
customers needs, and their prole and characteristics in a
sector or segment and for B2B markets the composition
of the buying center.
The cross-functional team starts by detailing its existing
customer groups/sectors/segments. For each one, a buying
proforma is produced in a brainstorming workshop. If the
existing customer group contains only similar customers, the
executives involved will be able to readily produce a proforma,
without much debate. However, because the existing
classication is rarely based on homogeneous customer
behaviors, usage and attitudes or reaction to marketing mix
programmes, managers often fail to agree on the customer
description, composition of the buying center or even the
ranked list of key customer values or needs. As a result, the
participating managers opt to further breakdown their
customer groups, until they are able to generalize
comfortably about the proles and needs of a group of like-
mined customers.
It may be that further disagreement occurs when
considering these customers typical buying decision-making
process and the inuences impacting on such purchasing
behavior. In such instances, further sub-division of these
customers may be prudent. There follows a phase of re-
aggregation so as to group together similar proformas and
thereby the customers they portray into homogeneous market
segments.
By starting with an examination of each pre-existing
customer group in the context of the buying proforma
analysis, managers themselves recognize the instances when
dissimilar customers have been grouped together previously
by the organizations sales and marketing personnel.
The very personnel who may nd their remits and
responsibilities altered as a result of the process sales
personnel, marketing managers and marketing and
communications executives are part of this analysis team:
they create their own destiny, which generally subsequently
smooths the path of implementation of the revised target
market strategy and its resourcing.
(A precis of the article Achieving market segmentation from B2B
sectorisation. Supplied by Marketing Consultants for Emerald.)
Achieving market segmentation
Lyndon Simkin
Journal of Business & Industrial Marketing
Volume 23 Number 7 2008 464474
474
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