Most marketing plans open with an audience slide. It lists company size, industry, region and a few job titles, and sometimes it adds a persona with a stock photograph and an invented name.
The slide usually gets called segmentation. Most of the time it’s a description of the customers the company already has, sorted by whichever fields the CRM stores.
Segmentation is a different piece of work, and every decision that follows depends on it being done properly.
This isn’t an essay about better audience data. It’s an essay about what segmentation is for, and why it sits at the start of a marketing strategy rather than inside a campaign.
Start with what’s true about the audience slide. Knowing which industries your customers sit in, how big they are and where they are is useful. Industry, size and location tell you where to find buyers and how to reach them, and no media plan works without them. They don’t tell you what any of those buyers want, and a strategy ought to be built on what buyers want.
Segmentation turns a market into something you can decide about
Kotler and Armstrong define market segmentation as dividing a market into smaller groups of buyers with distinct needs, characteristics or behaviours who might require separate products or marketing mixes.
Buyers get grouped because different groups need different products or different marketing. A market of forty thousand companies isn’t something a marketing team can act on. It’s too large and too varied to say anything useful to. Divided into a small number of groups, each wanting a different outcome for a different reason, it becomes a set of options a company can compare.
Kotler and Armstrong also set out the requirements for effective segmentation. A segmentation that meets them can be used to choose target segments. A segmentation that doesn’t is a description of the market and nothing more.
Measurable. You can say how many companies sit in each group and roughly what the category is worth to them. Without a number on each group, one segment can’t be compared with another, and targeting becomes a matter of taste.
Accessible. You can reach and serve the group. A segment defined only by an attitude tends to fail here, because there’s no way to find the people who hold it.
Substantial. The group is large enough to be worth serving. In B2B this catches the segment built around three flagship accounts, which is a sales plan rather than a segment.
Differentiable. The groups respond differently to different marketing. If two segments would respond the same way to the same campaign, one segment has been split in two for no reason.
Actionable. The company can build programmes to attract and serve the group. If the product can’t serve it and the sales team can’t support it, it’s a finding about the market rather than an option the company can take.
A usable segmentation gives the business a list of segments to choose between, with the size and value of each one known.
Market segmentation describes the whole market, including buyers you’ll never serve
A segmentation covers everyone who buys the category: the companies buying from competitors, the companies that haven’t bought from anyone yet, and the groups the company has no intention of selling to.
Including buyers you won’t serve looks like wasted effort. It isn’t. A segmentation drawn only around existing customers can’t show you which groups you’re absent from, how large they are, or whether the segment you’re winning in is the one that’s growing. Knowing where you’re absent and where the growth is separates a strategy from a plan to do more of what already worked.
Segmentation belongs to the market rather than to the company. The groups exist in the market before anyone researches them. Two competitors who each research the category properly should find the same groups. What each company does with the groups comes later, at targeting.
A segmentation that only contains your own customers describes your customer base, not the market.
A segment holds together around what its buyers are trying to achieve
Groups drawn on industry and headcount tend to contain buyers who want different things. A 400-person manufacturer and a 400-person law firm sit in the same size band. The manufacturer is buying to stop a production line going down. The law firm is buying to get partners out of administrative work. One proposition can’t serve both, and one media plan won’t reach both sets of decision makers.
The most common version of the mistake is treating SMB as one segment. A 30-person accounting firm and a 300-person logistics company both count as SMB. The accounting firm is buying to get invoices out without hiring an administrator. The logistics company is buying to keep its depots running. They have different budgets, different buyers and different problems, and the only thing they share is that neither is an enterprise. SMB is a size band with a set of assumed needs attached. It isn’t a segment.
What holds a segment together is what its members are trying to achieve, what they believe about the category, and how they buy. In B2B that means asking what triggers the purchase, what the buyer is measured on, what happens if they do nothing, who else has to approve it, and what would make them leave their current supplier. Two companies that answer those questions the same way will respond to the same proposition, even if one runs hospitals and one moves freight.
Firmographics come back at the end. Once the groups exist, you look at what the members of each group have in common from the outside: the industries they cluster in, the sizes they tend to be, the roles that lead the buying. Industry, size and role are what make a segment findable. Without them you can’t buy media against the segment or tell the sales team who to call.
Needs define the segment. Firmographics find it.
The description comes from research, not from the database
None of that information is in the CRM. The CRM holds what the company recorded about the customers it won. It has nothing about the buyers who chose someone else, and nothing about why anyone bought.
The research has two parts. Interviews come first, with buyers who chose you, buyers who chose a competitor and buyers who did nothing. The interviews tell you what the issues are, in the words buyers use rather than the words the category uses. They’re where you find out that two industries you treat separately are solving the same problem, or that one group’s real alternative is hiring someone rather than buying software.
Then a survey with a representative sample, to find out how common each issue is and how many companies sit in each group. The survey puts a number on each group, and that’s what lets you compare one segment with another.
Interviews on their own give you a detailed description you can’t size. A survey on its own measures answers to questions that may have been framed wrongly, because nobody checked what buyers were trying to do before writing the questionnaire. The order matters as much as the content.
Cluster the survey responses on needs and buying behaviour first, then look at where each cluster differs from the market average on industry, size and role. Stop at the smallest number of groups that keeps buyers who want different things apart.
Research is the part companies skip, and it’s the part that makes everything downstream possible. A segmentation assembled from internal data describes the company’s past. A segmentation built from research describes the market as it is now.
You can’t discover what buyers want from a database of what they bought.
Segmentation makes targeting possible, and targeting is where the company commits
Segmentation describes. Targeting chooses.
Kotler and Armstrong define market targeting as evaluating each market segment’s attractiveness and selecting one or more segments to enter. Targeting is the first point in a marketing strategy where the company gives something up. Entering a segment means building the product for those buyers, making the proof, teaching the sales team how they buy, and pricing for the size of company involved.
Kotler and Armstrong set out what to weigh when making the choice: the size of the segment and whether it’s growing; how attractive its competitive structure is, meaning who else is competing for it, how strong they are, how easily buyers can switch and how much power buyers hold over price; and whether serving it fits the company’s own objectives and resources. Fit with the company’s own objectives and resources is the test that rules out most segments that look attractive on size alone. Enterprise buyers in regulated industries are a large segment with real budget. Serving them takes certifications, security review capacity and an implementation team that a smaller company doesn’t have.
In B2B the choice isn’t optional. B2B vendors have no mass market to fall back on, so they must target defined segments, as the Marketer’s Toolkit from Harvard Business School Press puts it. The only question is whether the choice is made deliberately or by default.
The essence of strategy is choosing what not to do. Michael Porter wrote that in 1996, and targeting is where marketing makes that choice. Naming the segments the company won’t pursue frees the budget, the roadmap and the sales capacity for the segments it will.
None of that choosing is possible until the segments have been defined. A company can’t evaluate the attractiveness of groups it has never defined, so it ends up choosing between the customers it already has and the customers a competitor just won.
Segmentation has done its job when someone can say no to a segment and explain why.
Segmentation makes positioning possible, because a position exists in the minds of a particular group
Kotler and Armstrong define positioning as arranging for a product to occupy a clear, distinctive and desirable place, relative to competing products, in the minds of target consumers.
Every part of that definition depends on knowing the segment. The minds belong to a particular group of buyers. The competing products are the ones that group compares you with, and different groups compare you with different things. Desirable means desirable to that group of buyers, and the only way to know what they want is to have asked them.
Competing products is where segmentation matters most, and where it’s most often skipped. A buyer’s frame of reference is the set of options they think they’re choosing between, and it’s rarely the category the company uses to describe itself. One group is comparing two suppliers. Another group is deciding whether to buy anything at all, or to hire two more people and keep working the way they do now. A company that knows what each segment is comparing it with can position against those alternatives. A company working from one audience slide positions against the competitors it chose to name, which may not be the alternatives buyers are weighing up.
One position stretched across a whole market says very little, because different groups buy the same product for different reasons. A company can hold one broad brand position with a sharper position for each target segment underneath it. The sharper positions can only be written if the segments are real.
You can’t hold a position in the minds of buyers you haven’t researched.
What a good segmentation looks like
An example makes the difference concrete.
A software company sells scheduling tools to businesses that send staff out to customer sites: trades, equipment servicing, home care, facilities maintenance. Its audience slide says SMB field service companies, 10 to 500 staff, Australia and New Zealand. Its CRM holds 900 customers, most of them plumbing and electrical contractors, because that’s who the founders knew.
The company interviews 40 buyers: current customers, companies that chose a competitor, and companies that looked and bought nothing. Then it surveys 600 companies across the whole market. The groups that come out are defined by what the buyer is trying to fix, not by trade or headcount.
Stop losing jobs. Businesses where a missed or late appointment means lost revenue and a complaint. The operations manager buys. The trigger is a run of complaints. The alternative is hiring another dispatcher. About 14,000 companies, mostly trades with 20 to 200 field staff.
Get paid faster. Businesses where the job is done on Tuesday and the invoice goes out three weeks later. The owner or the finance lead buys. The trigger is a cash squeeze. The alternative is a part-time bookkeeper. About 9,000 companies, most of them small.
Pass the audit. Businesses whose customers demand proof of every visit: fire safety, medical equipment servicing, utilities contractors. The compliance or quality manager buys. The trigger is a failed audit or a new contract clause. The alternative is paper forms and admin staff. About 6,000 companies.
Run a national fleet. Multi-region operators with in-house IT who want scheduling wired into their ERP and their reporting. The IT or operations director buys, slowly. The alternative is building it themselves. About 1,500 companies, with the largest budgets in the market.
Not buying. Businesses with a few field staff who run on phone calls and a whiteboard. About 10,000 companies. They’re in the segmentation because the market isn’t complete without them, and because some of them grow into the groups above.
Every company in the market sits in exactly one group, including the companies that buy from competitors. Trade and headcount appear only at the end, as the way to find each group.
Targeting is now a decision the company can defend. It chooses stop losing jobs and get paid faster: the product already does both, the buyers are reachable through trade associations, and the sales team knows them. It says no to run a national fleet because it has no integration team, and no to pass the audit until the compliance features ship next year. Positioning follows. To the operations manager, the product is the alternative to another dispatcher. To the owner, it’s the alternative to a bookkeeper. One product, two positions, both written from what buyers said.
A good segmentation names what each group wants, puts a number on it, and includes the buyers you won’t serve.
Choosing a market isn’t the same as narrowing your reach
Segmentation and targeting decide where the company competes. They don’t decide how many people inside that market should see the advertising. Marketers often treat choosing a market and narrowing the reach as one decision. They’re two decisions.
Targeting has a cost. The Marketer’s Toolkit from Harvard Business School Press warns that focusing on narrow segments reduces the number of buyers for whom the offer represents value, and ties the company’s future to the fortunes of the segments it chose. Every time the audience is narrowed, buyers are lost. Narrow it once, when the target segments are chosen, and then reach as many buyers inside those segments as the budget allows.
The usual instinct is to do the opposite: buy audience data and advertise only to the job titles that match the target segment. 68 per cent of B2B marketers believe hyper-targeting is more effective than broad targeting, according to the LinkedIn B2B Institute’s 2030 B2B Trends report. The evidence doesn’t support them.
Ad-tech vendors sell audience segments labelled IT decision makers. Between 9.4 and 18.2 per cent of the people in those segments were IT decision makers, depending on the vendor, in a 2023 study published in Quantitative Marketing and Economics by Nico Neumann, Catherine Tucker, Kumar Subramanyam and John Marshall. Showing the same ads to a random audience with no targeting at all reached IT decision makers 16 per cent of the time. Paying for the segments bought nothing.
The same study found what does work. Placing the ads on business content, using the publisher’s own data about what its readers look at, reached IT decision makers 41.8 per cent of the time. Targeting works. Bought third-party segments don’t.
Reach strategies, which address customers and non-customers together, scored 1.6 on Les Binet and Peter Field’s measure of very large business effects in their analysis of B2B cases in the IPA Databank, against 1.0 for acquisition strategies and zero for loyalty strategies. Up to 95 per cent of business buyers aren’t in the market for a category at any one time, according to John Dawes at the Ehrenberg-Bass Institute, and the ratio is a rule of thumb rather than a constant. Most of the buyers who will eventually choose a supplier aren’t comparing anything today.
Choose the market carefully. Reach widely inside it.
Segmentation tells you which market to spend in. It doesn’t tell you to spend narrowly once you’re there.
Before you accept a segmentation, put it through these checks
Find your competitors’ customers in it. If every group is populated by companies you already sell to, the work described your customer base. It can’t tell you where growth is.
Place a company in exactly one group. If an account could sit in two groups, the dividing lines aren’t doing anything, and two teams will market to the same company in two different ways.
Name each group for what its buyers want, not for how much you want them. A segment called Mid-Market Manufacturing tells you where to find people. A segment named for the outcome its buyers are chasing tells you what to say to them. Names like Tier One or Priority Accounts describe a targeting decision, not a segment, and they’re the names that get used once the sales manager stops reading the segment profiles.
Put a number on each group. How many companies, what they spend on the category, and whether that spend is rising. Segments without numbers can’t be compared, and a targeting decision made without comparison is a preference.
Ask the sales team to name real accounts in each group. If the people talking to buyers every day can’t place accounts, the segmentation came out of a dataset rather than out of the market, and nobody will use it.
If a segmentation fails these checks, it isn’t ready to choose from, and any targeting decision made on top of it is a guess with numbers attached. If it passes, the hard part is over. What’s left is deciding which groups to serve, and writing down which groups you won’t.
Segmentation comes first because everything else depends on it
Segmentation gets treated as preparation, the slide you build before the planning starts. It’s where the planning starts. A company that understands its market in detail can make a targeting choice it can defend, and hold a position that means something to the buyers it chose. A company working from an audience slide is guessing, and the errors compound: if the segmentation is wrong, the targeting is wrong, and the positioning and every tactical decision after it are wrong too.
None of this requires new technology. It requires asking buyers what they’re trying to achieve, counting how many of them there are, and being willing to write down which groups the company won’t serve this year.
We believe marketing is a commercial discipline, not a promotional service.
We believe the decisions that matter most are made before anyone writes a brief, and that they belong to the business as much as to marketing.
We believe judgement is what turns evidence into a decision, and that no amount of data removes the need to choose.
Segmentation is how you understand a market. Targeting is how you choose.
Back2Marketing exists to help marketers make better decisions, by combining the best available evidence with commercial judgement and practical experience.
Evidence informs. Judgement decides.
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