Segmentation is at the very heart of marketing. A segment is a group of individuals or companies with a common attribute that causes them to share similar needs. Marketers tailor their products, services and communications to these common attributes in order to ensure that their offering meets market requirements. Most business-to-business markets possess at least 3 segments, meaning that the astute b-to-b marketer should usually market at least 3 different offerings.

A good segmentation is one that enables a supplier to successfully meet customer needs. It will be apparent from the above segmentations that “firmographics” is a very simple means of classifying companies but may not be the most effective. Needs-based segmentations are the most accurate but they are difficult to achieve. People within companies should understand the market in terms of all three different types of segmentations in order to fully understand customer requirements, before tailoring customer value propositions around the needs of the segments of interest.

It is worth highlighting the fundamental principle behind market segmentation: The top 20% of customers in a business may generate as much as 80% of the company’s revenue. What’s more, half of the company’s profit may then be lost serving the bottom 30% of unprofitable customers.

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