Companies in the business-to-business sector market their products and services to other businesses, rather than to consumers. They segment their markets into smaller groups that share certain characteristics so that they can meet the needs of each group precisely. Segmentation enables a company to target customers in a segment with the right messages and the right mix of products distributed through the right channels.
Companies segmenting their market by size typically split the sector into enterprise customers or small and medium businesses, using either turnover or numbers of employees as a measure. Enterprise customers are generally large corporations. Although enterprise customers are likely to purchase in higher volume than small and medium businesses, competition for their business is fierce because the rewards are greater. Companies that segment markets by size focus greater sales and marketing resources on enterprise customers, selling direct through a sales force and offering high levels of service. To deal with smaller customers, they may use indirect channels, such as distributors or Internet sales.
Segmentation by vertical industry is an important strategy for companies that develop products and expertise to meet the needs of customers in specific industries, such as financial services, defense, government or manufacturing. Companies build an understanding of the specific needs of the segment and emphasize their understanding of industry issues and challenges in their marketing messages. They also may develop segment-specific versions of their products to differentiate themselves from competitors that offer “vanilla” products suitable for all markets.
Horizontal segmentation is suitable for companies that market products that meet the needs of a number of different industry sectors. A software company, for example, may offer accounting systems or word processing packages that are suitable for all industries. Horizontal segmentation does not offer the opportunity for differentiation by industry need; companies may compete on price or availability, rather than market fit.
Geographic segmentation enables a company to focus sales and marketing resources that offer strong growth opportunities. A company with limited sales resources may choose to deal only with local or regional customers. Companies with global operations typically segment their markets into broad geographical groupings, such as Europe, Middle East and Africa, Asia-Pacific and the Americas. Companies also may concentrate their resources on geographic regions with a high concentration of customers in their industry segment, such as Silicon Valley for information technology customers or Washington for government customers.