B2B Market Segmentation – Part 3: How to Prioritize

The previous B2B market segmentation exercises (Part 1 | Part 2) likely produced a large number of potential target segments. If focus is one of the reasons for segmentation in the first place, then having too many segments will obviously distract from this goal. To narrow down our list of segments, we need to create a handful of criteria to assess and evaluate the candidate segments in order to prioritize and filter out the non-viable segments.

Segment Scoring
A weighted scoring model can be helpful where we define a list of evaluation criteria, assign a relative weight to each, and then score by assigning points for each criterion across each segment. I suggest starting with the same criteria you used to define the segments and also use them to score your segments. In the next step, we need to add criteria to capture the segments’ strength of demand, growth rates, barriers to entry, competitive situation, etc. Upon closer examination you may notice that some segments aren't really all that different, and maybe they can be collapsed into one.

Segment Map
Also, it might be helpful to plot the segments against a chart with two dimensions: 1) “Segment Attractiveness” (use the relevant criteria from the scoring exercise) and 2) “Relative Competitive Advantage” in order to prioritize target segments. Then plot your segments against this chart using the two dimensions. Segments that end up in the upper right are clear favorites (highly attractive and with a strong competitive advantage), lower left segments (unattractive, no competitive advantage) should be abandoned.

And always watch out for surprises like new, unexpected customers that are enthusiastically adopting your product but don't fall into traditional segment definition. They might be a bluebird / black swan event, a less than ideal customer for other reasons, or they might be an early signal of a new market segment worth pursuing.

What segmentation approach worked for you?

Additional Resources on Market Segmentation

Market Segmentation and Best Customers
http://www.information-management.com/news/5659-1.html 

B2B Discovers Market Segmentation
http://blog.nielsen.com/nielsenwire/consumer/b2b-discovers-market-segmentation

Business to Business Segmentation
http://www.greenbook.org/marketing-research.cfm/business-to-business-segmentation

B2B Segmentation Strategies
http://www.washingtonsquareconsulting.com/wordpress/?p=95

Segmenting Customers: How to do it efficiently to improve enterprise products
http://www.pragmaticmarketing.com/publications/topics/10/segmenting-customers-how-to-do-it-efficiently-to-improve-enterprise-products