Organizational Market Segmentation: Bases, Strategy, & Pros/Cons

Table of Contents

What is Organizational Market Segmentation?

Organizational market segmentation, also known as business-to-business (B2B) segmentation, is a method where companies divide their target market into smaller and similar groups.

This segmentation allows businesses to gain a deeper understanding of the distinct needs, preferences, and behaviors of various organizations.

In B2B segmentation, the market consists of users who buy or sell products for the three reasons mentioned below:

For reproduction or further production.
For resale to earn profit, or
For institutional use or providing facilities to the organizational staff to facilitate their performance.

In essence, organizational market segmentation is about understanding why businesses buy and customizing products and services accordingly. This strategy improves relationships and sales in the business world.

Bases of Organizational Market Segmentation

Organizational segmentation understands that businesses aren’t all the same. They have their own unique reasons for buying, they shop differently, they vary in size, and where they are located can impact what they need.

By recognizing these differences, companies can offer products and services that fit each business’s personality and needs, making both sides happier and more successful in the world of business. The four major bases by which the organization market is segmented include:

Use of Product – “The Purposeful Buyers”

Imagine businesses as customers in a big store. They don’t just shop randomly; they have a purpose. Some buy things to create new stuff like a baker buying flour to make bread. Others buy things to sell and make money, like a store buying snacks to stock their shelves.

And then there are businesses that buy things just for their own use, like an office buying office supplies for their employees. This is what we mean by the “use of product.”

Buying Characteristics – “The Shopping Personalities”

Think about how different people shop. Some always look for the best deals, even if it means sacrificing a bit on quality. Others want top-notch service and are willing to pay extra for it. Some folks are quick decision-makers, while others take their time.

Businesses are the same. Some are super price-conscious, some want top-notch service, and others have their own unique way of deciding what to buy. These differences are the “buying characteristics.”

Customer Size – “Big Buyers and Small Buyers”

Imagine two companies in the same market. One of them buys a huge amount of stuff at once, like a restaurant ordering a ton of food. The other buys smaller amounts, like a local café getting just what they need for the week.

This is what we mean by “customer size.” Some businesses are big buyers, and some are small buyers. Knowing this helps companies plan better and serve their customers more effectively.

Geographical Areas – “Location Matters”

Picture a map, and on that map, different businesses are marked. Depending on where they are, their needs can be different. A company in a hot, dry place might need different things compared to one in a cold, snowy area. That’s what we mean by “geographical areas.” Location matters because it can affect what businesses need and how companies can serve them.

Pros and Cons of Organizational Segmentation

Let’s explore some pros and cons of organizational market segmentation:

Pros:

Targeted Marketing: By segmenting organizational markets, businesses can tailor their marketing efforts to the specific needs and preferences of different business customers. This targeted approach increases the effectiveness of marketing campaigns.
Improved Customer Relationships: Organizational market segmentation allows companies to better understand their business customers. This understanding can lead to stronger relationships and more personalized interactions, which can result in increased customer loyalty and repeat business.
Optimized Product Development: Segmentation helps businesses identify which products or services are in high demand within different segments of the market. This information can guide product development efforts, ensuring that offerings align with customer needs.

Cons:

Complexity and Cost: Implementing and managing organizational market segmentation can be complex and costly. It requires data collection, analysis, and ongoing adjustments, which can strain resources.
Risk of Overlooking Opportunities: Over-segmentation can lead to the oversight of potential customers or markets that do not neatly fit into defined segments. This may result in missed opportunities for growth.
Limited Flexibility: Once a company has committed to a specific segmentation strategy, it may become less flexible in responding to changing market dynamics or emerging customer preferences. This rigidity can hinder adaptability in a rapidly evolving business environment.

Strategies For Successful Organizational Market Segmentation

Implementing organizational segmentation can be different from consumer segmentation. It may require different strategies to deal with business buyers. Here are the five strategies you can use to successfully implement B2B segmentation in practice.

Get to Know Your Business Customers

Think of businesses as your friends. To make good friends, you need to get to know them. Learn about their needs, how they shop, and what makes them tick. Just like you’d remember your friend’s favorite food, remember what your business customers prefer. This way, you can tailor your offerings to fit them perfectly.

Segment with Accuracy

Imagine you’re doing a jigsaw puzzle. Each piece has its unique shape, and they fit together to create a beautiful picture. Your customers are like those pieces. Segment them with precision, finding the right shapes that fit together. This means identifying businesses with similar needs, buying habits, or sizes and grouping them accordingly. It makes your marketing efforts more accurate and effective.

Customize Your Offerings

Think of your products or services as items on a menu. Not everyone likes the same dish. Create a menu with options that cater to different tastes. For instance, offer different pricing plans or service packages for different customer segments. This way, each business can order exactly what suits their appetite.

Personalized Communication

Imagine you’re sending text messages to your friends. You wouldn’t send the same message to everyone, right? Treat your business customers the same way. Send them messages that speak directly to their needs and preferences. If they’re price-sensitive, highlight your cost-saving options. If they value service, emphasize your exceptional support.

Keep Adapting

In the business world, things change fast. Your customers’ needs may evolve, and new businesses may enter the market. Stay flexible and ready to adapt. Monitor how well your segmentation and strategies are working and be ready to tweak them.

Organizational Vs. Consumer Market Segmentation

Organizational Market Segmentation: In this world of buying and selling, not all customers are the same. When businesses sell to other businesses, it’s like a whole different game. It is the art of dividing these business customers into smaller groups based on factors like what they buy, how they buy, how much they buy, and where they are located.

Consumer Market Segmentation: On the flip side, when businesses sell to individual people, it’s like dealing with a big, diverse crowd. Consumer market segmentation is about splitting this crowd into groups based on things like age, gender, income, lifestyle, and where they live.

Key Differences:

Who’s Buying: Organizational segmentation deals with businesses as customers, while consumer segmentation deals with individual people as customers.
Focus: Organizational segmentation focuses on business needs and behaviors, while consumer segmentation looks at personal characteristics and preferences.

Overall, organizational market segmentation is like sorting businesses into categories, while consumer market segmentation is about understanding what makes individual people tick. Both help businesses offer the right things to the right customers.

Arti

Arti Kushmi holds a BBS (Bachelor in Business Studies) degree and shares her business and marketing knowledge through this website. While not writing she will be reading and enjoying the moment.

Organizational Market Segmentation – Definition, Bases, Strategies, and Pros/Cons