There May be Something to Segmentation

Market segmentation is the division of customers into groups. How can the concept of segmentation help you improve sales and margins in your shop? Why would you want to use segmentation? It can help you focus your marketing and sales efforts on the types of customers that are the best fit for you. Since you can’t do everything for everyone, focus is important. Segmentation can help you know how to focus.

Classic industrial market segmentation is done with digits—zip codes and NAICS (North American Industry Classification System), which replaced the SIC (Standard Industrial Classification) codes in most uses in 2007. These seven-digit codes (consistently used in Mexico and Canada as well as the U.S.) tell us what industry classification a company is in. This methodology is often useful, but not usually sufficient. Since most shops serve a limited geography, you should also want to combine NAICS codes for the industries you want to serve with a geographic segmentation (zip codes). This approach can quickly get you a list of all companies in a particular industry in the geography you want to serve.

There are other ways to segment as well that might be more helpful. Here are some examples:

Usage—How does the customer use the product or service you supply? Not all customers, even within the same NAICS code or geography, use your products or services in the same way. Technology is a blend of science and art. The science is the product or service; the art is how your customers use it. Carm Santoro, former CEO of Silicon Systems, points out that the price of industrial products and services tend to fall to the value placed on them by the lowest valued user. Therefore, you can increase your average selling price (and margin) if you target the right customers by recognizing that not all customers use your product for the same purpose. Remember, if you look at what you sell, it’s likely just a commodity. Look at what different customer groups may be buying. Do you do well with quick turnaround projects that others can’t respond to? Is your expertise short runs, long runs, or multitasking solutions?

Service—Which of your many services does the customer actually buy? In spite of your marketing and sales efforts, most customers buy a small subset of your total offering. Consider looking at your customers and prospects based on what portion of your service offering they purchase. Again, even within NAICS or zip codes, there is very likely to be significant segmentation opportunities based on the services purchased.

Decision Maker—Who are you selling to? This is a non-obvious method for segmentation that can be very effective. Are your best customers those where you are involved with engineering in advance, or do you excel in dealing with production people or purchasing people when it is time to make the buying decision? Sure, you eventually have to deal with purchasing to get a P.O., but who is your best decision maker? A shop I work with finds that they are best at working with engineering in the design phase because they can truly add value by helping them find the most efficient design to produce. That may be a desire you have also, but if you can’t really add value in the design phase, this approach won’t work for you.

“Firmographic”—Industrial demographics. How is this firm really different from other companies in the same industry or geography? Can you identify characteristics about the business that allows them to be a good target? My own company works across a multitude of industries, bringing ideas from one industry and adapting them to another. Our segmentation: companies that want to grow faster than they are currently growing.

These are only four examples of how to apply the division of customers into groups in a useful way if you take the time to think about it, or you can continue to promote to everyone, everywhere and hope something sticks. But then again, “hope” isn’t a strategy.