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B2B Segmentation Solutions

Understand market opportunities to grow your customer base

October 2009
B2B Segmentation Solutions
Understand market opportunities to grow your customer base

Executive summary Introduction must estimate this data using custom


With business-to-business (B2B) marketers The challenge for marketers has always been models with results that routinely reinforce
under increasing pressure to better target the same: know your customer. But with the adage “garbage in-garbage out.”
their customers and prospects, segmentation limited information on most companies—
can be a powerful tool for strategic and especially small and mid-sized firms— Fortunately, B2B marketers are now getting
tactical applications. But too many B2B marketers traditionally have concentrated their due. Comprehensive databases such
segmentation approaches fail to deliver their efforts in the consumer world where as Nielsen Business-Facts give marketers
their promise in the marketplace. While ample data exists to craft effective target access to accurate and current data within a
marketing segmentation systems have enjoyed marketing solutions. Analysts can access consistent framework on 13 million business
widespread acceptance in the consumer demographic data from the U.S. Census establishments—critical information such as
world for decades, similar systems for B2B Bureau (“householders age 34-54 with a company’s total headcount and industry
marketing have languished due in part to incomes over $100,000”), product sales classification Standard Industrial Classification
the limited availability of accurate data and statistics from marketing companies (“buyers (SIC) or North American Industry Classification
technical expertise. All too often, custom of Tide but not Wisk”) and all manner of System (NAICS) code. By appending these
models can’t be implemented at the street behavioral and psychographic research data to its business customer file, a company
level and are useless for developing high- from survey houses (“early adopters” or can create a robust business segmentation
quality leads, delivering targeted marketing “eco-consumers”). When all these data are approach that can guide all its marketing
or creating differentiated messages. sliced and diced to create consumer types, initiatives, including prospecting, sales territory
the resulting segmentation systems—like mapping, advertising and target marketing.
New methodologies for modeling data lifestyle-based Nielsen PRIZM—become
are yielding innovative B2B segmentation powerful off-the-shelf tools for consumer In a typical segmentation analysis, business
solutions that are both actionable and target marketing. customers are sorted into categories based
effective. Enhanced datasets and segmentation on company size and industry, though other
techniques developed by The Nielsen For B2B marketers however, getting to know defining characteristics could also be added.
Company are helping companies develop their end buyers is not so simple. Unlike Using figures from a proprietary database
informed strategies for prospecting new demographic data, accurate information and their own information, analysts calculate
customers, re-aligning sales territories, about businesses—so-called firmographic sales per employee within each business,
cross-selling existing customers and predicting data—has been harder to come by, in part estimate its market potential value and
future opportunities. Their techniques uncover because of the life cycle of business estab- rank it against all other customers and
key attributes of a company’s most valuable lishments. According to the Small Business prospects. At that point, the applications
business customers and then employ them Administration, more than half of all new are limited only by a marketer’s imagination.
using a segmentation approach to help businesses fail within their first four years. Analysts can forecast the size of an opportunity
focus their marketing efforts and increase And with more than 1.25 million businesses and benchmark penetration rates within an
sales. While B2B segmentation is still a starting up and shutting down each year, industry segment. Core customers can be
relatively new discipline, the results have market researchers are left with a confusion targeted for up-selling while high potential
already proven their value and led to a number of addresses, phone numbers and staff titles prospects are assigned a dedicated sales staff.
of best practices to help ensure success. that make tracking difficult. In addition, The management team can set performance
most private companies don’t publish targets, redraw sales territories and reclassify
detailed financials such as annual revenue, prospects if the segmentation analysis indicates
earnings and profit margins. Analysts instead a large, unrealized potential, see figure 1.

Page 2 © 2009 The Nielsen Company. All rights reserved


B2B Segmentation Solutions

Figure 1: Realigning sales territories based on segmentation analysis Can you hear them now:
Uncovering new opportunities
Acquiring new customers is a perennial
challenge for most companies, but it is
BEFORE Segmentation Analysis

vital for growing the business. Like many


companies serving mostly rural America,
Windstream Communications struggled
with identifying lucrative small business
prospects in its 16-state footprint. A
telecommunications company serving three
million customers—one million of them
business establishments—Windstream didn’t
have a systematic way to prioritize prospects,
a strategy for packaging its services or even
a protocol for initiating contact with companies.
Individual sales people approached each
new business customer differently, typically
offering Windstream’s phone, broadband
and data services based on the number of
AFTER Segmentation Analysis

requested phone lines.

This catch-as-catch-can approach didn’t allow


Windstream to develop an understanding
of the prospect’s profit potential or its
potential wallet share. A small firm signing
up for $200 in telecom services from
Windstream may already be spending
$800 at another company. “We had no
way of knowing whether there was a huge
opportunity left on the table,” says Michael
Business segmentation can help companies align their sales territories based on the opportunities Bek, Director of Direct Marketing at
on the ground. The BEFORE map shows territories determine by geometry—four quadrants dividing Windstream, in Little Rock, Arkansas.
the central area—while the AFTER map shows territories that vary in size based on the number and “Without knowing where the money was,
potential value of target businesses (the red dots indicating the locations of target businesses). By
mapping its business prospects by size and industry type in Lexington, Kentucky, a company can we couldn’t prioritize where our sales
better realign its sales territories based on the concentrations of its high-quality prospects. department should focus its attention.”
Source: Nielsen Business-Facts
To improve that understanding, Windstream
worked with Nielsen analysts to create a
Business segmentation can also drive With current economic conditions putting the segmentation system that classifies its
changes to marketing communications and squeeze on budgets, business segmentation business customers into segments and
advertising. Instead of relying on intuition can deliver more bang for the marketing determines the opportunity of each segment.
and tradition—using the same channels buck, helping companies cost-effectively Windstream’s existing customer records
and messages that have been around for retain their best customers and find lucrative were first matched against the Nielsen
decades—marketers can develop initiatives new prospects. As with B2C marketing, the Business-Facts database to identify each
based on hard data that address the needs companies that are succeeding are the ones company’s SIC code and employee count.
of their business customers and reach them that use B2B segmentation solutions to Analysts then divided the companies into
in the way they will be most receptive, see create offerings and communicate messages three buckets based on size: small firms with
figure 2. that resonate with their business customers. fewer than 10 employees, medium-sized

Page 3 © 2009 The Nielsen Company. All rights reserved


B2B Segmentation Solutions

Figure 2: Differentiated messages based on segmentation analysis in the services segment, marketers sent a
direct mail piece promoting a couple of
Cold Hard Cash. phone lines and simple Internet access for
Your growing trucking business thrives on it.
Our job is to help you make it work harder for you.
ordering parts. Even the delivery method
varied by segment: a large manufacturer
Dear Mr. Smith:
With our Cash Management Services, we’ll help you boost cash flows, reduce would receive a marketing packet by UPS
costs and provide you with more financial leadership for your trucking business.
Whether you're looking to buy equipment or simply need working capital,
or FedEx, while a promotional postcard or
g re w a rd s we’ll provide you with the financing options to solve your growing challenges. self-mailer would be sent to a mom-and-
rt earnin J&B Bank offers a full range of receivables, payables and liquidity services
w to sta ! pop retailer.
Reply no siness spending 009 to help you drive the success of your large business. It’s how we can help
y ou r b u e r 15 , 2
for vemb you make a wise decision.
pires No hat’s why
a
Offer Ex an ever. T can earn
w n er : p ortan t th u With years of experience helping other businesses, we understand this is
all Busi n es s O
s is m o re im
custo m er, yo In the year since Windstream’s segmentation
Dear Sm ey for your busines elp. As our valued tes. your business, and you deserve individual attention. We'll take the time to
on nh t ra analysis, Bek has seen impressive results.
Saving m siness Account ca ual fees and grea put together the best financing package available, with an amount and
B B u no an n
new J& ices with term that suits your business. And we’ll do it at a competitive rate so you
rewards fo r se rv
ed it ca rd Direct mail response rates have risen 50 to
o u r b u siness cr can take comfort in knowing that your large business may soon become
sing
y o u rs elf for u ts yo u r ac co unt larger—without breaking the bank. 70 percent, and telemarketing sales have
Reward onus poin arged to ice
rst-use b for each dollar ch and Internet serv
• 5,000 fi sh b ac k ll ph one Focus on relationship building while we take care of the financing jumped nearly 500 percent. Bek’s direct
t ca , ce
• 1 percen ints on restaurants • Lines of credit for working capital needs
• D o ub le po marketing group even hired a campaign
ess lo ans si ze cr ed it line • Term loans for the purchase of equipment, vehicles or machinery
usi n ness-
ney on b ith a busi
n
ernizatio • Letters of credit to insure you’ll always have access to a high cash outlay manager and began devoting more resources
Save mo cing flexibility w pansion and mod Explore our innovative cash management services to increase your sales
y fin an fo r ex
• En jo
,5 0 0 to $250,0 siness
0 0 • Tax-payment services to manage IRS requirements to B2B marketing. “We wouldn’t have done
• Get $2 of b u
new lines es • SBA loans that
large or
provide you with assistance to expand your enterprise
that unless we had a clear path on how many
• Develop costs, points or fe needs—services
kin•gPayroll to. cut down on your fixed expenses
ay
o sin g u r b an ll tod
• No cl l yo
ves for al sit our web
ca
site oraccounts
sin es s deser
, vi
• Sweep to put your excess cash to work earning interest segments we had, how many employees
e se rv ice your bu k business services
Get th B Ban were in each one and what kind of dollars
request J& Together, these services may help your business to improve its cash flow
small. To management. To request J&B Bank cash management services, visit our
website or call today.
we could get,” says Bek. And even though
,
Sincerely
C h ap m an the sales force was skeptical at first, they
W. Sincerely,
hapman realize that a strategy based on hard data
William C tions Manager W. Chapman
So lu
Business William Chapman will always beat intuition. “We were able
Business Solutions Manager
to show them markets with untapped
opportunity,” says Bek, “that’s the easiest
After classifying its business prospects into different segments, a company can differentiate its
marketing messages based on the needs of each recipient. These letters address two very different
way to sell business segmentation to any
segments: one for small retail establishments like bakeries or clothing boutiques (left) and another sales team.”
for large industrial companies like trucking businesses or cement plants (right).
Bank on it: Expanding business
companies with 10 to 25 employees and marketing strategy. If a prospect had fewer with existing customers
larger businesses with more than 25. Each than 10 employees, Windstream marketers Every businessperson knows that retaining
bucket was then further divided using SIC dispatched a direct mail piece to promote current customers is cheaper than finding
codes into seven industry segments, such as its products. For medium-sized businesses, new ones. But how do you go about
retail, manufacturing, finance and service. an account representative would call the expanding your relationship with existing
Finally, analysts looked at the preferred prospect to offer phone, data and Internet customers without scaring them off? Is there
products and revenue associated with each services. Companies classified as large any way to tell what cross-sell opportunities
business to determine the potential would get in-person visits that would they will appreciate? Those were among
demand for each segment—and the sales allow account representatives to develop the questions facing California Bank & Trust
potential per employee in that segment. more personalized relationships with the (CB&T) when it embarked on a segmentation
management teams. project to better understand the business
Comparing Windstream’s customer base to customers that banked at its more than 90
a “universe” file of all businesses within its Windstream also differentiated its marketing branches across the state.
service area, marketers prioritized all the messages and product offerings by industry
prospects for every business segment, taking segment. For instance, for mid-sized investment Like many banks, CB&T traditionally marketed
into account the estimated value and prior firms, Windstream telemarketers promoted products through local branches whose
success at landing a similar account. The Internet security, web hosting and data managers used a variety of sales and
segmentation analysis then drove Windstream’s backup offerings. For a small auto garage marketing tactics in a “spray and pray”
Page 4 © 2009 The Nielsen Company. All rights reserved
B2B Segmentation Solutions

approach to business marketing. The desire To augment the cross-selling initiative,


to be more targeted and effective in their CB&T has begun rolling out a series of
marketing approach led to a reassessment customized marketing modules—dubbed
of CB&T’s strategy. Earlier this year, CB&T “segments in a box”—complete with segment
turned to Nielsen Business-Facts to determine profiles, industry trends, targeted sales
the employee count and SIC code of CB&T’s material and customer lists to assist branch
customers, and then grouped them according managers in deepening their knowledge of
to size and industry segments, such as specific segments and expanding their business
Professional Services and Wholesale customer relationships. “The segmentation
Distribution. To measure the potential focus has helped guide everyone’s efforts
profitability of each business customer, to ultimately be more effective,” says
analysts then compared 20,000 CB&T Brown. “We’re not trying to reach every
business customers against all 1.5 million business in the marketplace. We’re no
establishments in the state, determining longer guessing about what a company
CB&T’s penetration rate in different needs. In the long run, we’ll be able to
Constellation created a handful of key vertical
industries and the value of each employee better serve our business customers.”
markets for targeting their sales and marketing
in each business segment.
efforts. Their goals were to prioritize prospects
Data driven marketing: Building efficiencies
for acquisition and adjust sales and marketing
Ultimately the bank chose to concentrate with vertical segmentation
communications depending on the targeted
its marketing efforts on 15 or so industry Building a segmentation model can be fairly
segment. “The whole intent is to speak the
segments. By using existing bank records straightforward, but the goal is to make the
language of the businesses you’re addressing,”
to compare the sales figures for a range of system actionable in the marketplace. Last
says Asoka. “Once you have business
products—such as loans, checking accounts year Constellation Energy, a nationwide
prospects defined in a vertical segment, it’s
and money market accounts—analysts energy provider with a large industrial power
easier to create differentiated messaging.”
developed sales indexes for each product customer base, launched a demand-based
and the optimum product mix for each segmentation program for developing
The segmentation project also provided
industry segment. “We wanted to move strategies targeted to business segments.
information for an online marketing portal
away from a product focus to a After classifying each customer into segments
allowing sales and marketing employees
segmentation focus,” explains Susan by size and vertical industry, Constellation
to communicate with targeted prospects
Brown, Vice President and Marketing Group analyzed its previous history with each
anywhere in the country. With a few clicks
Manager at CB&T, in Irvine, California. segment to better understand the demand
of a mouse, an account representative can
After developing a cross-sell product usage and propensity to buy electricity. For
produce a list of business prospects for any
matrix for each segment, they determined example, while the company may have a low
sales territory in a market. Employing demand
the ideal product mix for the manufacturing penetration rate among cement factories,
models based on analysis, the company
segment was typically a business loan, cash the segment’s high energy use may still
calculated customer potential for the various
management services and international make them an attractive prospect.
markets in its footprint. The information
banking services. For law firms, the best
allowed Constellation to better optimize and
product mix usually consisted of a business “The theory behind vertical segmentation
balance their sales territories. And in the future,
checking account, a money market account is that businesses of similar size and within
the company hopes to upgrade the portal so
and a business line of credit. The analysis a similar industry tend to behave similarly
that a staffer can select a customized creative
also helped the bank benchmark customer in terms of their energy usage and buyer
package to be dispatched to businesses in
profitability by segment. For example, if a behavior,” says Anson Asoka, Vice President
any customer segment.
law office with five employees typically of Customer Insights at Constellation Energy,
provides the bank with $2,000 in profitability, in Baltimore, Maryland. “Just as important,
“Depending on the target segment, we’ll be
a similar customer segment creating a lower the businesses in the same segment also tend
able to send out different marketing collateral,”
amount should indicate a potential opportunity to respond to similar marketing messages,
says Asoka. “It’ll be like one-to-one marketing.”
to grow the business relationship. value propositions and offers.”

Page 5 © 2009 The Nielsen Company. All rights reserved


B2B Segmentation Solutions

Figure 3: Framework for B2B Segmentation Analysis

Eliminate LORRAINE'S FLOWER SHOP 3701 E HARVEY ST


Prepare and cleanse
1 your data
duplicate
records and
LORRAINES FLOWER 3701 HARVEY ST EAST

standardize SUSAN'S OFFICE SUPPLY 472 E DOUGLAS AVE


addresses. OFFICE SUPPLY FOR YOU 472 EAST DOUGLAS AVENUE

Match against a Business ID 142573


2 Append a universal
dataset to your data
universal B2B file
to append
Company Name
Address
ERICKSON & KRAMER
134 N STATE ST
firmographic City Chicago
information. State IL
ZIP 60609
Phone 312-781-5000
Contact JAMES F ERICKSON
Title Partner
SIC Code 811100
SIC Description Legal Services
# of Employees 50

Group customers Customer Customer Universe Universe Universe Universe


Divide businesses
3 into buckets
by size of business
(# of employees).
Size Base % Base % Penetration Index
1 to 9 27,158 80.72% 204,106 79.28% 13.31% 102
10 to 19 4,809 14.29% 38,442 14.93% 12.51% 96
20 to 49 1,095 3.25% 9,434 3.66% 11.61% 89
Understand and 50 to 99 345 1.03% 2,916 1.13% 11.83% 91
Calculate your
4 penetration rate
evaluate market
penetration.
100 to 499
500 to 999
203
25
0.60%
0.07%
2,120
265
0.82%
0.10%
9.58%
9.43%
73
72
1,000+ 9 0.03% 159 0.06% 5.66% 43

TOTAL 33,644 100.00% 257,442 100.00% 13.07% 100

Group businesses
Develop small and
5 based upon
manageable segments customer
Customer
Number of
Universe
Number of %
Customer
Spend/
Universe Employee
Spend/ Value
penetration. Segment Employees Employees Penetr Actual Spend Employee Employee Index
M18 36 77 47% $276,660.00 $7,685.00 $3,592.99 13345
M7 16 293 5% $70,473.00 $4,404.56 $240.52 893
Define a demand M13 30 106 28% $19,581.00 $652.70 $184.73 686
Determine the value
6 by segment
multiplier to
establish potential.
M6 21 152 14% $23,707.00 $1,128.90 $155.97 579

Align marketing
7 programs by segment Choose a market Select a target segment Define a communication strategy Determine differentiated
messages and channel

Measure your ROI


8 and adjust strategy ROI

This composite case study illustrates how to use business segmentation for successful B2B marketing.

Page 6 © 2009 The Nielsen Company. All rights reserved


B2B Segmentation Solutions

Taking segmentation to the next “The output of the segmentation project


level: Gaining critical insights helped us re-align key aspects of our product
from potential customers development process, allowing us to gain
The value of business segmentation as a insight and feedback critical to identifying
sales and marketing tool is undeniable. But business problems and validate the software
its benefits have also been proven in other solutions,” Jowdy says. “These well-qualified
areas of an enterprise. GuideStar USA, prospects have also served as an invaluable
an online data publisher that aggregates population for pricing and conjoint analysis.
quantitative and qualitative information Capturing insight and value perceptions
on over 1.7 million U.S. non-profits, used among potential customers is equally
a segmentation analysis to identify the important as understanding the needs
unique segments that were most likely to of our existing customer base.”
become GuideStar customers and most
likely to generate higher than average revenue. Principles to B2B marketing success
After grouping its customers by size and These case studies demonstrate the enormous Business density maps can be linked to any
industry, GuideStar calculated the sales per potential of segmentation-based B2B business segmentation analysis so companies
employee and potential demand for all marketing, but a few limitations remain. can score site locations based on the
businesses. With assistance from Nielsen, the While an analysis can uncover high potential surrounding business segment density—
segmentation analysis ultimately yielded a prospects, it can’t always correctly identify and their establishment and employee
list of 60,000 “best of the best prospects who the buyers or gatekeepers are at specific counts—for any U.S. trade area.
which directly informed our go-to-market companies. Also, segmentation currently
strategies for our key enterprise solutions can’t predict which channel a business The growing list of successful business
and business lines,” in the words of Pamela prospect prefers for receiving marketing segmentation projects suggests principles
Jowdy, Senior Product Manager at GuideStar communications. One obvious solution is that any company can adopt for B2B
USA, in Williamsburg, Virginia. to simply ask how the business would prefer marketing success, see figure 3. Other
to be contacted with a short direct mail or helpful tips include:
The project also brought GuideStar closer online test message, though care must be • Don’t underestimate the value of two
to its user communities. “It had a ripple taken so that your initial message doesn’t pieces of basic company information:
effect throughout our organization,” Jowdy end up in the junk mail bin or spam folder. its size and industry classification.
adds, noting that the analysis altered Wherever your customers are coming • Make sure your segmentation model
GuideStar’s approach to customer relationship from—online, email, direct mail—it’s classifies customers into segments of
management. The company is currently important to track the source in order similar businesses—so the science drives
restructuring its registration process so to develop a multichannel campaign. the strategy. A business database can
that when a new customer registers on help you compare your customer file to
GuideStar’s website, the system automatically Meanwhile, new segmentation applications a known universe in order to calculate
appends the Nielsen-derived industry code are being developed all the time for B2B your market penetration by size and
and market segment data, which will serve as marketing. Nielsen recently unveiled a industry segment.
the organization-wide standard for additional “business density model” which allows users • Use data on existing business customers
analysis and tailored communications. As a to map the number of businesses and their and score each segment’s profit potential
result, GuideStar can build a rich database of employees in one, two and three-mile rings so you can prioritize acquisition, cross-
registered users and more holistically track anywhere in the country. Developed for selling and retention initiatives.
their cradle-to-grave behavior by segment, site selection support, the model can help • Measure the effectiveness of your
identifying opportunities and challenges a company determine whether a segmentation-based sales and marketing
along the way. The “best of the best” prospect commercial area offers enough of the right programs using metrics like quarter-over-
list has also served as the catalyst for GuideStar’s kinds of customers—with few competitors quarter sales, cost to convert prospects
product development team to talk to potential —to support a business expansion. In the into customers and direct mail response
product adopters much earlier during its past that kind of information was known rates. Then fine-tune your marketing
software development process. only by local commercial real estate agents. based on the metrics.

Page 7 © 2009 The Nielsen Company. All rights reserved


B2B Segmentation Solutions

Just as innovative applications drove the Superior client service and support
acceptance of segmentation systems in Nielsen is recognized for its broad range of
consumer marketing, successful B2B programs superior client service offerings. We partner
will lead more marketers to explore how with you to deliver exceptional consultative
information products like Nielsen Business- client service and support that includes
Facts can help them gain an edge in an dedicated account teams, technical support,
increasingly competitive world. The job training and industry and subject matter
of developing business customers can no experts in segmentation, demographics,
longer be left to intuition and a chance direct marketing, consumer research
meeting at a local golf course. The data and analytics.
is out there, and your business customers
are waiting.

Passion for precision


Nielsen is the preferred choice of Fortune
500 companies who wish to optimize their
customer targeting, media strategies and
site analysis decisions. Combining the most
passionate team of industry experts with
world-class data, software and services, we
deliver solutions that help you identify
both ‘who’ and ‘where’ your best customers
and prospects are—with precision.

For more information call (800) 234-5973 or visit us at www.nielsen.com.


© 2009 The Nielsen Company. All rights reserved.