If you’re a dog or cat owner and your clothing and furniture are covered in pet hair, do you reach for the generic lint roller, or do you buy the “pet hair pick-up,” a product that’s basically a lint roller with your furry friends on the label?
Most pet owners will choose the pet hair pick-up because it speaks to their specific needs. The lint roller makers have figured out that they can generate more revenue by marketing the same product to a whole new market segment — pet owners — under a clever new name.
Take that same concept into the B2B world and you have vertical industry market segmentation for products and services that have horizontal value across many industries. It’s the best of both worlds. You’re driving growth by communicating more relevant and more targeted value propositions while maximizing your economies of scale at the product level.
For most B2B organizations, vertical marketing yields nothing but upside, especially if your products and services are a commodity or will be soon. In this post, we’ll discuss the importance of vertical market segmentation and how the relevance factor makes your marketing dollars more effective by reaching the right customers every time.
What is Market Segmentation and Why is it Important?
Market segmentation is, essentially, answering the question, “Who are our target customers?” Marketers generally answer that question by dividing potential customers into groups based on shared characteristics. The idea is to make marketing efforts more effective by appealing directly to your market’s specific needs.
In direct B2C marketing, market segmentation usually involves segmentation based on demographics, behavior, geography, and so on. Segmenting a B2B market is much simpler because there are fewer variables.
In B2B market segmentation in its purest form consists of 3 dimensions – vertical industry (e.g., healthcare, retail), size of the organization (e.g., revenue, number of employees) and geography (e.g., USA, Canada, Mexico).
Many organizations confuse market segments with personas. Personas are an important factor in your positioning, but the one thing you can’t do is estimate the size of a market using personas. Using industry, size and geography, sizing a market is pretty straightforward.
Personas are important when crafting the product messaging because it’s aimed at one or more stakeholders. Vertical industry segmentation allows you to tie the stakeholder messaging to strategic issues that are prevalent in each industry segment.
The two layers together give you a complete value message that speaks to both buyers and users in B2B.
Where Does Vertical Market Segmentation Come In?
The best way to find success as a business is not to become all things to all people, but rather design products that solve specific problems for specific markets. You may get lucky by marketing to a broad audience, but you’re much more likely to land a client that is actively looking for a solution to their problem. And that’s where vertical market segmentation comes into play.
By grouping your market segments based on industry, you’re able to find commonalities in their goals and business needs and remove any extraneous qualifiers that might alienate them in a traditional marketing strategy. We’ll illustrate the effectiveness of vertical market segmentation with a few examples below.
Vertical Market Segmentation for Marketing & Sales
On the marketing and sales front, it’s no secret that the best story wins the majority of the time. When messaging is highly relevant to the goals and challenges of each vertical market, the products resonate as more valuable and unique to the customer.
That same messaging also helps the sales force talk the talk credibly to ensure continuity between the marketing messages and the sales process, and that credibility may be the one thing that ultimately differentiates you from the competition.
If you’re a vice president of human resources for a hospital, would you be more likely to buy talent management and benefits solutions that…
- improve HCAHPS scores (Hospital Consumer Assessment of Healthcare Providers and Systems) because they have capabilities for finding and retaining top-notch clinical staff, or…
- solutions that are integrated, scalable, and maximize the potential of your workforce?
It’s a no-brainer, just like the lint roller versus the pet hair pick-up. The “improve HCAPS” message will win 80% of the time as long as the product capabilities offer strong enough proof points to the value statement.
Vertical Market Segmentation for Products
On the product front, there are two layers to the equation.
For new products, most companies start with features that are common to every market and then sprinkle in features that are specific to certain market segments over time.
The second consideration is the various combinations of products — the integrated solutions — that together, meet broader needs that are more strategic to customers.
It’s that second layer, the integrated solutions, that are most critical because they require a deeper understanding of customer workflows that cross users and departments. The solution providers that truly have differentiating value built into their products are extremely good at this part. They understand that integrating multiple functions, such as hiring and onboarding, has more customer value than best-of-breed products for either hiring or onboarding.
In a world where products and services are quickly commoditized, it’s hard enough to differentiate, let alone meet, your organization’s highly aggressive growth goals. How much incremental revenue could you generate if you just communicated more relevant value propositions and helped customers better integrate their workflows?
Benefits of Vertical Market Segmentation
Vertical market segmentation is all about relevance and greater predictability in your market size and opportunity. Here are a few more benefits worth mentioning.
- Better Use of Marketing Funds: Your marketing dollars will be much more powerful when used to reach a more targeted, qualified audience.
- Higher Return on Investment: By effectively providing positive customer outcomes with your products, you’ll end up with loyal, long-time customers.
- Higher-Value Solutions for Everyone: Businesses find the exact solutions they need to help them grow and profit–which should be your ultimate goal as an organization.
- Greater Understanding of the Customer: If you stay focused on customer needs, you’ll create solutions that are more relevant and valuable time and time again.
Great Products Need Great Marketing Strategies
Vertical market segmentation makes your marketing dollars more effective and helps your products reach the right customers. No matter what, the key to creating an effective product marketing strategy is to keep solutions top of mind and communicate that value proposition in industry parlance.
Want to learn more effective product marketing strategies? Check out Product Marketing Courses from Product Management University.
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by John Mansour on March 30, 2023.