As a B2B, you probably sell to a wide array of customers. Wouldn’t it be great to attract more customers from each category? SURE WOULD! Unfortunately, that kind of marketing initiative requires A LOT of money, manpower and effort. Remember, you can’t be everything to everyone. Your marketing should bring you new customers — the most profitable new customers — so your business can grow. Targeting only your most profitable prospects is a realistic way to increase your share of market.
Why Targeting is Important
There are a couple of big reasons why it’s critical to target. The first is monetary. It’s likely going to be too expensive to go after all of your potential customers. The shotgun approach of blasting a message out to as many people as possible on mass media and trying to get some to bite applies to the consumer retail space. But for B2Bs, it makes more sense to use the rifle approach. That is, taking aim and making a dead-on hit on your target.
When you target a smaller group of prospects, your marketing has a better chance of being effective. It’s better to be really great at providing a product or service to a smaller segment than to be average at providing that product or service to a larger group of prospects. Aim to be an expert for a select segment of top prospects.
The second reason you should be targeting is because when you do it correctly and you really understand a market segment, you can speak to that segment directly. You can be a specialist who “speaks their language,” which will improve your ability to grow within that market. Speaking their language means understanding their value propositions — the reason why they need your product or service.
When you understand that market and their value propositions, you can better discover your own Unique Selling Propositions (USPs). Why should prospects buy from you rather than your competition? When you pinpoint that answer, you greatly improve your odds of winning customers.
How to Do a Better Job of Targeting
Many targeting decisions are based on salespeople’s intuition or what they THINK is the right market. This should NOT be the first step. Intuition can often lead you in the wrong direction. When dealing with intuition, consider the possibility that a salesperson may have just got lucky and hit a home run with a particular kind of client. Who knows if that will happen again?
Any good marketing strategy requires data to feed a hypothesis. When trying to pick a group of businesses to target, you need to prove that segment will consistently provide a good ROI before devoting all of your resources to market to that segment. Don’t get caught pursuing false leads. Certain situations (bid systems for example) can produce one-hit-wonders that deliver a big payoff once but never again.
There are four steps to improve your targeting efforts:
1. Gather as much primary data as possible. Primary data is your own internal information such as accounting records, sales records and data collected from your CRM system. A rule of thumb is to examine only recent information from the last five years. This is because trends change, and you want to use data that falls in line with current trends.
Next, apply the 80/20 rule, which states that 80% of your revenue is likely coming from your top 20% of clients. Perform a transactional analysis of the top 20% using four Key Performance Indicators (KPIs):
- Volume- Who is spending the most money?
- Frequency- Who orders the most often?
- Recency- Who purchased most recently?
- Profitability- Who produced the largest profits?
The analysis process involves ranking your customers in each of the four KPIs. You are looking for your top performers — the ones who consistently score near the top. At Adventure, we use a Quadrant Analysis. “Quadrant” because we analyze the four KPIs mentioned, then graph out the results on a quadrant graph. You can develop your scoring system however you feel works best. One way to go about it is to rank your top performer in each KPI with a 1, your second best performer with a 2, etc. When you’ve ranked all of your customers, average their scores. The customers with the lowest average scores are your top prospects.
2. Gather situational data. NOW is the time to add the human element. This is the intuition on which we pulled back the reins earlier. Gather your team and look for anomalies. You might have a customer who consistently ranked near the top of the four KPIs, but they could be a one-and-done kind of customer you won’t be able to rely on in the future.
3. Begin profiling, which is looking at the list of top performers and identifying common attributes. Your goal is to separate them into segments. Most of the time in the B2B sector, it’s industries (think SIC codes or NAICS codes).
If you aren’t familiar with industry codes, they’re numbers assigned to industries to classify them. SIC stands for Standard Industrial Classification, and NAICS stands for North American Industry Classification System. The codes help organize the industries in a universal manner.
After you’ve separated your customers into segments, do the transactional analysis again, this time ranking the segments in each KPI. This is the point in the process where you may be surprised. Before this process, you probably knew (or thought you knew) which industry segment was the best for your company. In some cases, the analysis will show that another industry is actually better.
4. Before you start gearing up your efforts to market to your identified top industry, it’s important to bring in secondary data or third-party market research data. What are the trends with that industry? Is it growing, stable or declining? You want to target industries that are growing, or at least stable. If your top industry is declining, it might be more beneficial to look at your other top performers.
Also, take a look at industry opportunity. Examine your market penetration and the potential market penetration of your competitors. If you already have a strong presence in that particular industry and there’s not a lot of growth opportunity, it might be time to reassess and explore other growth opportunities.
Be Aware of Industry Codes
A mistake that many companies make after identifying their target industry is hurrying to purchase a list from a list company and marketing to all of the businesses on the list because they think it contains all of their best prospects. There are many list companies that do a great job of aggregating and selling lists: Dun & Bradstreet, Acxiom, Experian, infoUSA, DatabaseUSA, Manta and Thomas Register. But there is often a lack of consistency in capturing the primary and secondary SIC codes. It’s tough to do when you consider that many businesses have a lot of different specialties. A company could offer a certain product or service, but it might not be their primary area of business. Just keep that in mind when purchasing lists.
Once you’ve decided on an industry to target, the next thing to do is create personas in that industry to help drive your marketing strategy. What is a persona and how does it apply to your marketing? Check back for our next post to find out…