Playing To Win
Identifiability and Segmentation Strategy
Can or Can’t You Create a List?
I got a note last week from one of my favorite readers, Dan. He had a question about B2B versus B2C segmentation. It got me thinking about the issue and while I am not going to answer Dan’s question exactly (sorry Dan!), I am going to use it as a springboard to a topic I hope is of interest and utility. This Playing to Win/Practitioner Insights piece is called Identifiability and Segmentation Strategy: Can or Can’t You Create a List. All previous PTW/PI can be found here.
Dan’s Thought/Question
Dan was wondering about a more sophisticated way to think about the difference between B2C and B2B markets for segmentation and targeting, other than noting that in B2C customers are too numerous to know individually and in B2B there are few enough that you can enumerate them. There is obvious validity in this characterization. For example, he pointed out that there are 132 oil refineries in the US, so that if you are in the business of supplying US oil refineries with a product or service, you can readily make a list of your 132 target customers. However, if you are selling consumer laundry detergent, you have 100 million potential US customers for whom it is rather hard to get personal contact information.
But the opposite is also true. There are hundreds of thousands of customers for the B2B market of business accounting software, and making a list of those B2B customers would not be economically feasible. Conversely, the B2C market of treatments for patients in America who suffer from Fabry Disease numbers 5,000.
And there is everything in between. I remember in my distant consulting past an assignment for a remote satellite services provider to local cable systems (i.e. B2B) to create a list of towns in Canada between 500 and 2500 residents farther than 50 miles from the closest town of 10,000 or more. It took a lot of work, but I was able to produce the list for the happy client (as I recall, the list numbered in four digits). Just like it would be possible to create a list of the households in (say) Florida with a home with a tax assessment of $10 million or more for a seller of high-end audio-visual systems (B2C).
Obviously B2C businesses skew towards more customers and B2B to fewer. But that is not the singular variable that should define B2C as distinct from B2B for purposes of segmentation, marketing and selling.
As is often the case when I get a cool question, it gets me thinking. And I have come to the view that a more important distinction than B2B versus B2C is can you, at a reasonable cost relative the economics of the business, establish a list of your target customers? That will influence more about how you market and sell than whether the target customers are individuals or businesses.
If You Can’t Establish a List…
If you can’t get a list of your target customers, a direct selling approach is out, regardless of whether you are in a B2B or B2C business. It is just too expensive. You don’t know a target from a non-target — and if the target is everybody, good luck to you if you try direct selling.
In this context, you need to use some form of indirect means of driving your target audience to you — since you don’t know who they are. The most common approach is advertising in one form or another. You advertise to them to encourage them to come find you — because you can’t find them.
Sometimes, the best you can do is get them to think about you at the time of a purchase occasion, whether when you are in a grocery store or bar, or when an office manager needs to ship something. In these situations, customers don’t identify themselves to you, but rather to your distribution channel (or not at all), so you are stuck having an indirect relationship with them.
The best outcome is to induce them to identify themselves to you so that you can then sell to them directly. That is why all the insurers and personal injury lawyers in television ads try desperately to get you to call or email them. That is why manufacturers of products will offer you a warranty if you give them your personal information. That is why FedEx will try to sign you up for a company account when you ship something. That way they get you on a list — and they can sell you directly.
The way I think of advertising to a B2C or B2B audience for whom I do not have a list is inspired by videos of bears catching salmon as they swim upstream to their spawning destination. Note, the bears never position themselves at the edge of the widest and/or deepest part of the river. The are always at the narrowest pinch point in the river where it is the shallowest — at a place in the rapids at which the salmon are forced to jump out of the water to get further upstream. That is where the bear stands and picks salmon out of the air with ease.
When it comes to advertising, I always ask where is the pinch-point that is narrowest and shallowest to maximize effectiveness. If your target congregates to watch a particular television show — then advertise on TV. But if there isn’t such a pinch-point, don’t use that device. If they hang out somewhere — like a ski hill — get them there with banners. If they hang out at a conference, sponsor it.
Fight the diffusion resulting from the dearth of a list by working hard to find the point of concentration to appeal to them there. Sadly, it is a waste-laden activity because there is rarely an advertising vehicle is going to deliver 100% target/nil non-target. Your television show may have lots of women 25–49 with above $60K HH income. But you are probably paying for 50% or more that aren’t. That is one reason for the old adage that 50% of advertising is wasted — you just don’t know which 50%.
Clever advertisers find or create novel pinch-points. Luxury automobile brands figured out that elevated commuter expressways heading to downtown business centers could be used as pinch-points if they constructed tall glass-faced multistory showrooms — which served as three-dimensional billboards — along the edge of those expressways. P&G devised the soap opera to create a pinch-point for its target audience. So did toymakers with Saturday morning cartoons featuring their toys. Red Bull used sporting events — especially dangerous ones — as a pinch-point for their target audience. Formula 1 and Nascar have gotten rich by plastering their vehicles with the logos of advertisers who see those vehicles as embodying a pinch-point.
There are also many key pinch-points that have arisen in the modern digital world — whether the App Store, Facebook, Google or Amazon. Owning a digital-pinch point is one of the most valuable things in the modern economy. That is because of you don’t have a list, you are going to have to pay to utilize an effective pinch-point — and pay a lot.
By the way, the very best way to advertise and the tightest pinch-point in all of marketing is to get someone else to do target advertising for you — which is the essence of word-of-mouth. Customers who love your offering will identify someone who would love it too and tell that person. And because they know that person, they can target the advertising message precisely to that person — with little yield loss in effectiveness. That is how a viral self-serve offering like Dropbox got 700 million users. Your word-of-mouth promoter can deliver a more compelling and targeted message than you ever will.
If You Can Establish a List…
If you can establish a list, it is a huge advantage in targeting effectiveness because you don’t have to waste resources on non-targets. Of course, you can’t win them all. Even though they may all have the identified characteristics of the target, for some your offer won’t be sufficiently compelling. But at least you don’t need to expend resources on complete non-starters.
Here you can go direct and not waste resources on people off the list with indirect methods. How you do it comes down to size of the list and lifetime value (LTV) of the customer. Whether it is B2C or B2B, the bigger the list and the lower the LTV, the lower touch you need to be. That is the territory of direct mail, email, and social media. The smaller the list and the higher the LTV, the higher the touch. If it is all the orthopedic surgeons that utilize the type of implants that you sell, then visit them all. If it is every household in Fort Lauderdale with a house assessed at over $10 million (who is your target for a high-end audio-visual system), then knock on every door.
Of course, there is a spectrum all the way from big list/low LTV to small list/high LTV and methodologies for direct sales that are at appropriate cost levels in-between.
Google and Transformation from You Can’t to You Can
On this front, the arrival of Google changed everything. When on Google, Roger searches for blue Zegna trousers. Google identifies Roger and sells the ability to market directly to Roger to every Zegna competitor willing to pay. Likewise, when Nydia from RLMI searches for photocopier paper on Google, the same thing happens in the B2B space.
In this way, Google transformed a wide swath of marketing and selling situations from you can’t to you can, enabling massively tighter pinch-points. That is why Google (from doing it in search) and Facebook (from doing it in social media) are among the most valuable companies in the world. It is because companies will pay a lot for going from you can’t to you can. And of course, they cleverly innovated in pricing to only charge for a valuable outcome — a click on your site.
Practitioner Insight
In marketing and selling, the most impactful segmentation variable is not whether you are in a B2C or B2B context. That is not what should make the biggest difference in how you choose to market and sell. What should matter more to your approach is whether you are able to create a list of your target customers or not, and that distinction cuts across B2C and B2B.
If you can’t create a list, you have to focus on finding the most effective pinch-point to reach your target audience indirectly. That is by no means a trivial task. Finding an effective pinch-point (or pinch-points) is often the difference between a successful and unsuccessful campaign.Study your existing pinch-point and ask: how could we find a tighter one?
Figuring out who to pay for help on that front — and how much their assistance is worth — is skilled work.
And never forget that the most effective pinch-point of all is word-of-mouth because of its precise targeting.
If you can create a list, you have unlocked the possibility of going direct and not having to pay a pinch-point enabler. Then the key task is calibrating the list size and LTV, then optimizing the form and magnitude of the marketing and selling investment.
Also, never forget that regardless of whether your selling message is indirect or direct, to be effective it must deliver a promise to the customer that is memorable, valuable, and auditably deliverable, as I have written in Harvard Business Review and before in this series. Otherwise, it will be largely ignored in the cacophony of messages.
