Firmographic Segmentation: Examples & Variables in B2B Marketing

Demographic segmentation divides your target audience into different groups based on factors like age, gender, income level, education, occupation, family status, and ethnicity. Psychographic segmentation is a marketing strategy wherein you create customer segments based on psychographic traits and variables like personality, lifestyle, attitudes, values, beliefs, interests, hobbies, and opinions.

This is the segmentation protocol followed by B2C marketers. Just as they must analyze demographic and psychographic segmentation, it is non-negotiable for B2B companies to delve into the basics of firmographic segmentation.

In this article, we look at what firmographic segmentation is, why such a segmentation of your target market is essential, and the different variables associated with it. We provide a guide to firmographic segmentation by looking at the advantages and disadvantages of using firmographic data for segmentation while finally topping everything off with real-life examples.

What Are Firmographics?

‘Firmographics’ is a portmanteau of the words ‘Firm’ and ‘Demographics’. Firmographics are metrics used to describe an organization, company, or business, just like demographics, that describe and categorize individual customers. These metrics include and are not limited to industry, annual revenue, company size, and so on.

What Is Firmographic Segmentation?

Firmographic segmentation is the process of grouping companies based on shared attributes like industry, location, company size, and so on. Just like customer segmentation helps B2C businesses find their target consumer audience, firmographic segmentation aids B2B firms that focus on marketing to businesses.

So before we proceed, it is essential to explain the differences between B2B firmographic segmentation and B2C segmentation.

B2B firmographic segmentation vs B2C segmentation

At its core, B2B and B2C firms may engage in segmentation of their target audience, however, there are several differences in the way they approach their sales and marketing strategies. Take for instance their core customer base. B2B firms will have fewer customers and transactions than B2C firms. However, the price of the products will be higher in the case of B2B transactions.

B2B firms also focus more on building close relationships with their clients, whereas B2C firms primarily focus on increasing their transactional volume through an ever-increasing clientele.

In the case of B2B products, everything depends on whether a business demonstrates a high return on investment for their products to sound appealing to their clients. In the case of B2C marketing, ROI and utility are not the only deciding factors. Take, for example, a person buying an expensive car. He may have purchased that car not to function merely as a medium of transport but also as a status symbol. Thus in B2C transactions, behavioral segmentation also comes into play.

Why Should B2B Brands Create Firmographic Segmentation Strategies?

Firmographic segmentation helps firms better understand their target audience, which will in turn provide better marketing returns. Efficient utilization of resources with minimal wastage is the primary goal of every marketing team looking to maximize their return on investment through wise marketing and sales decisions. Hence, B2B firms need to approach marketing using firmographic segmentation.

Firmographic Segmentation Variables

Like any other segmentation model, firmographic segmentation also consists of several variables. Here we look at eight chosen firmographic variables in B2B marketing that will help firms in their segmentation approach.

Industry

Segmenting by industry is one of the fundamental ways to group companies. This is how firms usually set the ball rolling on their segmentation process. It is common knowledge that each industry has its own needs and pain points. For instance, educational institutions will be more receptive to outreach done by Edtech firms. Pharmaceutical companies would spend a major chunk of their sales and marketing efforts on healthcare institutions. Proper industry research should precede all investment efforts by firms.

Annual revenue

Your customers are the ones who can afford to buy your product. It may sound painfully obvious, but this crucial point becomes all the more pertinent in the case of B2B firms advertising their products. A budding startup will not have the same needs and purchasing power as a Fortune 500 company. Firms that grasp this difference will fare better in minimizing wastage and maximizing their ROI.

Company size

Company size and annual revenue are two variables that go hand in hand with firmographic segmentation. A large corporation that employs thousands of people will have very different needs compared to a small startup with a handful of employees. This is why SaaS companies selling subscription plans have plans for both small businesses and large corporations.

Location

One might be tempted to argue that in the era of globalization where geographical location and borders separating regions are becoming inconsequential, geographic segmentation is not essential. This is true for SaaS companies whose sales and services transcend boundaries across the world. However, this theory does not hold for all companies. For example, an automobile parts manufacturing firm will be better off setting up shop in Detroit, Michigan than in Silicon Valley, California. Location-based segmentation is very much relevant for firms engaged in the manufacturing sector.

Growth stage

We have seen in demographic segmentation that a consumer requires different products in different stages of his life. Similarly, a firm also has different needs in various stages of growth. Consider a startup in its initial setting up stage. It requires computers, a working space, and employee management software like Salesforce, Qualtrics, and Hurree. Meanwhile, an already well-established company would want to expand its business by onboarding more clients or reaching out to more customers. They could also be looking to increase the efficiency of their employees. Such companies could utilize buyer personas and employee personas to enhance scalability.

Ownership

Companies can be classified in several ways based on their ownership status. There are sole proprietorships, which are typically small businesses owned by one person. Such firms usually do not require large investments. Then, there are Limited Liability Corporations (LLCs), which offer greater tax flexibility and limited liability for the business owners. These companies require larger investments than sole proprietorships as they focus more on scalability. Finally, there are the corporations, which require the largest investments, the greatest tax compliance, and the most advanced legal services.

Performance

This is another indicator that sounds pretty obvious. Analyzing key performance indicators should give you an idea of how a firm is performing. Are they increasing their profits or are they suffering heavy losses? A firm that is experiencing good profits would focus on leveraging this growth by expanding its business. It would be fertile ground for other companies to partake in that growth story. On the other hand, a firm suffering losses would focus on downsizing its staff, selling off its assets, or even filing for bankruptcy. Other firms could aim to capture the company’s erstwhile market share by acquiring the assets at low prices and hiring their laid-off staff.

Executive title

In a company’s leadership hierarchy, multiple executives perform various duties. Some of the executives within a company’s hierarchy are:

• Chief Executive Officer (CEO)
• Chief Operating Officer (COO)
• Chief Finance Officer (CFO)
• Marketing Manager
• Human Resources Manager

While contacting an executive within a company, it is crucial to identify the person who is best suited to address the specific issue at hand. This is to ensure that you do not waste time hopping between different departments hoping to get the job done.

Benefits of Firmographic Segmentation

The whole point of B2B firms collecting firmographic data to categorize firms is to reap the benefits of firmographic segmentation. So then, what are the said benefits? Let us take a look at how firmographic data helps B2B sellers with their marketing and sales efforts.

Better allocation of resources

Companies do not have access to an unlimited stream of revenue to draw from. They work with a limited budget and hence must pay attention to the allocation of their resources. This is where the utilization of the multiple firmographic segmentation variables comes into play.

A firm that segments its clients based on the industry will focus its marketing effort wholly on that particular industry. Similarly, when you have an idea about the size and annual revenue of a company, you will know not to market expensive products to small businesses and vice versa.

Better customer engagement

The process of dealing with customers and clients can be a lengthy one, which is why it is crucial to know whom to contact and ignore. Segmentation based on executive titles, for instance, will ensure that your point of contact within the firm is the right person for the job, thereby streamlining the whole process with fewer glitches.

Increased sales and ROI

We know that it is essential to analyze the Key Performance Indicators (KPIs) of your B2B customers before setting out to engage in business with them. It would be prudent to check whether the company is making profits or losses. This allows businesses to get maximum returns on every investment.

Also, analyzing the growth stage of the firm will ensure that you sell the right products to the right people. You do not want to try and sell a new SaaS application to a company that has just filed for bankruptcy. A careful introspection of your clients will guarantee increased sales to your firm.

Personalized marketing campaigns

Every market is different from each other, and within those markets, the differences only grow more stark. Factors like location-based segmentation ensure that you fully recognize these differences and adapt your outreach accordingly. As we discussed, legal compliance varies across states, even within the borders of a single country like the US. Firms working with such GRC structures would inevitably have to tailor their marketing and sales accordingly.

Limitations of Firmographic Market Segmentation

While the benefits of a firmographic segmentation hold good across sectors, industries, and locations, it would be wise for B2B marketers to acknowledge the potential limitations that come with it.

Data collection and accuracy

Possessing accurate and up-to-date data is essential for effective firmographic market segmentation. When companies witness a shift in their size, revenue, or development goals, those changes need to be taken into account during the segmentation process. When such an acknowledgment does not take place, it leads to inaccurate data being recorded. This can hurt growth prospects by targeting the wrong customers or missing out on new opportunities.

Evolving market conditions

Market conditions rarely remain static – they are constantly changing and evolving. Let’s say you identify a firm that is upscaling and is looking to onboard new infrastructure. Assume a recession hits the economy out of nowhere. The firm may no longer look for scalability and may focus on stability instead.

Market disruptions would also force firms to reconsider their segmentation strategies. Consider the case of a bolt manufacturing company that employs around 100 workers. If the owner decides to automate production, he would have to reduce the number of employees in his company. Segmentation would need to take such drastic changes into account.

Firmographic Segmentation Examples

The benefits of using firmographic segmentation can be illustrated through several real-world segmentation examples.

LinkedIn - Targeted advertising

LinkedIn is the world's largest professional networking service that effectively utilizes firmographic segmentation. LinkedIn segments nearly 1 billion users spanning over 200 countries by industry, company size, location, and job title. This data is then utilized in many ways:

• Targeted Ad Campaigns: users are only shown advertisements relevant to their job title and industry. This ensures that advertisers obtain high click-through rates (CTR) and conversion rates.
• Recruitment: LinkedIn helps firms go on a hiring spree because it carefully segments job applicants based on set parameters like industry and job title. This ensures that business owners do not waste time filtering thousands of unwanted applicants.
• Events and Webinars: In addition to recruitment and ad campaigns, firms can also use LinkedIn to spread the word about upcoming events and webinars hosted by them. Thanks to firmographic segmentation, the organizers of the events can make sure that the invitation reaches only the intended audience.

IBM - Industry-specific solutions

IBM is an American multinational technology company and the world's largest industrial research organization. It utilizes firmographic segmentation to provide industry-specific solutions across various sectors of the economy. IBM segments corporations based on their size, industry, and location and provides tailor-made solutions.

Here we take a look at some of their products and services:

• Introduced IBM Watson AI assistant for healthcare to help in disease diagnosis and treatment planning.
• In financial services, IBM offers blockchain services for secure transactions. It also provides IBM OpenPages, an AI-powered Governance, Risk, and Compliance (GRC) platform that helps organizations manage risk and regulatory challenges.
• IBM's Internet of Things (IoT) and AI help manufacturing firms improve efficiency and reduce downtime.
• IBM utilizes an Account-based Marketing (ABM) system through which it can treat high-value clients as individual market segments and tailor-make solutions and products. As we had discussed in the section ‘Executive Titles’, it targets only key decision makers in those firms.
• IBM engages in location-based segmenting by providing high-end business solutions for developed countries and cost-effective and affordable solutions for developing markets. They also offer solutions to deal with region-specific compliance laws like CCPA (California), VCDPA (Virginia), and UCPA (Utah).

Salesforce: Applications for every industry

Salesforce is an American cloud-based software company that provides applications focused on sales, customer service, marketing automation, and e-commerce. Salesforce builds entirely different solutions for each industry.

Salesforce provides:

• Specialized CRM software for financial institutions like banks, wealth management, and insurance firms.
• HIPAA-compliant CRM software for hospitals, insurers, and pharmaceutical companies.
• AI-driven personalized retail cloud software for e-commerce and store management.
• Manufacturing cloud software that offers differentiated customer and distributor service more efficiently.

Amazon: Different solutions for companies of varying sizes

Amazon segments companies according to their size. This is a real-world application of segmentation by ‘Company Size’ that we had discussed earlier.

• AWS Free Tier cloud computing services and seller services for small to medium firms.
• Customized AWS cloud infrastructure, advertising enterprise solutions, and other bulk corporate procurement plans for large corporations.

Amazon also adapts its prices, services, and strategies based on the location that it is serving.

• For developed countries, Amazon provides advanced AWS solutions, premium ads, and high-end Fulfillment By Amazon (FBA) services.
• As far as developing regions are concerned, the focus is more on lower-cost AWS cloud services, Amazon marketplace incentives for local sellers, and so on.
• Amazon Business offers region-specific pricing for Small & Medium Business (SMB) owners.

Wrapping Up

Firmographic segmentation is an indispensable part of the growth story of every firm that engages in B2B sales. B2B companies can utilize multiple firmographic variables at their disposal to create customized, effective B2B marketing strategies that will result in high returns on investment while making sure their efforts remain highly focused on their key development goals.

The benefits of using firmographics are many and we have also seen several real-world examples of firms who have successfully managed to integrate it into their marketing approach. At the same time, it is also essential to remain cognizant of the possible limitations of such segmentation and optimize your marketing and sales strategies accordingly.