Have you heard the phrase, “Customers buy by segment”? While it sounds strange, the point is that B2B buyers want to know that their Managed Service Provider (MSP) understands their business. In other words, they are asking themselves, “Do they get it? Do they get my business?”
In the commoditized nature of today’s Managed Service Provider (MSP) market, answering these questions is critical. And the first step to properly answering them is to take the time to segment that markets you are in and the markets you want – and must – be in.
A Framework for Defining Your Growth Model
In one of our other blogs (Defining Your Growth Model), we provided our framework for defining your growth model:
- Where to Play: Identify the markets and accounts you want to focus on, and the initial point of view for the portfolio of solutions, products and services that you need/want.
- What to Do: Design integrated solutions and offers to apply and take to the market.
- How to Enable/Win: Implement the systems, processes, technologies, and talent that make it all happen.
Market Segmentation: Where to Play
Achieving a growth goal requires investment of time, energy, funding, and know-how. Fundamentally, market segmentation ensures and enables you, and your teams, to focus on where to invest and why as they relate to your growth goal and strategy. Think of a market segment as a collection of business enterprises defined by shared attributes that separate them from other businesses. For example, industry verticals like Financial Services, Healthcare, Consumer Packaged Goods.
So which ones should you focus on? A simple but effective framework like the one above can be used to begin putting segments into context.
- Value means how much value this collection of businesses (i.e., segment) is to you in both the short and long term AND how valuable are you to them
- Ability to Effect means the impact you can make in a segment
Naturally, the priority segments for you to focus on and invest in are those that have the most value and impact.
Segmentation Goal
One of the key outcomes of sub-segmenting the market is visibility to which accounts and offers should receive most of your time, energy, and resources – i.e., identifying the sub-segments that are most important based on:
- Propensity to buy
- ROI on time spent on an account-by-account basis
- Identifying the products and services that impact the greatest number of important sub-segments, etc.
A word of caution: in our experience, many MSPs that do segmentation for the first few times are overly enamored with market size and opportunity too early – and they may miss highly profitable segments that truly need your products and services.
Segmentation Process: Getting Started in 3 Steps
We often get asked how to start. The answer: start with what you already have and know such as surveys, market research reports, pipeline data, customer data, internal review sessions with customer success and account managers, etc. Include geographic considerations if necessary.
Some additional key segmentation considerations:
- Specificity matters – best for your customers, sales teams, delivery teams, etc. This doesn’t mean you won’t sell to other portions of the market, but there needs to be a target customer profile that you base a new solution (or set of solutions) on
- Give yourself freedom to look at the financial opportunity through a “what’s possible” lens
- Have meaningful business outcome discussions when interacting with and interviewing people in the market
- Avoid being overly enamored with market size and opportunity too early – you may miss highly profitable segments that truly need your products and services
Conclusion
Segments matter! Market segmentation is crucial for focusing your investments and helps you understand the value impact you can make in each segment, and the specific set of products, services and solutions you need to provide to grow your business.