I speak to many businesses who define their target market as “SMEs”.
An SME (small-to-medium enterprise) is a business with less than 250 employees, turns over up to about £40m, and where a non-SME organisation doesn’t own more than a quarter of it.
The problem with targeting SMEs is this: according to government statistics, 99.9% of businesses are SMEs. In real numbers, that’s 5.9 million businesses.
Are you going to target them all?
The importance of segmentation
Optimists would say that this means there’s plenty to go at, so therefore there must be huge potential for the growth of your product or service!
But in reality, those SME businesses are hugely diverse in many ways; and it’s highly unlikely that what you are offering is going to be a great fit for all of them.
Which brings us to one of marketing’s favourite words… segmentation.
Segmentation means breaking down a large and diverse market into smaller, manageable groups of customers with similar characteristics or needs. It’s about finding your ideal customers.
So, if you want to reach SMEs, you need to ask yourself which ones. You might consider:
- Location. Where are your ideal customers; and does your location matter to them? Do you encounter different competitor or practical issues if you try to market locally, regionally or nationally? What’s the best geographic range for your business?
- Activity. What does the potential customer do? Perhaps you know that you have relevant experience in certain sectors. Showing niche knowledge in a particular segment could give you the advantage of a clear position in the market and expertise that customers will pay for.
- Turnover. This might be relevant if your product or service requires a certain amount of investment by the customer. They may need to reach a certain size, or encounter certain pain points in their growth, before your service is right for them or affordable. Or, it could be that your service will help them in the early stages. Either way, turnover can be a reasonable indicator, as well as looking at profitability.
- Headcount and structure. There’s a big difference between a sole trader and a 250-strong limited company, in terms of needs, culture, stability, structures, systems of work and more. This will affect whether the business has a need for your product/service; which services it might require; and who is responsible for procurement.
- Legal status. 60% of UK small businesses are sole traders, 33% are limited companies and 7% are PLCs. Perhaps your service or product is particularly suited to one type or another – or perhaps you see opportunities by serving a particular type of business.
- Technologies used. This could be important if there an issue of compatibility; or if you know there’s an opportunity for you to make an improvement.
All these things are what marketers call ‘segmentation variables’ for businesses. And the list doesn’t end there. Remember that, even in B2B marketing, we are dealing with human decision makers with different interests, objectives, priorities and attitude to risk – all of which may affect whether they are likely to want your product/service.
Once we have segmented the market, we research them thoroughly and build up profiles of the various segments. Then we target – we make choices about which customer segments we are going to focus on, based on relevance, reachability and the likelihood of success. It’s up to you whether you choose to serve some of them, all of them, or just one segment. The point is that by segmenting the market, you understand customers better and can present something to each group which will really appeal.
The process is called Segmentation Targeting and Positioning (or STP) and it is key to marketing success.
Choosing to target some segments may mean you can’t target others. That can feel hard, I know. That’s why such decisions should be taken with care and information. But it’s better to be relevant to some businesses and know where you can add most value… rather than trying to appeal to everyone, and risk appealing to no-one.