Gaining Insight To B2B Relationships Through New Segmentation Approaches: Not All Relationships Are Equal

Gaining Insight To B2B Relationships Through New Segmentation Approaches:

Not All Relationships Are Equal

Dr. Ying Liu is an Associate Professor of the Department of Information Systems. Below is a brief summary of my recent research.

There exists a tremendous number of factors, such as technological innovation, competitive intensity and economic cycles, influencing the environment in which retail and other firms compete. Not only do retail enterprises compete for customers but they themselves are also customers of many firms that seek to supply them with theirs merchandise needs. In interfirm interactions, as opposed to retail-customer interactions, business-to-business (B2B) markets have been described as more uncertain and complex, the result of which is the increased emphasis placed on building and maintaining B2B relationships. To foster relationships between businesses, firms often rely on segmentation to better define, advance and deliver value to their customers which can aid in strategic decisions such as which business (sector) to participate in, and how to best allocate resources.

The process of segmentation has been largely seen as one from the perspective of segmenting consumer markets. While there are many ways in which consumer markets differ from B2B markets, assessing the context of the market segmentation analysis is important for understanding how such differences may influence the segmentation implementation. For example, business markets typically have fewer customers where each customer represents a larger overall proportion of sales than that in consumer markets. Also, with business markets, there are often sales and/or technical personnel that manage accounts. So, often segmentation is based on practicalities of implementing any segmentation program and thus segments reflect geography of the customer, size of the customer and type of industry the customer represents. While exceptions always occur, it is worth noting that in both market types, one common aim of segmentation is to identify those customers who are the ‘best’ customers, where best is often defined through sales volume and the Pareto principle where 80% of sales is derived from 20% of customers (i.e. the 80/20 rule).

Segmentation as a field of research has received a considerable amount of attention and has been periodically reviewed in comprehensive manners, but most research has been done in retail business context. Emerging from this depth of literature, comes two broad understandings of segmentation methods described as the macro-micro segmentation method and the nested approach. Both approaches fail to address the multiple dimensions (such as economic dimension and social dimension) that inherently exist in B2B relationships. We propose a multi-objective market segmentation method that considers multiple objectives from multiple dimensions simultaneously and applies it in a long-term B2B relationship segmentation study. The proposed method will bring many insights to the B2B market segmentation.

Our segmentation method will generate a set of Pareto optimal solutions for each of our B2B segmentation approaches. Those solutions not only give a holistic view of possible solutions in the optimization objective space, but also allow marketers to develop a solution selection algorithm based on the context of a specific segmentation problem. Additionally, we can develop a new method that selects the best solution whose segments are located in the four quadrants of the embedded exchange segmentation model.  The selected solution gives many insights of the B2B relationships. In the predictive satisfaction approach, the Pareto optimal solutions set helps to select the best solution that represents good tradeoffs between the two optimization objectives. The selected solutions also help to decide the number of segments, an unsolved issue in market segmentation, in a heuristic and intuitive way.

Liu, Y., O’Brien, M., Lusch, R.F., Chen, H.Y. (2019). Gaining Insight to B2B Relationships Through New Segmentation Approaches: Not All Relationships are Equal.