Market Segmentation and Testing

Let's say you need to run a lead qualification program on an in-house prospect database, an inbound response list, or a purchased prospect list.

If you knew in advance that there is a way to generate a higher response rate among more valuable prospects at a lower cost, would you do it? Most marketing executives wouldn't hesitate to say, "Yes!"

The secret is sophisticated relational techniques that balance principles of statistics with realities of today's marketing budgets to predict the likely success of B2B marketing programs. These market targeting best practices help you identify your most valuable segments and achieve a higher number of more profitable sales at a lower cost.

To illustrate, if you're familiar with marbles you know that the cost can vary widely depending on the type. While most executives would not dream of buying a jar of marbles without knowing exactly what was inside, they approve running programs on databases and lists that contain the equivalent of Agates, Flecks, and Swirls, often without knowing exactly what they are getting.

In fact, improving results is as simple as separating the Agates from the Swirls. Let's say we have a Mason jar with 300 marbles at the following quantities and prices:

100 Agates at $5 each: $500

100 Flecks at $1.25 each: $125

100 Swirls at 25 cents each: $25

The average value of each marble in the jar is $2.17. Reach in and grab an Agate for $2.17, and you have cause for celebration. Pay $2.17 for a Swirl, and you will feel taken.

When you execute a lead qualification program, you can market to the Agates and Flecks, and skip the Swirls in your market with just a little effort and very little expense.

Let's look at a "Mason jar" of prospects, a purchased list of 1,000 companies. This program generates an overall lead rate of 5 percent resulting in 50 qualified sales opportunities. Inside these results, there are actually identifiable segments with higher and lower lead rates as is illustrated here:

200 prospects in segment A: 9 percent lead rate = 18 leads

200 prospects in segment B: 7 percent lead rate = 14 leads

200 prospects in segment C: 5 percent lead rate = 10 leads

200 prospects in segment D: 3 percent lead rate = 6 leads

200 prospects in segment E: 1 percent lead rate = 2 leads

When combining the top two segments, we can see that 64 percent of the results (32 of 50 total leads) come from 40 percent of the prospect universe (400 prospects in segments A and B).

Would it be valuable to you to know in advance which target segments respond best so that you can focus dollars and resources on them going in? You bet! Here are the keys:

• Segment your list or in-house database into identifiable subgroups.
• Test them to determine those most likely to buy at higher-value deal sizes.
• Then, and only then, deploy the full program targeting these prospects.

Segmentation splits a list into distinct strata of like individuals or companies that become smaller, homogeneous "cubes." Some differentiating characteristics to use when segmenting names into cubes are geography, revenue, number of employees, growth percentages, SIC codes, decision-making levels, and/or other data that is commonly available.

You should also compare each list or list segment to your customer list and those of your competitors to determine how many customers match your prospect lists. The higher the match you find, the better the list. Once these cubes are identified, responses from each can be separately analyzed by testing. And once the high-value segments have been identified, a multi-touch, multi-media, multi-cycle prospect development program can be deployed to qualify the prospects.

Segments that are not currently tested to be high value may require different touch strategies and messaging before their sales potential can mature. They are still good sources of revenue though, and, if left behind in the rush to close more near-term business, will most likely end up ceding revenue to a more patient competitor.

If you pay $5 for a marble, you expect to own an Agate. Think of databases and lists the same way. Find the Agates, touch more of them than you do Swirls, and you will enjoy a higher ROI every time.

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Dan McDade is founder and president of PointClear, a sales and marketing services firm.