Your customer should be at the center of your B2B SaaS strategy. So should your product.
How do you ensure that efforts are aligned? Market segmentation and customer profiling helps teams decide on the right strategies and tactics to meet the needs of that customer.
In this post, we address methods used by SaaS businesses to understand customer needs including ideal customer profiles (ICP), account-based marketing (ABM), Jobs To Be Done (JTBD) and buyer personas. We’ll cover how each method provides customer insights, the challenges of market segmentation, and resources on how to get started.
Customer segmentation and product-market fit
The theory is simple. To efficiently grow your company, you need product-market fit, which starts with identifying and knowing the needs of your ideal customer. Once your ideal customer has been defined, you will be able to more effectively market, sell, and build products and services that satisfy the needs of your target market.
The product proposes and the market judges.
You say tomato, I say tomah-to. Approaches to segmentation
There are several methods used by SaaS businesses to understand customer needs including:
Ideal Customer Profile (ICP): the description of the type of company (target market) that would realize the most value from your product or solution.
Buyer Persona: a generalized representation of your ideal customer based on market research and real data about your existing customers. Originally designed to generate empathy for the consumer. Well-executed personas go beyond marketing segments and include the user problems and needs found in JTBD, as well as demographic, behavioral, and attitudinal details.
Account Based Marketing (ABM): a focused approach to B2B marketing in which marketing and sales teams work together to target best-fit accounts and turn them into customers. The term Account Based Selling (ABS) is also used.
Jobs To Be Done (JTBD): is a framework for viewing your products and solutions in terms of the jobs customers are trying to get done. “Jobs” have functional, emotional and social, requirements. Context and circumstances are important to understanding the job.
How ICP, ABM, JTBD, and Buyer Personas intersect
Most companies are conceived around solving a specific problem, or job to be done (JTBD). While products, markets, and companies change, the core jobs customers are trying to do continue to exist. Your company’s ideal customer will have the problem that you are trying to solve. Your ICP is the customer for your current product offering that you will be targeting for the near future.
ICPs, ABM, JTBD, and personas can live in harmony. The problems and needs identified in JTBD can be integrated into buyer personas. There may be customers who share the same job pain, but use your product in different contexts. Personas help with differentiating and prioritizing among these customer segments.
Your ICP is the type of company your sales and marketing teams will be targeting, along with buyer, influencer and consumer personas. ICP is used in ABM to hone in on the companies that best align on product fit and market opportunity.
While your ICP and buyer personas are different, they work in tangent to ensure that sales is spending their time talking to quality leads, marketing is creating content for the right audience, and support is equipped to answer the questions that may come their way. Take the time needed to define your ICP and your buyer personas, because the effort you put in on the front-end can pay off in the long run when you are working with customers that are a great fit for what you have to offer! -Hubspot
Your product and the market will evolve. So will your ICP, buyer personas, and the JTBD that you are trying to solve for. You should review your customer demographics, product and feature mix, competitors and market dynamics at least on a yearly basis.
Benefits of customer segmentation
With a well defined ICP, companies set the foundation to build great products and create an effective go-to-market strategy. SaaS companies with the most success typically focus on a particular niche market. This focus allows them to more effectively compete with larger competitors with much greater resources. This focus helps drive improved efficiencies within the business that manifests itself in lower customer acquisition cost, improved retention rates, and higher customer LTV.
Close larger deals
Shorten sales cycles
Provide a more tailored customer experience
Decrease customer acquisition costs through better targeting
Market more efficiently
Increase brand resonance
Support personalization / targeting
Better product-market fit
Increased customer retention
Higher net promoter scores and more customer referrals
Overall greater revenue velocity.
Challenges of market segmentation
Betting on your future customer
In Clayton Christensen’s seminal work, The Innovator’s Solution, he focuses a large percentage of the book on market segmentation strategy. All business leaders are forced to answer some tough questions in terms of making future bets. By considering the following questions, executives are able to plot strategies to ensure long term growth.
What products should we develop as we execute our disruptive strategy?
Which market segments should we focus upon?
How can we know for sure, in advance, what product features and functions the customers in those segments will and not value?
How should we communicate the benefits of our products to our customers? What brand-building strategy can best create enduring value?”
What makes this type of planning challenging is that markets are dynamic. A variety of variables may change at any given moment. Companies invest to improve their offerings. Competitors evolve and enhance their offerings. A partner today may be a competitor tomorrow. Business leaders constantly balance the needs of their customers with the company's margins. The threat of lower margins almost always trumps satisfying customer needs because of the risk of a lower company valuation.
Christensen illustrates how when faced with competition, business leaders logically tend to double down and invest on building products and services for their most profitable customers. Meeting the needs of your existing customer base sustains your business. But part of serving customers is making sure you are still meeting their needs as the market and competitors evolve. By building for a specific "job to be done" and evolving your "ideal customer," there will continue to be a market for your product.
The B2B tech space has many industry luminaries who have heavily shaped how we think about and approach our work. One of the prevailing themes is that a particular organizational function (e.g. product, sales, marketing) works on solving market problems in their silo, devoid from cross functional collaboration. No place is this problem more acute than in market segmentation.
In The Startup Owner’s Manual, Steve Blank states, “Market research firms are great at predicting the past.” A major theme of the book is that the Product team should identify the initial product market fit and own the customer development process. A similar example is found in Predictable Revenue, where Aaron Ross talks about the process the Salesforce sales team took to identify their ICP. All of this is done with little input from the Marketing team, which further illustrates the lack of organizational alignment.
Most SaaS companies find themselves in a situation where:
During the product development process, Product defined an initial ICP for product-market fit and may have used JTBD to define the problem they were solving for.
Marketers target customers, not jobs to be done.
The sales org leverages their own tools for identifying ICP, segmenting the market and aligning the company’s prospecting teams. This is often done in isolation within their “Sales Ops” application, with little feedback from other teams such as Product, Marketing, or Customer Success.
ICP is typically treated as a “one and done” project.
Buyer personas shift organically over time. Most companies are not actively monitoring the changes on a regular cadence.
Companies lose connection with what causes customers to buy your products in the first place.
There’s not a lot of tactical advice on how to practically apply frameworks such as ICP and JTBD across combined go-to-market teams (Sales, Marketing, Product, and Customer Success).
ABM may be used as a lead generation approach. SaaS ABM vendors have a layer of their stack dedicated to identifying the ICP from the lens of revenue growth and addressable market. These tools are often limited to Sales teams.
The combined GTM teams rarely have access to a shared tool used for planning and executing the strategies of the business.
Solutions to on-going market segmentation
What steps can you take today to drive better long-term results?
JTBD isn’t concerned with profit margin or competitors, it is focused on delivering an outcome or solution to a problem. Therefore, it's especially important that the JTBD that Product is addressing should solve a real customer problem for a large enough market. Share this insight with sales, as many sales teams use “value selling” or “force management” methodologies that focus on addressing pain points and problems.
Treat the analysis of ICP and Buyer Persona as an ongoing process.
Summarize and review your wins and losses on a quarterly basis. Track changes over time to better understand where the market is headed and the implications to your roadmap, marketing, sales, and customer success teams.
Meet with customers regularly and share their feedback.
Track feature usage and number of users within each company. How recently and frequently is your product being used? How broadly is it adopted within each company, and by which roles?
Educate the various stakeholders within your company about the importance of a well-defined ICP.
Assign an owner for “know your customer” activities. Create a cross functional team that meets quarterly to drive alignment around customer needs.
How do you balance prospect and customer needs?
As your company grows, be aware of feature creep and the impact pricing and packaging changes have on your existing customers. SaaS companies with the highest growth rates have one thing in common; net retention above 120%. This means that at a minimum 20% of their growth is coming from current customers who love the service and want to make continued investments in the relationship.
Regardless of method, customer segmentation helps pinpoint the who, where, why, and how to reach the most appropriate prospects and customers for your product. Your go-to-market team should define your organization’s criteria for what makes a great customer, and create a shared language around the type of companies and the influencers, buyers, and end users for your current product today- not just what you aspire to.