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How to Segment Suppliers for Supplier Marketing

How to Segment Suppliers for Supplier Marketing

Supplier segmentation definition

Let’s once again start with a marketing definition, this time in relation to segmentation. Investopedia offers the following description: “Market segmentation is a marketing term that refers to aggregating prospective buyers into groups or segments with common needs and who respond similarly to a marketing action.”1

Anthony Payne, CMO HICX, comments, “As a marketer I love questions about segmentation – it’s essentially page one of the ‘marketing textbook.’ But, although it’s central to marketing, it’s also core to what most people in most functions do every day, just with different levels of formality or sophistication,” he says.

There are two main reasons for carrying out segmentation. These are resource allocation and experience optimization, the latter of which is especially relevant to supplier marketing.

Resource Allocation

The first of the two supplier segmentation examples, resource allocation, is firmly embedded in Procurement. Breaking our supplier base into smaller groups enables us to prioritize how much time and effort we invest in those suppliers for a desired outcome, or it helps us to identify areas for cost-savings.

Experience Optimization

However, the second application of segmentation, experience optimization, is a far newer discipline in terms of its use with suppliers – but it is this application that is much more aligned to how we think about using segments in the marketing world.

The central guiding principle is, in order to better serve our suppliers, we need to group those with common needs together and we should adjust the supplier experience accordingly.

How does supplier segmentation link to supplier experience?

This is an area where there is much opportunity.

As consumers, we are all used to a world of increasingly personalized content and experiences, whether it’s via recommendation engines or highly targeted adverts based on browsing history, and, of course, the vast amount of information that brands can access about us.

With the continued evolution of digitalization, along with the explosion in best-of-breed, data-driven solutions, the same is becoming increasingly true about suppliers.

For example, technology is available to enable a supplier to access your portal in their chosen language, to see or evaluate compliance and risk information relevant only to them, or to access important transactional information at the click of a button. This is in spite of an environment which frequently has multiple ERPs, P2P suites and a dozen other best-of-breed applications which might need to be accessed in order to serve the supplier.

Building on this, with intelligent self-service, a supplier can choose their own preferences, allowing the enterprise to deliver what will feel to the supplier as being much closer to a one-to-one experience, which removes unnecessary friction.

What are the benefits of supplier segmentation?

Of course, it is not just the supplier experience via portals that benefit from supplier segmentation. The same can be applied to workflows, such as onboarding, or to different initiatives that require different levels of engagement from suppliers.

Imagine the difference in responses between an organization that executes initiatives for 50,000 or more suppliers every time a sustainability, diversity, capability, forced labor, conflict mineral, human rights or innovation survey is required – versus one that only sends relevant surveys (and those far less frequently) to those suppliers to whom it applies.

The first scenario is already rapidly leading to what Dr Elouise Epstein refers to as ‘initiative fatigue,’ as she comments, “Many large enterprises have more than 50,000 suppliers and some as many as 100,000—raising some uncomfortable questions for buying organizations. First, if every supplier fills out every survey, what happens with all of the information? Does the data actually serve a strategic purpose, or is this a gigantic check-the-box exercise?”

How many segments do you need?

To break this down effectively, one starting point is to consider how many groups of supplier there are that have similar needs and to start catering for those.

However, this is trickier than it first appears and there is no fixed answer to the question of ‘how many segments do you need?’ In fact, it is probably the wrong question – for example, marketers would not count how many segments are required to meet the needs of the function. Instead, they would ask whether suitable data were available to extract the list of contacts required for various different types of campaign as the campaigns occur.

The same is true when it comes to supplier data. A list of suppliers based on certain criteria might be generated for a specific use case and either re-used for that use case as it repeats, or it could be applied to a different use case that requires the same list.

Segments based on use cases

If a particular country is hit by disruption, for instance, it may be that an emergency survey is required for that country.

Suppliers can be filtered based on location criteria, in this case country data, but the list will already exist, as it is the same list as the one used for a country-level tax compliance survey. All suppliers who match a ‘country’ criteria are in the same segment and will be following that communication stream.

The filter criteria may be combined with other characteristics, so different suppliers will qualify for different lists at different times based on the filter or filters that apply and will follow a communications program that is more relevant. We can see this in practice in the chart below:

supplier segmentation example

Data points for such filters might include:

  • Geographic (such as supplier location or plant location)
  • Transactional (such as suppliers with various levels of spend or order volumes)
  • Category-based (such as packaging)
  • Profile-based (such as indirect versus direct suppliers, or risk profile related)
  • Firmographic (suppliers of certain size or revenue)
  • Behavior or Performance based (such as suppliers who engage versus those who do not)
  • Supplier Preference-based (as defined by choices that suppliers have made)

The exact filters applied will vary, depending on the use case or business requirement that needs to be fulfilled.

By taking this approach, it is far easier for procurement teams to understand which suppliers are required to answer – and therefore managing the overall response and measuring the success of the initiative becomes a much more straightforward task.

This will be vital as more and more initiatives become the norm at a time when resources in Procurement are under pressure. Indeed, many of these factors are already used on an ad-hoc basis, as and when the need arises, and applied via manual workarounds.

More specifically, though, and with the use of technology to assist, procurement teams will increasingly be able to use segmentation as the foundation for architecting increasingly more customized experiences for suppliers on an ongoing basis.

Key Takeaways

Segmentation, then, is simply a method of generating a specific list of suppliers based on certain selected attributes, for whom different communications, tools or workflows will apply.

There is a case to be made for taking a supplier marketing segmentation approach to all Procurement activities as this enhances the supplier experience, while improving efficiencies on the enterprise side, for the following reasons:

  • You can launch different initiatives based on segments
  • You can customize different workflows
  • Experiences will be tailored for suppliers

The outcomes achievable, and which can be measured, could include:

  • Better adoption of tools on the supplier side
  • Better response rates and supplier engagement
  • Faster response times
  • More accurate data, updated more often
  • Fewer manual interventions or workarounds required
  • Greater efficiency
  • Fewer enquiries
  • Lower cost to serve

We will explore some of these use cases linked to outcomes in the next article, but the core principle applies: In the same way that marketers customize experiences in order to secure better engagement from their audiences, Procurement can utilize the same tactics to build closer, more beneficial supplier relationships while mapping these to their own objectives.

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