Arkaro Insights

Beyond Volume and Revenue: The Power of Needs-Based Customer Segmentation in B2B

• Mark Blackwell • Episode 22

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Welcome to the Arkaro Insights podcast. This episode is based on original content developed by Arkaro. At Arkaro, we're committed to innovation in everything we do—including how we share our insights. We've utilised advanced AI technology to transform our written expertise into this conversational format, making our content more accessible and convenient for our busy B2B audience. What you'll hear is a two-person discussion generated through AI voice technology, designed to deliver our insights in a more engaging way than traditional reading. As we continue to evolve this approach, we genuinely value your feedback. Thank you for listening to Arkaro Insights, where professional expertise meets innovative delivery.

Full article: Beyond Volume and Revenue: The Power of Needs-Based Customer Segmentation in B2B

Ever feel like you're speaking a completely different language to your biggest B2B customers? You're not alone. This eye-opening exploration of the "volume trap" reveals why treating all high-volume customers identically is a strategic blind spot costing companies millions.

Through a real-world case study of a chemical manufacturer with three major clients buying similar volumes but with radically different needs, we unpack the dangerous assumption that revenue size equals similar requirements. Meet the three distinct customer types hiding in your revenue reports: cost optimizers focused on the bottom line, innovation partners seeking technical collaboration, and reliability seekers who prioritize operational continuity above all else. Each demands a fundamentally different approach to create value.

The consequences of missing these distinctions go far beyond inefficiency. Resource misallocation, diluted service models, and pricing inefficiencies directly impact your bottom line. But the most painful cost? Missing massive growth opportunities by failing to nurture your most strategically valuable relationships. Our four-step approach to needs-based segmentation—Understand, Co-create, Enable, and Sustain—transforms how organizations engage with customers at every touchpoint. The results speak for themselves: one company achieved 10% better reliability, 20% reduced inventory, and 15% lower handling costs while dramatically improving customer satisfaction.

This isn't just another technical fix—it's an adaptive challenge requiring organizational transformation in how you think about and serve your customers. Ready to escape the volume trap? Start with three practical steps: audit your current segmentation, conduct strategic customer interviews, and bring cross-functional teams together to build a shared understanding of what truly creates value for different customer types. Your most profitable growth opportunities might be hiding in plain sight.

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Speaker 1:

Welcome to the Arkaro Insights Podcast, where we help B2B executives deliver better results with the latest ideas in change and innovation for your organization. Today, we're doing a deep dive into something that might really make you rethink how you see your biggest customers. You ever get that feeling Like you're talking completely different language to your major clients, even though they're buying huge amounts. Yeah, you're definitely not alone. We were working with this B2B chemical manufacturer recently and, wow, what we found was pretty eye-opening. They had these three massive clients right, all buying similar stuff, similar volumes, but their needs totally different planets. One just wanted the absolute lowest price period, another was looking for like a deep R&D partnership and the third they needed rock solid, never fail reliability. Now treating them all the same way. Well, it wasn't, as inefficient. It was this huge strategic blind spot costing them millions potentially. So today we're unpacking this volume trap, this really dangerous assumption that all your high volume customers basically want the same things.

Speaker 2:

Yeah, it's funny how deep that idea runs, isn't it? It just kind of feels logical Big customer, big volume must be the same needs driving them. But that kind of thinking it just burns through resources and you completely miss opportunities to deliver real value. It's really never just about what they buy, it's always about the why and the how they need you to serve them. So our mission here in this deep dive is to really explore why that volume assumption is here in this deep dive is to really explore why that volume assumption is well fundamentally flawed and to uncover the power of looking at needs instead, needs-based customer segmentation. And here's the kicker. You know, this isn't just some technical fix like rolling out new software. Often it's what we call an adaptive challenge. It requires the whole organization to think differently.

Speaker 1:

Okay. So if just looking at volume or revenue can kind of blind you, let's dig deeper into this volume trap you mentioned. Why is it so appealing but also so dangerous?

Speaker 2:

Well, it's appealing because it's easy. Right? You pull up your CRM data, sort by revenue and bang, there's your top tier, your A-list. Simple, but like that climate leader said to us almost word for word we treat everybody who buys large amounts the same way. Just think about those three big customers you mentioned earlier, all buying similar high volumes. Let me paint a clear picture based on real situations we've seen. Okay, first you've got the cost optimizer. Picture this A major food manufacturer buying tons of product, but their own margins are paper thin. For them, squeezing out cost wasn't just, you know, a nice to have, it was their entire business model Survival. So they were totally fine with longer lead times, maybe more basic service if it meant getting the absolute rock bottom most competitive price. Their focus was laser, sharp Bottom line operational efficiency. They'd trade quite a bit for a lower price point.

Speaker 1:

Right. So for them it's all about enabling their lean operations. Your product has to fit into that cost efficiency puzzle. Less fluff, more focus on the basics. That seems pretty clear. What kind of mistakes do companies make with these guys, beyond just racing to the bottom on price?

Speaker 2:

Oh, the big one is trying to sell them value added services they just don't care about. You end up giving away margin, trying to offer more than they need, or you just annoy them by pushing stuff that doesn't fit their cost-first world. Okay, now contrast that with the innovation partner, another big food manufacturer again similar volume. But these guys, they were competing differently. All about clean label products, sustainability, differentiation. They didn't just want your standard product off the shelf, no, they needed, like deep technical support, help with natural preservation methods. They wanted to co-develop new plant-based ingredients with us. They needed fast responses because consumer trends shift quickly. And here's the thing they were absolutely willing to pay a premium for all that, For the expertise, the collaboration, the sustainable sourcing story they could then tell their customers. It's a completely different mindset.

Speaker 1:

Wow, yeah, that's a total 180. Two huge food companies, same sort of volume, but one's chasing pennies, the other's chasing the next big thing and a brand story. How different can that third one possibly be?

Speaker 2:

Vastly different again.

Speaker 1:

Our third scenario was the reliability seeker. This was another high-volume customer, but their production processes were incredibly sensitive. Downtime wasn't just an inconvenience, it cost them thousands per hour. So their number one non-negotiable need supply reliability, absolute consistency in quality, deliveries that showed up exactly when promised, and super responsive problem solving if anything anything went slightly wrong. Sure, price mattered, of course, but consistency, predictability, avoiding any disruption that was king. They'd happily pay a bit more for that peace of mind, Okay, so if you're stuck treating those three the cost optimizer, the innovation partner, the reliability seeker, all the same just because they buy a lot, what's the actual cost? What does that do to your organization? Yeah, because you're fundamentally missing what each one truly needs.

Speaker 2:

Oh, the costs just pile up Seriously. First you get massive resource misallocation, your sales team, your technical support. They might be spending just as much time and effort on customers with totally different profit potential, different service needs. Low margin cost optimizer could be soaking up the same resources as your strategic innovation partner. Who's willing to pay for premium service just because their revenue number looks similar? It makes no sense.

Speaker 2:

Then you get what we call service averaging. You end up with this kind of lukewarm, middle-of-the-road service level that doesn't really thrill anyone. You're probably over serving some customers right, giving them more than they value or need, which just eats away at your margins, and at the same time you're likely underserving others, the ones who need more, risking those really valuable relationships. And because you don't truly understand what each segment values, your pricing becomes inefficient. It often just dissolves into a race to the bottom on price because you can't articulate or capture the unique value you could be providing. And, maybe the worst part you're missing huge growth opportunities. You fail to spot, nurture and really invest in developing those most profitable, most strategic customer relationships. You're leaving money on the table.

Speaker 1:

That sounds painful and probably quite familiar to some people listening. So if that's the trap, what's the way out? What's the fundamental shift needed to unlock that value and dodge those problems?

Speaker 2:

The solution really is a completely different mindset. It's moving to needs-based segmentation. It means grouping your customers based on their core requirements, their fundamental value drivers, not just how much they spend. It's getting beyond the how much to understand the why and the how of their buying.

Speaker 1:

That just feels so much more strategic, doesn't it? Can you break down those core need categories you often see?

Speaker 2:

you break down those core need categories, you often see Absolutely. I mean every business is unique but based on our work across a lot of different B2B industries, most companies find huge value in thinking about these three core need-based segments. So first you have the cost optimizers. We've touched on them. Primary driver lowest total cost of ownership. That's key Total cost, not just unit price. They're very explicit. They will trade service levels, maybe faster delivery, for a better price. What they value is efficiency, standardization, things that make their operation run cheaper. Characteristically, you're often dealing with sophisticated procurement teams here, very focused on cost reduction metrics. For them, your product is basically a line item in their cost efficiency spreadsheet.

Speaker 1:

Okay, so streamline everything for them, make it easy, make it cheap Got it.

Speaker 2:

Exactly. Then second, you have the innovation partners Totally different world. Their main driver is getting a competitive edge through innovation. These are the customers willing to pay a premium sometimes a significant one for your technical know-how, for co-development projects. What they really value is getting early access to new stuff, R&D collaboration. You often find they have their own dedicated innovation teams, maybe strong sustainability goals, because that's part of their brand differentiation. You're not just a supplier here, you're almost part of their R&D function.

Speaker 1:

That sounds like it requires a completely different sales approach, different technical skills internally, right.

Speaker 2:

Yeah, oh, absolutely A different engagement model altogether. And third, we have the reliability seekers. Primary driver here supply chain security, operational continuity, making sure their lines keep running smoothly. They are also willing to pay a premium, but for consistency, for predictable delivery, because, remember, disruption is incredibly costly for them. So what they value most is top-notch quality assurance, knowing the product will always meet spec, and really responsive, fast problem-solving if anything hiccups. These customers often have complex operations, zero tolerance for surprises. Every delayed shipment, every quality issue is a major headache they'll pay to avoid.

Speaker 1:

Okay, it's so clear when you lay it out like that thinking in these categories, yeah, it changes everything. You're not just selling product X, you're selling cost efficiency or innovation fuel or operational peace of mind. But, like you said, understanding is one thing. How do you actually make this happen? How do you operationalize this inside a company? What's the Arcoro approach to managing this kind of well transformation?

Speaker 2:

Yeah, our Coro approach to managing this kind of well transformation. Yeah, that's where the rubber meets the road, isn't it? It's the hard part. Our approach is really built around four steps designed to make sure the segmentation thinking actually sticks and becomes how the business operates day to day. It's about embedding it.

Speaker 1:

Yeah.

Speaker 2:

So step one is understand. This is where we do the deep dive into customer research Proper structured interviews, analyzing buying behaviors, mapping out what truly drives value for different customers. We need to identify those distinct need patterns, test our assumptions. You've got to really know your customers, not just guess or rely on sales anecdotes. What are their unspoken needs, their hidden frustrations?

Speaker 1:

Right, so digging deeper than just what they say in a meeting. It's about observing what they actually do Precisely. Then step two, observing what they actually do Precisely.

Speaker 2:

Then step two is co-create. This is absolutely vital. We run cross-functional workshops, get sales marketing operations, finance everyone who touches the customer journey in the same room. Together we define the segments based on the research, validate them against the company's reality and then critically develop tailored value propositions for each segment. What's our unique promise to each group? This builds that internal alignment and crucial buy-in. Everyone feels like they built it.

Speaker 1:

Makes sense, gets everyone singing from the same hymn sheet, basically.

Speaker 2:

Exactly. Step three is enable. Now you've got the strategy, you need to build the capability to deliver it. This means designing differentiated service models. What does service look like for a cost optimizer versus an innovation partner? You need to align your internal processes, maybe your systems. You definitely need to train your customer facing teams. How do they spot which segment a customer falls into? How do they interact differently? And you need resource allocation models that make sense for this new approach. It's about giving teams the tools and skills.

Speaker 1:

Okay, building the engine to run.

Speaker 2:

Right. And then step four, which is honestly the one where many initiatives falter, is sustain. This is absolutely critical for making it last. It involves setting up segment specific metrics to monitor performance. Are we delivering on the value proposition? Are we seeing the results? It means continuously building that internal muscle for ongoing customer insight. Needs change, markets change, and it's about constantly optimizing. Insight needs change, markets change and it's about constantly optimizing. As one of our client leaders put it so well, you absolutely must not let the foot off the gas too soon. This isn't a project with an end date. It's a new way of operating, an ongoing evolution.

Speaker 1:

That really hits home in the adaptive challenge idea, doesn't it? It's not just the initial analysis or rollout. It's the sustained effort, the cultural shift. But OK, for all this effort, what's the payoff? Can you share some tangible results? What kind of real world impact does this?

Speaker 2:

needs-based segmentation actually have? Oh, absolutely. When done right, the impact is significant and measurable. We saw this clearly in that B2B specialty chemical business I mentioned earlier where we implemented this needs-based approach operationally they saw more than a 10% improvement in their order reliability, just by tailoring service policies to what each segment actually needed. Predictability went way up for those reliability seekers. Their customer satisfaction scores literally flipped. They went from having more detractors than promoters on their NPS scores to being firmly in promoter territory. Why? Because the service finally matched what customers valued. They managed a 20% reduction in inventory Think about that Less capital tied up. Yet they simultaneously improved service levels because they held the right inventory, differentiated by segment needs, and they achieved a 15% reduction in order handling costs Just through smarter resource allocation, focusing effort where it delivered the most value, according to the segment.

Speaker 1:

Wow, those are really solid numbers, especially getting cost reduction and improved satisfaction and reliability at the same time. That's often seen as a trade-off and you mentioned this held up even during all the post-COVID supply chain chaos. That's pretty remarkable.

Speaker 2:

It really is that resilience you get from being truly aligned with your customer's core needs. It's powerful. It makes you less fragile when things get turbulent. But despite these kinds of results being achievable, we have to be honest. A lot of segmentation projects do fail or fizzle out.

Speaker 1:

Right, that's the elephant in the room, isn't it? It sounds so logical, so beneficial. Why do these implementations stumble so often? What are the common pitfalls?

Speaker 2:

Well, it almost always comes back to that adaptive challenge point. Most segmentation projects don't fail because the analysis was bad or the segments weren't logical. They fail in the implementation. They fail because organizations treat it like installing new software a technical problem instead of recognizing it's about changing how people think and behave across the whole company. It's like you know someone gets really excited about a new fitness plan, tells everyone about it, but their daily habits, their environment, their incentives don't actually change. So nothing sticks. That premature declaration of success Yep, we've done. Segmentation Happens a lot before any real behavior has changed.

Speaker 2:

Other classic pitfalls Insufficient cross-functional engagement is a big one. If it's just seen as a marketing thing and operations or finance aren't deeply involved and bought in, it's doomed. It has to be owned across the business. Then there's underestimating resistance. If people's performance metrics, their bonuses, their ingrained ways of working aren't aligned with the new segmentation model, they'll naturally resist it, consciously or unconsciously. Why change if my old targets haven't? And finally, just losing momentum. The initial buzz wears off, other priorities pop up and that sustained leadership focus required to nurture the change it just evaporates. The adaptive part is navigating all that resistance, patiently, aligning the incentives, coaching the new behaviors. It takes real leadership, not just project management.

Speaker 1:

That really paints a clear picture of why it's hard, even when the what seems obvious, it's the how and the why. For the internal team, that matters just as much. Okay, so for someone listening right now, maybe nodding along, recognizing some of these issues in their own company, what are, say, three concrete, immediate next steps they could take to start moving in this direction?

Speaker 2:

Yeah, good question. If you suspect you might be caught in that volume trap, here are three things you could do pretty much right away. First, audit your current segmentation. Seriously, take a hard look. Does the way you segment customers today actually lead to different actions or behaviors across your teams? If your sales team, your service desk, your supply chain planners are basically treating all customers within a segment the same way, regardless of their underlying needs, then your current segmentation probably isn't doing much strategic work for you. It might just be labels on a chart.

Speaker 2:

Second, interview key customers. Go talk to them, but do it structurally. Pick customers from different volume levels, maybe different industries you serve. Ask them open-ended questions about how they make decisions, what they really value from a supplier, what frustrates them, what their unmet needs are. I guarantee you will find significant differences, even among customers who look similar on paper. Don't assume you know. Ask and listen hard. And third, hold a cross-functional workshop. Get people from sales, marketing, ops, finance, maybe even R&D together in a room. Share what you learn from the customer interviews. Have an honest discussion. If these different needs are real, what would it actually take for us operationally to serve them differently? What processes would need to change? What new skills might we need? This starts building that shared understanding and ownership right from the beginning.

Speaker 1:

Those feel like very practical, manageable first steps audit, interview, workshop Okay. And for organizations that feel they need maybe some help navigating this whole adaptive challenge, this deep transformation. What's the Arkaro advantage when it comes to implementing segmentation?

Speaker 2:

Well, I think it comes down to recognizing that this needs more than just a fancy PowerPoint deck with segment definitions. It needs deep, practical experience in driving complex change across functions. Our whole philosophy is do it with you, not do it to you. We work alongside your teams to embed the changes and, critically, our team brings experience not just as consultants but as people who have actually managed these kinds of functions and transformations from the inside as line managers, as internal change agents. We understand the real world operational hurdles. We focus on making it practical, making it stick. As Mathieu Vanbrie, who leads industrial chemicals at Solivo Group, said after working with us on their commercial excellence program, they were already looking forward to strong double digit growth with the target customers, with more gains expected as they rolled it out further. That's the goal right Tangible, sustainable business results, not just a finished project.

Speaker 1:

That makes a lot of sense, bridging the theory and the messy reality of implementation. So, wrapping up, the core message seems really clear today, if you want to thrive in B2B, you absolutely have to get beyond just volume and revenue. You need a deep understanding of your customers' diverse needs and the ability to serve those distinct needs effectively. Those simple metrics just aren't a strong enough foundation anymore.

Speaker 2:

Exactly, and you know thinking about this adaptive challenge. The technical part, the analysis of needs, it's actually doable, right, you can collect the data, do the interviews, map it out. But the real transformation, the part that requires that sustained leadership and learning, it makes you wonder, given how fast markets and needs are shifting now, maybe even these defined segments cost, innovation, reliability are becoming too static. So here's a thought to maybe leave people with If the real challenge is building that adaptive capability within the organization, how do we foster a culture that doesn't just do segmentation once but constantly learns, adapts and maybe even anticipates customer needs almost in real time? Is the next step beyond needs-based segmentation, some kind of hyper-dynamic?

Speaker 1:

always-on model, and how would an organization even prepare for that? Hmm, that's a really provocative thought to end on Moving from static segments to dynamic anticipation. Lots to think about there. If you want to explore these ideas further for your own business, you can definitely learn more about Arkaro services over at Arkaro. com that's Arkaro. com. You can also follow their latest thinking and updates on Arkaro on LinkedIn and if you'd like to discuss your specific situation, maybe explore a free consultation, feel free to email Mark Blackwell directly. His email is mark@arkaro. com. Thank you so much for tuning into the Arkaro Insights Podcast and please, if you found this deep dive helpful, do share it with colleagues who might also benefit.

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