Customer Segmentation Model for B2B Market

Colonial Life Example: Integrating Sales and Marketing in a Complicated Marketplace

This customer segmentation model is for Colonial Life & Accident Insurance Company. The firm insures over 3 million consumers through 90,000 employers and has an in-force premium of over $1.5 billion. The company’s insurance products are “voluntary benefits,” sold at the workplace. Colonial’s product line includes disability, accident, cancer and critical illness coverage, among others.

With this broad product line and diverse customer base, marketing had been diffused across the organization, with many marketing and sales activities occurring separately and functionally.  Colonial Life & Accident decided to create a more integrated brand value proposition, working with a more integrated cross-functional team. 

Parts of the market require special expertise. For instance, government public customers have a very different decision process and cycle than most corporations.  Despite these differences, a number of opportunities for commonly shared product, sales and marketing approaches were readily available, and an integrated customer segmentation model was required.

Customer Segmentation Model Across Employers

Insight to Action was asked by the leadership team to develop a customer segmentation model that would provide a dialog and linkage point between employers, brokers, and field sales team. The customer segmentation model needed to identify the focus areas for Colonial Life & Accident and how best to reach them.

The customer segmentation model reflected the different parts of the market, e.g., public or governmental vs. private or corporate organizations. It also showcased differences in decision making by size of the organization (i.e., number of employees) and included both employer segments and broker segments and the relationship between the two.

  • Public sector examples were city and county hospitals, schools, state
  • Private market employer size examples in terms of employees included: 10-19, 101-500, 501-2000, 2001-9999, 10,000+

Colonial’s core strengths were in mid-sized private employers of 10-500 employees and the public sector. The growth potential available to Colonial in each segment was assessed.

Approach to Developing the Customer Segmentation Model

To build the fact base, we conducted over 80 total interviews of employers, brokers, salespeople and competitors (e.g., AFLAC).  Employer interviews included both current customers and prospects in both public sector and private.  Brokers were also an important focus.

An interesting finding from these interviews was that health care cost increases dominated employer and broker concerns about employee benefits. These customers did not see how voluntary benefits could help address the rising health care cost issue. Since their other concerns beyond healthcare costs were not nearly as important, any products or services Colonial can help offer to address health care cost increases would help the brand be more relevant.

Customer Segmentation Model for B2B Market

3 Level Customer Segmentation Model

The customer segmentation model divided employers in three ways:

  1. Sector (private vs. public)
    1. to distinguish among decision making processes
    2. within public, schools were separated from city or county
  2. Number of employees (10-49, 50-499, 500-2499, 2500+)
    1. to distinguish among groups with different support needs
  3. Employee type (salaried vs. hourly)
    1. to distinguish among employee product needs

This created nine employer segments with different decision-making processes, employee types and needs, and carrier support requirements.    

The benefits of this approach were as follows:

  • Combines several important factors that impact decision processes, product needs, carrier support and overall attractiveness
  • Relatively easy to identify from the outside- findable
  • Aligned to the sales approach
  • Some overlap with enrollment support would allow some synergies

Customer Segmentation Model: Decision Criteria

For each employer segment, we understood the decision criteria. This included the “antes” or tablestakes to be considered, the “top-tier drivers” criteria for decision making and the “mid-tier drivers” criteria for decision making.

In addition to employer decision criteria, the broker’s decision criteria were also critical. For example, broker decision criteria included:

  • Antes: doesn’t harm my current relationships
  • Top-Tier Drivers: service to employer/employees, service to broker, cost to employees
  • Mid-Tier Drivers: compensation to broker, technology, reputation of provider, availability of specific products, highest quality enrollment services

Voluntary benefits enrollment is generally handled by the broker for smaller companies, e.g., 10-49 employees, while the provider typically helps with enrollment for mid-sized companies, and larger companies use self enrollment.

Criteria-Based Approach to Select Focus Targets from the B2B Customer Segmentation Model

Regular readers of the Insight to Action blog will anticipate that we used a criteria-based approach to select focus targets from the customer segmentation model.  These included six criteria to make up a “Market Attractiveness” score and another six criteria that make up a “Fit Score.” 

The Market Attractiveness Score included revenue potential of the segment, with measures such as number of firms, number of employees, number of employees per firm, decision process and sales cycle, receptiveness to supplemental insurance and offers higher than industry average growth potential. 

The “Fit Score” was the fit of the segment with Colonial capabilities and included various measures, e.g., intensity of competition, claims experience, cost to serve (number of locations and employees), segment receptiveness to one-on-one meetings and carrier enrollment, Colonial sales and Colonial sales growth.

As shown in the visual below, the most attractive customer segments for Colonial to focus on heavily were mainly reached through regional brokers and national consultants. Colonial’s direct sales team was focused primarily on the intersection of 10-49 employee, private employers that are reached through small, one-person brokers who focus on health care.

Customer Segmentation Model for B2B Market

Customer Segmentation Model Outcomes

The customer segmentation and value proposition work was foundational in changing the direction of new product development.  Specifically:

  • A new product category was created and added to the client’s portfolio
    • An existing product was successfully restaged

If you’d like to access more resources on customer segmentation, please check out the customer segmentation resources page.  Or contact us to investigate more.

Leave a comment