Firmographics (also known as emporographics or firm demographics) are sets of characteristics to segment prospect organizations.
What demographics are to people, firmographics are to organizations. However, Webster (2005) suggested that the term "firmographics" is a combination of demographics and geographics.
Commonly used firmographics include SIC, company size and location. The term "firmographics" is mostly used in relation to a first step of nested approach or segmentation funnel, which was introduced by Shapiro and Bonoma in 1984.
Goals and purposes
Firmographics variables allow firms to consider the features of organizational behavior in detail, for instance in a particular industry. It is helpful when there is no significant difference between operating variables, purchasing approach, situational factors and personal characteristics of customers.
Geodemographic segmentation is a logical starting point because
The data are obtainable through secondary sources, government agencies, or demographic vendors; It provides a quick snapshot of a market—an understanding of market structure and potential customer segments; and Target populations can be sampled to represent characteristics of the entire market at a much lower cost than other forms of business segmentation.
However, Webster (2005) believed that this approach misses a set of essential variables. Moreover, a differentiation between segmentation bases of nested approach is too complicated.
Historical development
The first attempts to segment industrial markets were made in 1934. J. Frederick described five factors that should be considered when defining a component market: industry, product use, company buying habits, channels of distribution, and geographic location.
The term emporographics was coined by Banting in the early 1970s and refers to the equivalent of demographics in the context of industrial markets (Gross, A.C., Banting, P.M., Meredith, L.N., and Ford, I.D.: Business Marketing. Houghton Mifflin, Boston, MA, 1993). However, now the term “firmographics” is increasingly widely used.
Yoram Wind and Richard Cardozo in 1974 advocate a two-stage approach to industrial segmentation that consists of macrosegments and microsegments. They explain that macrosegments consist of key organizational characteristics such as size of the buying firm, SIC category, geographic location, and usage factors, hence, mostly of firm demographics. In some cases, single-stage segmentation based primarily on business demographics is sufficient for identifying and targeting markets. More typical, however, is that a two-stage approach that will employ benefits and organizational psychographics and purchasing criteria will be needed to provide complete market profiles.
Firmographics play crucial role in one of the most significant developments in business segmentation theory came in 1984 with the work of Bonoma and Shapiro who were the first to propose a truly multistep basis for segmenting business markets. They proposed the use of five general segmentation criteria which they arranged in a nested hierarchy. The set of segmentation bases captures from macro-level to micro-level, and firmographics belong to the macro approach and comprise from industry, company size, customer location.
Benefits and pitfalls
It is not recommended to base segmentation solely on emporographics in the long term unless they reflect clear differences in needs, benefits, and product use. This is because the increasing competitive pressures observable in most organizational markets will, sooner or later, erode any industry structures not based on customer needs.
Firmographics may bear little direct relation to user needs or purchase requirements and benefits. Curran and Goodfellow suggest that descriptor-based approaches are popular, because they are convenient, clear cut, easy to implement, and they result in boundaries that are relatively stable over time.
Nevertheless, they add, such approaches are also arbitrary and usually are based largely on managerial judgment and intuition. It is easy for empirically oriented academics to underestimate the importance and value of managerial intuition, especially when this is based on experience. The attraction of descriptor-based or firmographic approaches is understandable in the circumstances and can provide useful and important insights to the practical issues of engaging with customers. More accurately, such emporographic variables facilitate such logistical issues of supplier convenience as minimizing sales or distribution costs and, perhaps, prices but this is not the principal reason for emporographic analysis.