The Problem with Industry Classification: Why Traditional Codes and LinkedIn Categories Lead to Poor Segmentation
In the world of B2B sales and marketing, targeting the right industry is critical for defining territories, routing leads, and building effective marketing campaigns. But there's a major hurdle that many businesses face: traditional industry classifications and LinkedIn’s industry categories are often too vague or inconsistent, leading to imprecise segmentation and poor campaign performance.
The Challenges of Traditional Industry Codes
For decades, many businesses have relied on traditional industry classification systems like the North American Industry Classification System (NAICS) or Standard Industrial Classification (SIC) codes. These codes are used to categorize companies into industry sectors, but they come with a set of inherent limitations.
1. Broad, Vague Categories
Traditional industry codes often group very different types of companies under the same umbrella. For example, under the NAICS code 541512 (“Computer Systems Design Services”), you might find an IT consulting firm with a team of five employees and a global tech giant offering cloud infrastructure solutions. Both are in the "IT" space, but their businesses, needs, and priorities are vastly different. Targeting both companies with the same messaging and approach will likely result in poor engagement.
2. Inconsistent Terminology
Many industry classification systems use overlapping or confusing terminology. For example, one company might classify itself as “Software Publishing” while another, with a nearly identical business model, is categorized under “Information Technology Services.” These inconsistencies make it difficult for sales and marketing teams to properly segment and target their audience.
3. Stagnant Categories
Traditional industry classifications are slow to adapt to the evolving nature of business. Many of these codes were created decades ago and haven’t caught up with modern industries like SaaS, fintech, or eCommerce. As a result, many companies are shoehorned into outdated categories that no longer reflect their business models.
LinkedIn Industry Categories: No Better Solution
LinkedIn’s industry categories, while more accessible and modern, pose similar problems.
1. Oversimplified Groupings
LinkedIn uses a limited set of industry categories that are too broad to reflect the nuances of the modern business world. For instance, Microsoft and Ulta Beauty could both fall under “Technology,” even though their core offerings and customer bases are worlds apart. While Microsoft offers cloud computing, enterprise software, and IT services, Ulta Beauty operates as a retail chain specializing in cosmetics and beauty products. Yet, both are lumped into the same broad “Technology” category, making meaningful segmentation nearly impossible.
2. Inconsistent Use of Terms
Just like traditional industry codes, LinkedIn’s categories suffer from inconsistencies. Some companies might classify themselves as “Software,” while others use categories like “Information Technology and Services” or “Internet.” This inconsistent use of terminology makes it challenging for B2B marketing and sales teams to build precise segments and audiences.
3. Lack of Granularity
LinkedIn’s industry categories often lack the granularity needed for nuanced targeting. For example, “Retail” includes everything from massive eCommerce platforms to small brick-and-mortar shops. Building a targeted campaign to reach decision-makers at a global retailer like Walmart will require very different messaging compared to engaging with a boutique clothing store. However, LinkedIn’s broad “Retail” category groups them all together, leading to imprecise segmentation and poor engagement.
The Impact on Territory Definitions, Lead Routing, and Ownership
When companies use vague or inaccurate industry classifications, it doesn’t just affect their marketing campaigns—it also causes major problems for territory management, lead routing, and sales ownership.
1. Territory Definitions
Sales teams typically define territories based on factors like company size, region, and industry. If the industry classification is too broad or inaccurate, it leads to uneven territory distribution. A sales rep covering “technology companies” could end up with a territory that includes everything from Microsoft to a small app development agency, which creates inefficiencies and frustration among the team. Moreover, these broad categories can lead to overlaps or gaps in coverage, where some segments are over-served while others are neglected.
2. Lead Routing
Most companies rely on industry data to route leads to the appropriate sales team members. If the industry data is inaccurate or too vague, leads can end up in the hands of the wrong reps. For example, a lead from a fintech startup might get routed to a sales rep specializing in traditional financial institutions like banks, even though the startup’s needs and pain points are entirely different. This mismatch slows down sales cycles and diminishes the likelihood of conversions.
3. Ownership Confusion
In sales organizations, clarity around who owns which accounts is crucial for avoiding conflicts and ensuring smooth operations. But when industry classifications are unclear, it can lead to confusion about account ownership. Reps may argue over whether an account fits into their territory, especially when companies don’t fall neatly into one industry category. This lack of clarity wastes valuable time and can lead to missed opportunities as prospects are shuffled between teams.
The Marketing Impact: Poor Segmentation and Audience Building
For marketing teams, imprecise industry classification has a direct impact on campaign effectiveness, audience building, and targeting.
1. Inaccurate Audience Segmentation
Marketers aim to build nuanced audiences and segments based on the specific needs and pain points of different types of companies. When industry data is too broad, it becomes impossible to differentiate between a SaaS startup and a legacy hardware manufacturer, even though their needs and buying behaviors are entirely different. This lack of granularity leads to irrelevant messaging, wasted ad spend, and poor engagement rates.
2. Inefficient Ad Spend
When marketing teams can’t target the right audience segments, their advertising dollars are often wasted on irrelevant companies. For example, a campaign designed to target high-growth software companies could end up serving ads to a broad array of companies in the “Technology” category, including firms that have no interest in or need for the product being advertised. This lack of precision drives up customer acquisition costs and lowers return on investment.
3. Reduced Campaign Effectiveness
Marketing teams often design campaigns around specific industry pain points. For example, a campaign aimed at helping retail companies navigate supply chain disruptions will be very different from a campaign focused on increasing cloud security for financial institutions. But when industry classifications are vague, it becomes difficult to tailor messaging to the specific challenges of each vertical. This lack of relevance leads to lower open rates, click-through rates, and conversion rates, ultimately reducing the effectiveness of the campaign.
The Solution: Moving Beyond Out-of-the-Box Industry Data
To overcome the challenges of traditional industry classifications and LinkedIn’s vague categories, businesses need to adopt more sophisticated, bespoke data solutions. Here’s how:
- Custom Industry Taxonomies: Rather than relying on outdated and oversimplified industry codes, businesses should create custom taxonomies that align with their unique market segments. This allows for more granular targeting and more accurate territory definitions.
- Dynamic Data Enrichment: By leveraging data enrichment tools that provide real-time updates on company profiles, businesses can ensure they’re working with the most accurate and up-to-date information.
- Contextual Segmentation: Use additional data points, such as technographics, firmographics, or recent funding rounds, to build more nuanced audience segments. This helps marketers and sales teams target companies based on their specific needs, not just their broad industry category.
- Account-Based Marketing (ABM): For marketing teams, adopting an ABM approach allows them to focus on the specific companies that matter most, regardless of their industry classification. By zeroing in on high-value accounts, marketers can build highly personalized campaigns that drive better engagement and results.
TLDR
Traditional industry classifications and LinkedIn categories are simply too broad and vague to serve the needs of modern B2B sales and marketing teams. These outdated classifications lead to poor segmentation, inefficient lead routing, and irrelevant marketing campaigns. The future lies in custom, dynamic data solutions that provide more granular insights and help businesses target their ideal customers with precision. By moving beyond out-of-the-box industry filters, companies can unlock new opportunities and drive better outcomes across their go-to-market strategies.
