Market segmentation is well established as a theory but remains challenging when dealing with innovation as no consensus exists on how to benchmark innovation activities. SME policy interventions have shown attempts at segmentation, some quite sophisticated...  

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However, there is now evidence that segmentation needs to be based on value and requirements rather than administrative definitions such as size and sector. Having a segmentation that identifies the best SMEs can improve the incentives made available, support the development of customised marketing messages and help focus on the opportunities that can provide the best return on investment for the public sector. 

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The objective is therefore to create a segmentation that is easy to use and replicate, through the development of a simple quality score. Complex segmentation methodologies are unlikely to be used unless organisations work with segmentation specialists.  

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There are several approaches to segmentation. The simplest one classifies SMEs according to publicly available characteristics such as industry and company size. SME segmentation can also be based on their needs. However, the value that would be created by supporting a group of SMEs must also be considered to ensure the best value for money. Value can translate into economic profitability, employment, social and environmental impact, or a combination of these.

The purpose of the segmentation is to identify common characteristics that define the ‘good’ innovative SMEs; the ones that if they benefit from incentives and support will translate into value. A key challenge however in developing the segmentation was the access to key data that could represent the abilities of SMEs to translate support into economic value.