Segmenting the Business Market

Session 6
WHAT IS MARKET SEGMENTATION?
WHY SEGMENTATION IS
IMPORTANT?
 Market Segmentation
Is the division of potential customers in a given
market into discrete groups. That division is based
on customers having similar (enough):
NEEDS, so that a single whole product can satisfy
them.
BUYING CHARACTERISTICS, responses to
messaging, marketing channels, and sales channels,
so that a single go-to-market approach can be used
to sell to them competitively and economically.
This distinction is important because needs-based segmentation
research, by definition, requires considerable primary research and
data collection to fully discover and correlate customer needs with
their characteristics
 Effective Segmentation
Measureable
Substantial
Accessible
Differentiable
Stable
 Competition
When a firm chooses a segment to serve it is
in essence choosing its competitors

It is always
helpful to
know the
competitors
definition of
segment s
 B2B Segmentation Variables

A priori
A posteriori
Identifier
Response Profile
Value
Based

Need
Based
 Identifier (A priori)
Demographic
Industry classification
Firm type OEM, end user, aftermarket (MRO)
Company size
Geographic location
Financial info/credit rating
 Identifier (A priori)
Operations
Technologies used
Level of use-heavy, light, non user
Centralized /decentralized purchasing
 Identifier (A priori)
Product Required
Custom or Standard
Purchasing Situation
Buying situation-new task, modified rebuy,
straight rebuy
Relationships
Scenario Analysis
https://www.izettle.com/gb/pricing
 Using A Priori Data
What could be the bases of segmentation?
Discussion on the approach
Strategy
 Discussion Results from the class
Sectors that were found fit
Wholesale and retail
Hotel and Restaurants
Food and Beverages
Choosing one sector for illustration
Hierarchical cluster is chosen as first step to get the number
of clusters to be chosen in k means
Wards method is chosen to get the agglomeration schedule
for the value of K
 Observer these two
columns to detect the
deflection in
coefficients
The first deflection in coefficient is observed at stage 5209. The
larger deflection is observed again at the later stage also.
However if we chose 5209 as the first deflection point then
number of clusters would be
K= N-stage of deflection
=6397-5209
=1188
 Reason for segmentation
The clustering is carried out for finding out
homogenous groups in large data set.
When 1188 clusters are formed in the case of
wholesale and retail, the cluster membership
is approximately 4-5 in each group.
Hence for a marketer to appropriately select
target market is not possible.
 Bases for segmentation
Using firmographic data, for selling the PoS
machines the criteria used could also be
number of employees- as number of
employees indicates the scale of operation of
the buying organization.
The subsequent slides illustrate the same.
K=6397-6371=26
Carrying out K-Means cluster analysis where
number of clusters is defined as 26
Use save tab to check cluster membership to identify the firms in each
cluster
The output would indicate number
of cases in each cluster
In the data view of the SPSS data file- a new column gets added which shows the cluster
membership of each firm
 Segments with high membership
count Total size of cluster: sum of
operating revenue of the
member firms
Cluster
number 15 2585.000 482143733
14 2110.000 32307918
1 1090.000 516713808
13 250.000 146304130
4 155.000 101118533
5 77.000 51773758
7 38.000 25298287
11 30.000 23131978

Example: Not true

Membership Count representation of data
 Output
Datasets where one gets definitive clusters
with considerable membership
Datasets where one gets large number of
clusters i.e. more than 20-30 clusters
Interpretations and inferences?
 Response profile (A posteriori)
Vendor product attributes
Overall value
Product quality
Vendor reputation
Innovativeness
On time delivery
Lowest cost
Response profile (A posteriori or Post Hoc)
Customer Variables
DMU (buying center) make up
Purchase importance
Attitude toward product
Corporate cultural characteristics (innovativeness)
 Response profile (A posteriori)
Application
End use
Importance of value in use
DMU/Buying Center personal characteristics
Risk tolerance
Loyalty to current vendor
Age
Experience
Education
National culture
 Key Segmentation Barriers
Problems Infrastructure Process Implementation
Culture Inflexible Not committed to Product focus
Resist new ideas sharing data/ideas Insufficient belief in
Not customer Lack of buy in the process
focused No fit with Unwillingness to
Doesnt understand corporate strategy change current
segmentation planning segmentation
rationale
 Key Segmentation Barriers
Problems Infrastructure Process Implementation
Structure Lack of intra- Misuse of Poor demarcation
functional segmentation of responsibility
communications process Ineffective
Low senior communications of
management segmentation
interest or solutions
involvement Poor senior
Entrenched management
organizational involvement
structure
 Key Segmentation Barriers
Problems Infrastructure Process Implementation
Resources Too few or Inadequate data Lack of alignment
untrained people available of budgeting with
Insufficient budgets Insufficient budgets segmentation
Too few or Insufficient time
untrained people allowed
 Key Segmentation Solutions
Solutions Prior to process During Process Facilitate
implementation
Find available data Specify Identify and
Identify segmentation steps communicate
people/skills Fill gaps in findings
Get senior education/skills Make changes to
management Collect data- plans and programs
support internal and Identify changes
Develop external required to culture
communications Establish regular and structure
Establish adequate communications Specify budgets
budgets meetings responsibilities and
Train people-basic Review for fit with timing to roll out
segmentation skills corporate strategy solutions
Develop method for
monitoring roll out