Chapter 3 Segmenting the Industrial Markets and positioning the products

Industrial Market Segmentation

Segmentation is for
Providing distinct & unique value proposition(allocate its resources more efficiently) Servicing, nurturing, developing as profitable customers(increase the returns)

Differences to understand .....

Needs attitude towards purchase decision making process Users & uses vary(eg: steel shining,strength) Purchase process(people)

Factors considered for segmentation

Measurability- buyer characteristics, buyers Substantial big enough to be worth investing resources into Compatibility: business strengths should match the competitive & technological state of the market Accessible: able to focus its effort on the chosen market Relevant Variables chosen should impact on DM for a significant no. of potential customers. Operational Variables chosen for evaluation among customer groups should be related to differences in customer requirements and buying behavior.

Advantages of mkt. segmentation

1. The seller is in a better position to spot and compare mkting opportunities. 2. Can create separate mktg. programs aimed to meet the needs of different buyers. 3. Can develop mktg. programs and budgets based on a clearer idea of the response characteristics of specific mkt. segments.

Mkt. segmentation involves cost

Obtaining and analyzing data. Developing and implementing separate mktg. and manufacturing plans. Mkt. segmentation must then justify the cost incurred through additional sales volume.

Two major categories for segmenting industrial markets

Macro segmentation Micro segmentation

Macro segmentation
Consists of identifying macro variables & centers on organizational & industry characteristics These data can be obtained from secondary sources & marketers Information system

Industrial variables

Organisational variables

Macro segmentation Type of industry,(steel- packaging , automobiles, general engineering) market products to Type of customers( revenue expected, growth) Organization size, Size of business operating(small vs big) Customer location transportation cost, warehousing cost, technology & competitive factors, purchasing decisions(centralised), industry growth rate General use or specific use of products(ball bearings) Purchasing situation

Customer variables

Application variables

Micro segmentation
Requires greater focus, better understanding of the markets, market knowledge, decision making units & their criteria. This requires the primary data, which can be collected thru the sales force or by an agency research.

Micro segmentation Purchasing objectives Transaction or collaboration orientation Inventory requirements, Policies of purchase

Criteria of Purchase
Decision making Unit Innovativeness Organisational factors

Quality, Delivery, Service, price

Centralised or otherwise Innovator or follower Resources, PLC stage, & buying situation Decision making, risk, demographics

Personal Characteristics

Bonoma & Shapiros Nested Approach to Segmentation

There is a hierarchial structure, & the segmentation bases moves from the macro to the micro level variables.

Five variables in the nested approach

1. Organizational demographics consisting of the industry, company size & location. 2. Operating variables consisting of technology, user, non user status, & customer capabilities 3. Purchasing approaches comprise buying centers structure, purchasing policies & purchasing criteria. 4. Situational factors consisting urgency, application & size of order 5. Personal factors consisting of motivation, buyer seller dyad, & risk perceptions.

Evaluating the segments

Once segmented, we need to quantify the segments. The marketer must know the profitability & the level of competition in such segments. We would also like to know the growth potential of each segment. To do this the marketer uses certain forecasting methods

Market profitability analysis

1. Mkt. potential most optimistic estimate of the amount of product that an entire mkt. will purchase in a given time frame. 2. Sales potential estimate of a companys share of mkt. potential in given time frame. 3. Sales forecast estimate of companys expected sales in a given time frame. 4. Profitability difference between potential revenue and the cost of serving and maintaining customers.

Reasons for Forecasting

Understanding the profitability from the segments chosen Level of competition in those segments

Methods of Forecasting
Qualitative methods: Executive opinion, Delphi method, sales force composite, historical analogy. Quantitative methods: Moving averages, regression & correlation analysis, Econometric models etc.

TARGET MARKETING
The marketers decide which segment they would like to serve These segments are the targeted market

Strategies for target marketing

Concentrated Marketing Differentiated Marketing Undifferentiated Marketing Niche Marketing

Positioning
Once the target markets have been selected, the marketer should try & create positioning strategy for each target market Positioning is a distinct place a product occupies in the mind of the target customers vis a vis your competitor products.

Developing a positioning strategy

Identify the unique attribute to differentiate & then Communicate the positioning to the target market

Factors used for differentiation

Product Variable Service Variable Personnel Variable Image Variable Once the differentiating factor has been identified, it is communicated to the target segment it is done through personal selling, advertising & trade shows.