Art Weinstein, PhD

Handbookof Market Segmentation

gic Thrgetingfor Busine,s,s Strate and Technology Firms
Third Edition

Pre-aublicntiou REVIEWS, COMME}./]IAR IES, EVALUATIONS ...

sic'rn. Their pr"ofitscould be mtrcli gi'eater if bhey bettel define.d their segmerrts and aligned their offelings with their choserrsegmerrts.Art Weir-rstein has plepalecl a handbook fol businessand technology marketels that is lich'in segmentatior-rtheoly arrd case examples." Philip Kotler; PhD S. C, loltnsonProfessor of ltrterntttionLtl M u h et i n q , Kcl/d.tq St|rcoI of Mnttn.qctttertt, Nol'f/rirreslr, r n U tti t,t,r sii tl

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lllhe thild edition of Harulbook of I Market Se,gnrcnttttion is a colnplete arrcl freshlobk at the notion of segmentation rnalketing. It is a practical guicte for today's high-tech businesspelson. As an intelnational market analyst ancla gladuateschoolplofessolof intelnaticlnalbusiuess, I have been using mr-rch of the rnaterial in the nlln-rerolls new casestudiesboth as a plactitioner in the aviation industry ancl to supplernentrny lecturesin the areasof stlategicmarketingplanning and international businessdevelopment. "

DIBA fude E. Edwards, Mnilcet Annhlst nndAdjunctProfessor Cr.tlt i toI CollcgeoJ' Ettgi nec r i ng

Morepre-ptul:li cnt iort REVIEWS, COMME}/7ZRIES. EVALLTATIONS .

ti on. L rt Wejnsteinexplains in his in- galizations lle\rer achieve segrnerrta .CLsigl-11f ul Htuulbobtc ,y ttlo,lcet Seg- This insightful book plr-rprerly explor.es rtwttntiort how fo lnal1age br-rsiness seg- how and n'hy to segment. mentation and irnprove an enterpr.ise;s The many practical insights offer.ed malket perfor.rnance by creating-a seg- tlrror-rghout the Hnrdltooh oJ Muilret Scgrnentation-ctjvenor.garrization. nfu bmk rrtctttttt iott deinonstrate the au thor's unricontains valuable legrnentaticlnstrat- valed expertise in this atea-as a1tacaegy casesof successfulbusirressand technologyfirms, useftrl tablesand figures,and segrnentation skillbuilder.s that make it easyfclr the readerto adapt the concrete adviceinto actlralbusiness sh.atThe solr-rtions to these impeciirnents eg1es. This ou tstarrcling,cornpt'eheusiv e are pt'eselrteclin this weil-coustr.ucted handbook offers examplesio help the book, Cleverly conceivc.clexercises irr readel irnplernentsegmentation and tar.geting strategiesbasedon a custornerdliven focLrs." Wolfgang Ridl, PhD Head, C lobul Ma rkat i ttg Dt,r?l tttt ntt,tt t, SnttdttzGttrbH, A Lt slt' iti

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to develop bland positionings with val./ing levelsof plofessionalisil.Many or-

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Sally Dibb, PhD Lyndon Simkin, PhD Renders in hlnrhet in.q, Wnnuiclc Blsirrcss Sihoot, LIn iuarsi t!/ o.fINnnu ic lc,LIn i t atl Ki ngdont

The HaworthPless@ New York . Lonclon. Oxforcl

I{ OTE S F OR PROF E SSI OI,{AL LI B RARIAA/S AI,{DLIBRARY USERS Inc. This is an originirlbook title pLrblished by The HaworthPress, materials noted in specific with attribution, Unless otherwise chapters published elsewhere in anytorin this book havenot beenprevior"rsly mat or lan-enage. E RUATI OI! N OTES CONSERVATIOIV AA{D PRES Inc. andits imprintsale All bookspublished by The Hawolth Press, paper. This paper printedon certifled pH neutral, acidfi'ee book grade NationalStandard for of Americarn meets the minimumreclLrirements Inforniation Sciences-Permanence of Paper for Printed Material, - 984. A N S I 2 3 9 . 4 81

Handbookof Market Segmentation

StrategicTargeting fo, Business Firms and Technology
Third Edition

THE, HAWORTH PRtr.SS

H at'v o r"thSerie s in Segntentecl, Target ecl, tutcl Ct.t stctrttize cl Markeliltg : conceptrLtrl and Enqtirical Developntent Art Weinstein
Hurtclboolc of MrtrlcetSegntettcttiort; Strcttegic ktrgetingfor Bu.sine.ss unclrec'ltnologt, Fi,nts,Third Edition by Art weinstein Other titlesof relatedinterest: Mctrlceting Managentent; Textcutcl Cctses by DaviclLouclon.Robert Stevens. and BruceWrenn Ftmclcntertals of Bu,siness illctrlceting Re.searc.h by DaviclA. Reicl and RichardE,.Plank Funclamertal.s of Bu,siness Mcrrketing EclLtccrtiort; A Guicte frtr IJnh,er-.rirt'LevelFcLcultt, artcl Policl;makers by J. DaviclLichtenthal StrategicGlobal McLrlceting; lssues anclTrencls eclitecl by ErdenerKayneik Marketittg YourBus'htes,s; A Gticle to Det'elopittgcrStrcttegic Mctrketingplcut by RonaldA. Nykiel Custotnet^ Aclt'i.sort, Boctrcls: A Strategic Tootfor Cu.Etctnter Relcrtion.ship Builclhtgby Tony CarrerSocialMarlceting editedby Michael T. Ewing Global illarkethtg Co-Opercrtiort cmcl lVetvt'orks eclitecl by Leo Par:lDana Cross-Ncttional ConstunerPs1,6l1sgt'cLlthics editedby Lynn R. Kahle N etver I nsi gh t.sint o M arket i ng ; Cro.ts- C u l tLt t-cLl cLn cl Cro5s-N at i oncil Perspecth'e editedby Caniillep. schusteranclphil Harr-is Hot't'Consttruers Picli o Hotel; strcLtegic Segmentcttiort ctncl Tctrger Mctrketi,g by DennisJ. Cahill Geograplty cutcl Tottt'isru McLrketing eciited by Martin oppernrann Hcmclbook oJ'cross-culturcrl Mctrketbig by paul A. Herbig Marketirtg Plcuming Guicle, Second Eclition by RobertE. Stevens. Bruce Wrenn, David L. LoLrdcln. anclWilliam E. Warren TheMarketittgResectrch Gticle by Rober"t E. Stevens. BrucewLenn, Morris E. Ruddick,andPhilip K. Sherwood MtrrketirtgRe.searclt ThcttPa1's Off; CaseHi,srories of X4arketingRe,sectrc'lt Leaclirtgto successin the McLrketplcLce editecl by Larry percy

Handbookof Market Segmentation

StrategicTargeting for Business and Technology Firms
Third Edition

Art Weinstein. PhD

The Haworth Press@ New York. London. Oxford

A 2004 by Art Weinstein.All ri-chts tesetr,ecl. No part of this 'uvork may be replocluced or utilized in atty fonn or by any means,electrorric or rnechanical, incluclingphotocopying, microfilrn. and recording, olby any infotrnation stol'age anclretrievalsystent. without perrnission in writing fi'oln publisher. the Printedin the United Statesof Arnerrca.Renrint- 2007 The Hawortlr Pless.

10

B i n g h a r n t oN nY , 13904 1580.

An ear'fiet editionof the book was publishecl as Murkt,tSegttrerttutiott; U.rin,q Dernogruphit'.r. P.svt:h.ogrct1tltics, rurcl OtherNichelulnrketirtg Tet'lrtriclues to Preclict CLt.strntter Belttn'irtr, Revised Edition(Chicago, IL: ProbLrs Publishing Co.,1994). Coverclesign by Lola Wiggins.
Library of CongressCataloging-in-Publication Data

Weinstein, Att. Hanclbook of market segrnentation : strategic targeting fol business andtechnologv firnrs/ Art Weinstein.-3t'cl ed.
p. cr11. In cl u cles bibli o_elaph ical re fe rences ancl i nclex.

IStsN0-7890-21-56-0 (soft: talk paper')-ISBN 0-7890-21-57-9 1. Ivlarket se,ententation. 2. Psvchographics. I. Title. H F 5 4 1 5 . 1 2 1 . W2 40 50 4 658.8'02-dc22

paper')

2003023392

Trevor,with love ancl To Sandee

ABO{JT THE A{JTHOR

Art Weinstein, PhD, is Profess H. Wayne HuizengaSchool of Nova Southeastern Universityin Fc graduatecollrses in customervalue,international marketing,lnanagerial marketingand research, and marketsegmentation. /n expertin segmentation andmar_ tnsultingand trainingservices for ard, Intel, J&Jlcordis, Motorola, Novartis,and many.companies, government agencies, professionai associations, ancluniversities. Dr. Weinsteinis the authorof DeJirlingYour^ Market; Winrting Strategies Industrial, anct fot'!1Sh-Tech, Sin,ice Finns (Haworth)inclcoauthor of sryter^ior custornervalue in the Nevrt Econorn-v: concepts and Cases, Second Edition. He was the for-rnding eclitorof the Jortrnll of Segnentationin Marketing: Innovcttions iil Market lclentificcttion and Targeting andhaswrittenmore thanfifty articlesaldpapers on marketingstrategy issues. He is a memb.r of the AmericanMurketing Association and of the Acacrerny of MarketingS.i-n...

COIVTEAITS
Preface Acknowledgments PART I: SEGMENTATION PLANNING Chapter 1. Market Segmentation: An Overview Segmentation: The Key to MarketingSuccess Segrnentation in Action Segurentation Options Business Insight I : Segntentation Segtnertutiort Researclt Finclittgsin Higlt-Techcutcl Inclustr"icrl Markets Nichernanship: Segmented Marketingat Its Best The Benefitsof Segmentation Lirnitations of Segmentation Segrttertatiort SkillbuiklerI: Hovv, WellIs Yortr Contpotry' Using Segntettcttiott Techniclues ? Segrnentation: SomeMisunderstandings Resolved Sumrnary Chapter 2. Market Definition and Segmentation in B2B Markets The Market DefinitionChallenge Busirtess Segntettcttiott lrtsight2: Mission,Vision, artclM o rket D efinitiort A Strategic Market Definition Framework Miirket Definition ApplicationsBasedon the Framework SeErtentutiort 2: Defining YourMctrlcetSkillbuilcler A Three-Let,eI Approaclt Summary
xltt

xvlt

4 5

B t2 15 I6 11 18 I9

2l 2I 24 26 30 3l 31

plan'ing and Research chapter 3. Segmentation Guidelines for Business Marketers

33

Business Segntenttttiort Insight 3 : Segrnentcttiort Resectrclt -An Assessrnent 51 Summary 54 Appendix:InternetSegmentation-Business Mar.keting Applications

Segmen tationRoadblocks 31 UsingPlanning andResearch to Segrnent Br_rsiness Markets: A Ten-Point Program 36 Segntentatiort Skillbuilcler 3; Desigrting tlrc Segmentatiort Srudy 50

54

PATTT II: BUSINESS SEGMEI{TATIOI\BASES Chapter4. Geographics andFinnographics

Geographic Segrnentation B ases segntentationskiltbuitder 4 : Defining Geogralthic Marlcets Business seEnentcLtiotl Insight 4; How a Mctjor Pl'tarunaceutical Conryai1,(Jses Geogrctltiic Sctl es Analysi.s to SegrnentitsMarkets Tappingcensusproductsfor Geographics anclBusiness Denrographics Firrnographics Summary

6l 62 66 66 68 71 17 81

Chapter5. Usage Analysis

EndUseAnalysis 82 Usage Segmentatior-r 83 conceptualizing andoperational izingUsage Dimensions B6 Busilrcss segmentatiott Insight5: lJsctge-segntentcttiort Applicatiorts 89 Assessrnent of theUsage Dimension 91 s egnrcntcttion skillbt,tiIcler 5; (l sctge Analysi.s-Ke1, Issues 93 Summary 94

Chapter 6. Benefit Segmentation

97

Concepts andApplications of BenefitSegmentation 98 Busirrcss Insight 6: Custonxer Segntentution Wtlue unclBenefts 101 Prosancl Consof BenefitSegrnentation 103 ThreeBrief Examples of BenefitSegmentation in Br-rsiness Markets 105 Segrtrcntotiort Skillbuilcler6: Using Segrnentcttion Gricls to lclentift, BenefitSegrtrcnts 106 for YourContpcLny Summeiry 108

Chapter7. Purchasing Behaviorand Organizational Psychographics . How Business Markets Are Different TheNested Approach
BusinessSegrtrcntatiort Insiglil 7: In Conierscttion t'vithDr. BertsortP. Shapiro SegntentetiortSkillbuilcler 7: Using the I,,lested Approctclt to Segrttent Yotu'Mcrrket BusinessPsychographics

113 r13
116

r19 t20
120 t2l 130

Br-ryer AdopterCategories Summary PART III: IVIPLEMENITING SEGMEN{TATION

STRATtrGY
Chapter8. StrategicTargetMarketing Target MarketStrategy Fonnulation The ThreeBasicSteps to Strategy Fonnulation Business Irnight 8: Guidelines Segnrcntutiort on Market
Segnte nt Attractiveness Segmentation Strategy Development Business Segrnentation andthe MarketingMix Segrrrcrtatiort McLrket Skillbuilcler8: Tctrget StrcLtegy, Worksheet TargetMarket Strategy: An Application Sunrrniiry

133 134 135 138 140

r43
144 153

r53

Chapter 9. EnhancingSegmentation's Value

155

Creatinga Segrnentation-Driven Orgamzation 155 Business Segnrcntatiort Insigltt 9: HovvHigh-Teclt B usinessCultut"es IntpctctSegntentatiort Strategt, I5l Strategic Segmentation and hnplementation Considerations158 The Segmentation Ar-rclit t6l Segmentatiort Skillbuilcler 9: SeEnentati ort I nttrt Iententat i ort Quest i orts 162 Twenty-First-Century B2R Segrnentation : A Look Back. a Look Ahead t65 Summary 170 PART IV: SEGMENTATION STRATEGY CASES

Case1. CollinsAviationServices: Buildinga Cluster-Based Segmentation Model 173

MarlcetDefinition and Segmentation Recommended Segmentation by Loyalty-Based Characteristics Segmentation Applieclto Date End-of-Case Questions Suggested Readings Case2. Dev-SoftS.A.: Segmentation arrdDistribution in Europe CompanyBackgrouncl Indr-rstrial SoftwareSector Dev-Soft'sProductLines andPreliminary Distribr_rtion Chzrnnels Segmenting the SoftwareMarket TargetMarket Selection Revisingthe Distribr-rtion Strategy Risks and Challenges End-of-Case Qr-restions Suggested Readings

173 111 178 180 180

183 r83 r85

185

r86
189 190 191 192

r92

Case3. Dow Corning: Segmentation and CustomerValue

Change in the Market Situation for Dow Corning How Did Dow CorningTackleThis Challenge? Value-Based Marketingat Dow Corning:Discovering anclUr"rclerstanding the Customer End-of-Case Questions Sr-rggested Readings Case4. Lexmark International: Creating New Market Space Introduction What Is New Market Space? LexmarkInternational: NMS As a Cornpetitive Marketing

193 194 195

r91 r99 r99

201

20r
202 204 201 208 209 209 2Ll 211 2TI 212 214 215 216

Tool Lexmark andNew MarketSpace: Lessons Learned Some FutureProspects End-of-Case Questions Sr-rggestecl Readings
Case5. Pharrnacia Corporation: Pharmaceutical Segmentation InclustryOverview Brief History Inclustry Charllenges and Market Segmentation Pharmacer-rtical Segmentation Bases An Rx for Phannelcelltical Sesmentation End-of-Case Questions Suggested Readings Case 6. Sportmed: Market Definition and Benefit Segmentation Sportmecl's C ustolners Sportrned's Market Definition Extending the Market DefinitionAnalysis Marr Strategic keting Consiclerations End-of-Case Qr:estions Suggestecl Readings Notes Index

2r6
219

2r9
220

22r
222 223 223 ))< 233

Preface

This book waswritten to providemarketing/business practitioners (professors and scholars and students) with an informative,state-ofthe-art guide to strategically segmenting high-techand industrial marrkets. While top executives often aclvocate beingmarket/cr-rstorner oriented,I havefound that few companies usetargetmarketingto its fullestpotential. In spiteof the manyadvances madein segmentation methoclology ar-rd technology, a majority of firms basetheir marketing planson clrrsory, incomplete, or intr-ritive analyses of theirpotential rnarkets. However, usedeffectively, segmentation techniques are valuable for increasing andirnprovingoverallmarketing perforsales mance. Does yollr companysufferfrom the lollowing marketingdeficiencies ? . "FLrzzy" business mission Unclearobjectives Informationthat is not decisionoriented Lack of agreerlent as to segmentation's role in the firm Producti on-driven focus (prodr-r ctsreflect corporate desires rather than customer neecls) Unfocusedpror-noti onal strategy Failureto attackniche markets "yes" to any of these, If yor-r answered yoll arenot alone.Cognizantof suchproblerns thatarefacedby successful Fortune500 cornpanies as well as most othercompeinies, this book develops proa systematic cessfor introducinganclirnprovingbusiness segmentation pliinning anclexecution in your firm.

xLu

HA]V DBOOK OF MARKETSECM E]YTATI O!,1

is segrnentation rnarketers? Let us coltto br-rsiness How important Basedon inpr*rt from stated. sollrces sider what two leadingresearch competency rnarketing practitioners, an intensive over 100 leacling with the Instiby Allen Stinesin cooperation model was developed State Markets(ISBM) at Pennsylvania tutefor the Studyof Business (B28) marketbusiness-to-business Universityto defineexceptional was ing managementpracticesfor the year 2001. Segmetttation of tn rly understanding asthe technical manifestation operationalizecl or-rt of a pool of the custolner. It was rated the top B28 cornpetency performing com153rnarketing issues. Accordingto Stines, superior processes to paniesuseinnovative criteriaancl marketsegmentation flnd custorners with similau needs andbehaviors.l (MSI), customer isInstitr,rte Accordingto the MarketingScience 2004. prioritiesfor the years2002thror,rgh suesarefirst-tierresearch (a retention cllsand understancling Managingcustorners challenge) of tomers (anticipatingneeds)ranked third and fifth, Iespectively, Viewedcoltopicsrnoit in needof research. sets of rnarketing sixteen customers was the current and rnanaging lectively,understanding andhasplacedin the top numberonepriority of marketingmanagers period 1994to 2004(theotherlong-termpriorifive overthe ten-year brands,and rnarketing ties were rnetrics,growth and new prodr-rcts, i nformation/knowledge) .2 you will If you areelnrarketer, manager/executive, or entreprenellr, find Hanclbookof Mctrket SegnrcntcLtiort: Strategic Targetingfor Firnzs(Third Edition) to be a valuablereBusirtess anclTechttology you in segmenting It is alsoa thought-promarkets. sollrceto assist marketingstuvoking readingsanclcasebook for aclvanced/graduate dents who want to go beyoncltheory and learn how to make "real lrlarin changing andcompetitive world" strategy decisions business kets. conslrmer Unlilcethe two prior editions of this book thataddressecl and businesssegmentatior-r, this edition has been completelyrevarnpedto focus solely on the unique segrnentation challenges of and technology markets. The vast nrajorityof the 17,000business (consistent ph-rs marketers buyersof the earliereditionswerebusiness principle,this is estirnated Fr-rrwjth the Pareto at about80 percent).

Prdace

mostof rny segmentation thermore, conslllting and trainingengagementsduringthepastdecade werewith high-tech, industrial, or br-rsiness serviceorganizations. Many of theserelevantsegmentation experiences are incorporatecl into this new edition. Realizingyollr neecl for practicalinformation,a highly theoretical anclquantitative approach has been avoicled. Instead,this book is a "how-to" guideto theef1ective planning, useof marketsegmentation techniqr-res, and strate-eies in business marrkets . HcLnclbook of Market is built on the latestthinkingfrom thebusiness Segrnentatiort andacaclemic commllnities. Much of the rnaterial appearing in this book hets (MBA) anddoctoral beendiscussed at lengthin rnaster's courses and in executive seminars or is basedon importantresearch in leading publications. marketing Businesspractitioners can reaclilyapply thesevaluablemarket segmentation tools.By learning how otherconipanies in yollr industry or relatedindr-rstries define anclselectmarkets,yot-rare able to adaptthe bestpractices andincorporate theminto your planning, reseArch, and strartegy fonnation. The book is designed to help you put business segmentation concepts to immediate andprofitable use. In arddition to many r-rseful figuresandtables, eachchapter features a Business Segmentertion Insight(anin-depth look at a key segmentation topic sr-rpported by researchor practice)and a Segmentation Skillbuilder(field-tested exercises to help yoLr irnproveyolrr working knowledge of crucialB28 segmentation issr,res). Chapter notes direct reaclers to additionalpublishedwork on areers of furtherinterest. Hcmclbook of Market SegntentcLtiott is orgetnrzed into for-rrrnajor partsfor clarity andto facilitaterapid cornprehension of the material presented: Part I: Segntertcttiort Planning(Chapters 1,2, and3) provides a blueprintfor conductingeffective,cost-efficient, profitar-rd etble segmentation studies in business markets. An overview of rnarketsegmentation and niche marketing,marketdefinition, anclhow to clesign segmentation studiesand use segmentation research arediscussecl.

XUi

HAIYDBOOK OFMARKET SECMEIVTATIO]V Part IL' Busittess Segrrtentation Bases(Chapters 4, 5,6, and 7) detailsthe rnajor business segmentation dimensions-i.e., geographics, firmographics, benefits, purchasing usage, behavior, organvationalpsychographics, and buyer adopter categories. In adclition, significant coverage of the newNorth American Indr-rstrial Classification System(NAICS), business censlls products, andanirnportant modelfor segmenting industrialmarkets(the nested approach) are featured. Pttrt III: Intplenrcrfiing Segntentatiort Strateg\'(Chapters 8 and 9) discusses targettnarketing, segment attractiveness, positioning,rnarketing strategy formulationin business rnarkets, building a segrnentation'driven organtzatiorl, implernentation issr-res, segmentation audits,and br-rsiness segmentation challenges. Part IV: Segmentcrtion presentssix all-new, inStrateg.v CcLse,s depth examplesof business segrnentation approaches and strategies by a diversegrolrpof organtzatrons in highly cornpetitive markets.The focal con-rpanies are Collins Aviation Services, Dev-Soft,Dow Coming, Lexrnarl< International, Pharmacia Corporation, andSportmed. Thesehands-on case studiesalso includeend-of-case qllestions for analysis and suggestions for fr-rrther reading.

Based on more than fifteen years of interesting and intriguing work in rnarketsegtnentation reseau'ch and strategy, I aur convincecl that marketleadership is dependent Lrpon how successful finns areat defining and selectingmarketsappropriate to their capabilities, resollrces. audcompetitive situation. I aun pleased to share with you my blueprintand thoughtson how to irnprovean organizertion's marketing perforlnance in new or existingbr-rsiness markets. Enioy the eclucationalexperience. I look forwarclto learningmore aboutyollr ntarket segmentationtrials, tribr,rlations, and trir-rmphs. Feel free to contact me at <art@huizenga.nova.eclu> (phone), or , (954)262-5097 (954)441-2447 (fax),or visit nry Web siteat <http:llhorne.bellsouth. netlp/PWPartwein n>. stei

Acknowledsments
providedvaluaible input towardthe preparation Many inclivich-ials Third Edition.First and of Murket Segmentation, of the Hnnclbook manandthe outstancling I thankBill Cohen,Bill Palmer, foremost, for developing the Segteamandstaffat The HaworthPress agement (Haworthreally knows how to in Marketingbook series. mentation its market.)I am also indebtedto J. Michael define and segment Jeffersfor rnakingthe first two editionsof the book possible. Universitycolleagues. Second,I thank uty Nova Southeastern Dean, of the Dean, and PrestonJones,Associate Randy Pohluran, to the Presiclent Hr-rizenga School,as well as Ron Chenail,Assistant rny Ray FerreroJr. supported Affairs, and President for Acaclernic anclwrite the that enabledme to research 2003 facr-rlty sabbatical Bill Johnson cliscovered the Dow Corningcaseand book. Professor BarbaraIreland and Sylvia Lanski with solne examples. assisted severalcasesand provided computergraphicsfor worcl processed Reference Librarian,washelpfulin somekey figures.DeanVellenga, In adclition, research sources. of a tableon secondary the preparation (par seminar ticularlyin my six-clay our MBA and doctoralstudents learningenvironprovidecl ern outstanding segmentation) on marrket ment for refining this marketingbody.of knowledge. for their case the followingindividuals Third, I mustacknowledge insights in the book. ancl illr-rstrative exalnples, segrnentation stuclies, Eric Balinski,Jim In alphabetical order,thankyou ScottAnderson, Tev Alan Cleland, Cates, SusieChang, Beny, Albert V. Bruno,Steve Egea,Robert JosdManuelOrtega Dalgic,SallyDibb, JudeE,dwards, Rick Kates,Gary Kalafatis, Fast,RussHaley,GeneHenley,Stavros Philip Kotler', Gary Mullet, Marvin Nesbit,CarolynSaenz, Korenjel, Ben Shapiro, Lyndon Simkin,andJerryWincl. BruceSeaton, from reerl-world business sr-rbstantially Fourth,this book benefited gainedoverthe yearsfrom hundreds of marketingpractiexperiences

XDLLL

HANDBOOK OF MARKETSEGMEIVTATION

tioners.I appreciate what I learnedalongthe way aboutB2B market segmentation fiom clientsin high-tech, industrial, and service organizations;execlltiveseminarparticipants at the University of Pittsburgh and Sor-rthern MethodistUniversity;academic and tradeconferences/presentations; andprevious employers suchas A.C. Nielsen, Pro-Mark Services, and the Srnall Business Development Centerat Florida International University. Last,but not least, I especially thankyou for readingtheHanclbook of Market Segntentation: StrategicTargeting.for Bttsiness cutcl TecltnologyFirunst

PARTI: G I OAI PLAI{IVIIV SE GM EIVTAT

1 Chapter

MarketSesmentation: An Overview
He who paysthe piper can call the tune. JohnRay ( 1670) As its nameimplies,theTubaExchange is a NorthCarolina-based clearinghouse for new and fine used tubas, euphonilrms,. sollsaphones, this firm sells and accessories. Unlike its n-rajor competitors, no othermusicalinstruments. Targetmarketsfor TubaExchange inprofessional rn'r-rsicians, marchingbands,rnnsicstudents, and ch-rde And this niche rnarketingstrategyis effective-sales symphonies. I annually. are growing20 percent and increasingly hypercompetitive markets,sucIn fast-chernging haveto be superb companies segmenters cessfultwenty-first-century quality goodsor services are to surviveand thrive.Having superior custornno longersufficient. Companies mustsatisfydiscriminating frorn a multitucle of productofferingsin a global ers who can choose Massmarketing is r"row a distant memory;today'smarmarketplace. attacktargetmarketsandnichesthat exhibit ketersmust aggressively marketingis the esunique needsand wants.Segrnentattion-based For example, the andvalnecreation. of soundbusiness strategy sence to aclvertiser demandand customerdesires. Fttnn Jounutl respouds comThe publisherof Farm JournalMedia, SteveCuster(personal notesthatt munication), Farm Joumcil has a circr-rlation of rxore than a half a million. all its readers by crops, acreage, Using a database thatidentifies geographyand even farm przrctices, it often livestock rerisecl,

2 .)

HA]VDBOOK OFMARKET SEGMEIVTATION pLrblishes well over 1,000 different versions of an issue based on readers' interests. Segmentation marketingmeansknowirtg crrstonteru, giving ),ourthern exactlywhat they want or may want, br-rildin-e strongrelationships with channelaffiliatesanclcomarketing partners, and corunllnicatingvia highly targetecl prourotional media,?.g.,eventsponsorships,interactive Web sites,personalized e-mails,tradernagazines/ shows,etc.Ernulating Marriott Hotel'smultibrancl rnoclel, Air Canadarecentlyintrodr-rced four subbranded airlines.Air Canada Jazzts the consolidation of severerl regionalairlines:AirBC, Canaclian Regional Airlines,Air Onteuio, andAir Nova.Air Carr ada Jetzis a premiutn charterservicefor corporateclients and professional sports teams. Tangois a no-frillsdomestic, long-har,rl (extras air service are available for a price).Zip flies low fare,short-haul routesin Western Canada.2

SEGMET,{TATION: THE KEY TO MARKETII,{G SUCCESS A marketing orientation is based on a customer-clriven focus.During the pasttwo decades we haveseenthe rise of marketsegmentation in business markets. Introdr-rced into the marketingcommunity by the lateWendellSmith in 7956,a half a centurylerter, segmenration hasevolved from an acaclemic concept into a viable"real-worlcl" planningstrategy.3 jumpecl Everyone has on thernarket segmentation bandwagon, fiom globalgiantsto mom-and-pop srnallbusinesses. In additionto business anclhigh-techcornpanies, serviceorganrzations, the professiotts (accounting, legal,etc.),iind evennonprofitinstitutions haveembrerced the benefitsof buildingmarketingrnuscle. The Segmentatiort Intp erutive Segmentation is theprocess of partitioning markets into gror-rps of potentialcustomers with sirnilarneecls ancl/or characteristics who are likely to exhibit sirnilarpurchase behavior. It has emergecl as a key

An Oueraiew MlarketSegmentation:

forfor effectivestrategy marketingplanningtool andthe foundation The objectiveof cornpanies. international mulation in Arnericanancl research is to analyzemarkets,find niche opportunisegmentation position. This canbe accornpetitive on a superior ties,andcapitahze by selectingone or rrore grollpsof usersas targetsfor cornplished unique tnarketingprogramsto marketingactivity and developing (marketsegments). prirneprospects reaich these effortsmust be mcmsegntentcftiort From a practicalperspective, everymarketopporto plrrslle It is impossible to be successful. ctgecl that First,recognize choices. mustmakestrategic tunity so marketers offered.Rememfor everygoodor service is not a prospect everyone Today, the personalcomputerbusiness? ber when IBM dorninated Dell is in comrrand br,rtrnust carefully watch strategicmoves by (Sony, etc.),among Toshiba, andthe Japanese IBM, Hewlett-Packarcl, others. for maximumefmix hasto be controlled a firrn'sprocluct Second, in all areas(e.g.,personnel costshaveescalated ficiency.Business plant, real estate, and equiprnent, technology and benefits, salaries just-in-time prodr-rction rllns should Ideally, and insurance). rnaterials, resource utilizatton. needsand wantsfor optirnerl reflect cr-rstomers' is to efficientlymatchyour products challenge Hence,the rnarketing competitors. anclstay one stepaheadof yor"rr desires to customers'

SEGMEIVTATI ON I I,{ ACTI ON is both et scirecognize thatsegmentation Marketingprofessionals analyenceandan art.Onecanlearna lot aboutmarketsegmentation in this book and discr:ssed guidelines ancl techniqr-res sis throughtl-re (asa starting point,seethe chapreferences pLrblished othervaluabie and thatcan be acqr-rired discipline Also, it is a marketing ter notes). and training,observation, executive experience, thror-rgh enhancecl thinking strategic mArbusiness for segmenting methods There are lnany atlternative are derivedfrom the consumerbekets. Many of theseapproaches by rationalandemotional is impactecl field. Decisionn-raking harvior

HAIV DTJO OK OF MARKETSEGM EIVTATI ON

factors(e.g.,demographics, geographics, benefi ts, rnotivations/neecls, pr-rrchasing habits,etc.). Let us assllme thata majoroil company wantsto segment its market. Business marketers canresearch its cr-rstomers'cnstorners. A territorial salesanalysis of its dealers is a logical starting point. Consumer de'mographicand socioeconomic (age,gender, nteasllres income,etc.) cor-rld be str-rdied. Productconsumption (typesof unleaclecl or diesel gradegasoline) can be evah-rated. In aclclition, creclit cardutilization, brandloyaltylswitching patterns, ancl price sensitivity issr-res rnaybe insightftrlfor segmenting this market. As you can see,the optionsaremany;therefore, furtherresearch is necessary to determine the bestapproach(es). The following shortexarnples illustratesix commonbusiness segrnentation diurensions in action: 7. GeogrcLphic: A medical instrr-rmentation finn can obtain data fiom AtnericanHospitalAssociation clirectories to targethospitals by region and bed size.This approach was vah,rable for clefining marketsfor a new blooclgas analyzer. 2. Busirtess clentograplics.' A graphicsr,rpplies clistributor caneasily targetadvertising agencies by using br-rsiness clemogrerphic variables or firmographics. Using Aclvertising Age ancl Aclw,eek teferences, the company can find informationaboutthe sizeof prospects (annualbillings),rnediaspecializertion, services offered,rnajoraccounts, key personnel, etc. 3. Adopter ccttegories; In research I conductecl for CorclisCorporation,part of Johnson & Johnson, we iclentified potential physicianadopter (progressives, segments black-box clevotees, ancl show-me's) andnonadopter groups(nonbelievers, no perceivecl need, ancl techies)for a proposedmeclicaltechnology(see Chapter7). This seglnentation techniqr-re can be mostinfolnative for new prodr-rct conceptsusing exploratorystudiesancl qualitativeprocedures. 4. Benefiff.'what is a finn seekingwhen buying office copying machines? Is it price,service, specialfeatures (enlargement or reductioncapabilities, color availability, high volr,rme, speed,

An Oueraieu Market Segm,en'tation:

XX A benfeplltationof the selier(Xerox or Bratlcl etc.),ancl/or may be a drawbackto featr-rres) efit to one cllstomer(enhalcecl (higherprice). ernother according can be segmented markets tts'ctge:Br-rsiness 5. Proclrtct grollps (heavy,medium, levelsof variollsLlser to cotlsttmption by sevcanbe identified the "best"cttstomers light). In acldition, profitability, revenues, sales, r-rnit criteria:numberof orclers, er-al volume,etc. shareof customer of seekingsophisticated t'o ct ches: Dell's strategy g ctlt 6. P ttychctsirt 1t not requiringmuch "hand-holding" buyersancllarge accollnts targetmarketing' is sor,rnd (i.e.,liuritecl support) technicill

SE GM E I,{TATI OT,{OPTI ON S the choices:(1) to segment A companyhas two basic strategic for its marketor (2) to treatthe entiremarketas potentialcustomers This latter option meansthat the firm usesan Llngoocls or services. There are few (if any) companies marketingstrategy. clifferentiatecl One can argllethat utilities can that cal benefitfrom this approach. sinceyoll lnllst havetheir servicein an essenemploy this strategy, In But eventhatis not trueanymore. environment. tially monopolistic to usethe electricityprovidedby clonot ha've today'sfresmarket,yor-r include to (options if you clonot choose yoni local power cornpany friendly energy solar panels,winc|nills, and other environmentally AI&T industry, telecommllnications In the onceuncontested sources). in which it competes in all sectors competition now facesforn-riclatble local,wireless). (longdistance, is for virtually no one, too Despitethe fact that undifferentiation is a likely as if everyone still treat their mairketing many companies rather than targetingthosewho are the most likely proscr-rstomer, the greatdiversityin the marRecognizing pectsfor their proclr-rcts. tnarketsto improvemarto segment tetplace,it is clearly clesirable of we mean the development By segmentation keting performance. of the marketplace. for the variousneecls lrarketing streltegies uniqr-ie and atconcentration, clifferentiation, optionsinclr-rcle Segmentation InSegmentation Business marketing). omrzation(segnent-of-one

HrllY DBOO K 0 r MARKET wTAT SEGME IO tt sight I reviewsthe Llsage ancleffectiveness of business-to-business (B28) ntalket selection strategies in the UniteclStatesanclUnitecl Kingclorn.
IILISIJ\ESS SEGN,IilN'I'ATION INSIGI{]' I : SEGIVIE NT'A'I' I O N ItE SI' A It CI{ FINDIN GS I N I{ I GFI-T I' C FI A ND IND T]ST ITIA[, h,IAT{KETS

ExctnryIe1 A nzrtional segrnentaLion stucllz was concluctecl in technology-lrasecl indListr-ies lry this writer.4Two hundr-ed [hreetop-levelU.S. rnarketing cxecittives in nitreindr"rstlies (auton:ation, biotechnology, conrputcr harclwafe, cotnputei. software,electronics" nredicaiec1-ripnrenl and instrLrnrentirtion, pharmaceuticals. photonics, andtelecomnrLrnications) partic* ipatcclin this reseat'ch plo.ject, A breakclown by annualsalesrevenLle indicated ilrat 110 llrrns were small (lessthan $10 rriillionsales) ancl ninety-three weremeciium/large (greater ihan$10 rnillionsales), Three key malltetseiection findingsti:ornlhe stLrcly aresL]nrmarizecl here; High-technology firms weredependenf on a primarymarketsegment thataccounted for 69 percent o1'their business. Nbarlyfwo-thirds ol thefirms ( 130,65 percent) useda clif{brenriarion strategy; the lralance was split ftrirly evenly betweenan unciiff'erentiatedapproach (36, l8 percent) and a concentrated (35, l7 sfrategy percent ). (concentrated Segmentels and differentiatecl rnarketers) werefou,ncl to be significantly more ef{'ective tar-{et marketers than nonsegnlen* ters(undiftbren tiatedrnarke ters ).

,L

-)

Exantple 2 A pharmaceutical sectot segmentation stucly wasconductecl (n = 107) in tlre United Kingdom by Kalalatisand Cheston.-s They found that72 percentof the firrns se-qmeuteci tlre rnarket(28 percentof the fir-rns clicl not; they usecl the undifferentiartecl approach). Macro variables suchas end ltse or application (61 percentciteclthis variable)were rnostfi-e* qr"rently usedfor single-stage segrnentation, practicecl by l5 percent of

An Ouerurcw Mcu'ket Segmcntation:

sitllpurchasing vollrmeancl variables slrchasplrrchase rhellrms. Usage of the approach hy 26percent into thetwo-stage ationswereincorporated segmentathree-stage employecl segmenters compiuries. Sophisticated becamean irnportantvariable(this more tion where price sensitivity of the sarnple). wasenployedby 3l percent complexapproach Exantple 3 by in the United Kin-edorn A four-industrystuclyol largecompanies reqr-rit'ecl was the tliat thequalityof service founcl andTsogas6 Kalatatis and plastics basein the compulersoftware segmentation mosteI'fbctive andcementlconcrete in chemicals rankedsecond this variable markefs; fonnd in (benel'its derivedwas lankedf.ilst).Otheriniportanlvariables ettduseapsectors included the top-livelistslor two or moreindustriai plicatiorr,leve1ofrisk,reclrrrica1requit'ementS,andspeedofdeliver5,.

Diffe renticttiort
to anclactivelymarketsits productsor services If a firrn iclentifies needs, on variedcustomer of the miirketbased two or more segments that distributor The computer is beingnsecl. stfategy a diff-erentiation and sntall br-rsiretailers, professionals, busiriess targets separately PCs,Peto marketing approach is employinga differentiation nesses to be nade beneeds A clistinction ancl supplies. softwarre, ripherals, (a Market clifferer-rtiation tween market anclprocluctdifferentiation. Llpon is dependent ar"rd orientecl is custolner strategy) segmentation (not a segmentattion clifferentiation while ploclr"rct narket demancl, is supplysideorier-rted. strategy) Concentrutiort to serveone that the firtn decicles stlategymeans A concentration of the market.Unclera concentration potentialsegrnents of severai A computerdealermay direct its products approach, segmentation opportunionly, ignoringpotential businesses to sn-rall anclservices Concentreltecl or retaiiersegments. prol'essional ties in the br-rsiness and is the mauketing than differentiated marketingis lessexpensive

10

HA]Y DBOOK OF MARKET' E]VTATI SEGM O!,{

choicefor aiuew business appropriate with lirnitedresoLlrces or a firm in a marketor-rtside diversifying of its corebusiness. Atomization (Segm ent- of- On e M arketfug) This segmentation option has receivedtremenclous attention by business strategists during the past decade. Atomizationhas many nafllesand variants: cr-rstomerization, interactive segmentation, mass ct-tstomi zatton, micromarketir-rg, rrlarketin-e, andpersonalone-to-one rzatton.Database marketing,flexible manufacturing systems, integrateddistribution systems, and relationship n-rarketing are alsointportant tools used by segrnent-of-one or finer-segrnentation marketers.7 Regardless of the chosennomenclature, this approach breaksclown thernarket to thefinestlevelof detail-indivich-ral customers. Table1.I (differentiati compares traditional segrnentation on) and atorni zation. An atomtzatron strategy can be usedas a stand-alone techniqr-re or in conjunction with differentiation or concentration. It is particularly

TABLE1.1. Differences Between Seqmentation and Atomization Segment-of-One Marketing lndividuals Individual addressability Tailoring offerings to customer needs/i nterests, retention

S t r a t e g i cF o c u s Market segments Marketing mix Promotional strategy Promotional enrohasis

Segmentation Groups Masscommunication Awareness creation, preference

Samefor entire segment Tailored to eachcustomer

Marketing flexibility Salesinitiatives

Largely inflexible withirr a Highly flexible and given timeperiod adaptive Phone orders, salescalls,Realtimeordering more Web orders likely

"Segmentation Source:Adapted fromDavidM. Gardner, Strategy in the Interactive Marketing Era,"in K. Grantand l. Walker(eds.) of the Seventlt , Proceedings AnnualBi-AnnualWoild Marketing Congress, Melbourne, Australia, July 1-6, pp.B-31-B-37. 1995,

An Oaeruiew MarketSegmentation:

I1

anclcostly equiplrent of speciahzed for u-lanllfacturers appropriate creatingmarketingpro(e.g.,multimillion dollar supercompr-rters), inclustry), exgramsfor governrnent markets(such as the defense andstaving off competition databases, rnerrketing ploitinglarge-scale or productlines. procluct features by offering extended cleveloped a mass-ct-tstomizLutron Electronics As an example, threatby Genwithstandatcompetitive to successfully ation strategy iteus), moclularrzed productmix (I 1,000 Lutron'scleep eralE,lectric. and archiknowledgeof its interior designer and in-clepth approach, to individual lightingsystems it to customize allowecl tectcustomers low costs.B while rnaintaining specifications and targetmarketing is precision segrnentation While customized colxpanies, manageoffers mnch plomise to twenty-first-century costs, technologiincreased of its shortcomings: mentrnustbe arware makers, and implementation for decision overchoice cal challenges, can work exdifficulties.While total atomization and mearsllrelneut Haley Russell companies, well for somehighly sophisticated trernely and the founderof the benefit seg(a leading segmentation scholeir can pointsont that "massct-tstomization astutely approerch) mentation Elliott of Australiaand Professors easilylead to massconfr-rsion."9 that"the propoHaley'sview.They contend Glynn of Irelandechoed their offer for eachindisitionthattrll firms will be ableto cr-tstomrze the prospect aS,for example is patentlyunrealistic, vidual customer driver!"10 trainjourneywith theengine yollr incliviclual of negotiating traditional segmentaThe realityis that in mostmarketsituations, customers have a tion still works and works quite well; invariably, wantsthatcan be satedby proancl of similarneeds lirnitednurnber that createsuperiorvalue. viding setsof sirnilarproducts/services differentiator can be a powerfulstrategic marketing Segment-of-one in too.A reviewof the differences iindshouldbe used,as applicable, (inclr,rding niche marketing, strategies the variousmarket selection in Table 1.2. is summanzed in the next section) wlrich is discussed

I2

HAIV DI}OOK OF MARKETSEGM EIVTATIO]V TABLE 1.2M . a r k eS t electio O np t i o n s

Number of Segments Targeted Zero One Twoor more

Segmentation Strategies Undifferentiation

Comments
Mass-marketing approach, no targeting

Concentration or single Highly focused marketing niche Differentiation, multiple A soundapproach forcompetniches ing in several market arenas Requires one-to-one marketing strategy; dependent on a strongmarketing information sVstem

Dozens to thousands Atomization

I{ICHEMAI{SHIP: SEGMENTED MARKETITVG AT ITS BEST In 343 8.C.,Demosthenes, a notedAthenianstatesntan andorator, said, "slnall opportunitiesare often the beginning of great enterprises."Marketnichesaresmallsegments thatoffer incrernental br-rsinesstoday and,perhaps, vastpotentialtornorrow. They allow highly specialized marketers to be big fish in smallponds.Niche marketing is a form of concentrated targetmarketing. Strategies that companies useto flnd theirnicheinclucle geographic focr-rs, demographic profiling, cttstomer preferences, product/service modification,alternative distribution channels, ct-tstorner service variations, technological developments, targeted contfftunications, and variable pricing. While we often think of small firms as nichersor gr-rerilla marketers,Tevfik Dalgic explainsthat largecompanies can effectively use niche marketingprinciplesand practices, too. He adds that IBM, Johnson& Johnson, and Philips are by no rneansgorillas (slowrnovinggiants); these globalleaders all utilizenicliemerrketing strategiesin theirrespective worldwide business units.lI

An Oueruiew Market Segm,erfiation:

13

initiativethat I facilitatedfor Intel, research In a seglnentation The niches. exploredmore thanforty potential marketingmanagers theirprito augment goal wzrs to fincla few new productapplications furmarketingplan (discussed anclstrategic mary meuketsegn-rents 9). ther in Chapter Inarwherebya companyintegrates is the process Nichemanship market to optiurizeits cornpetitive activities keting and management for a focalcllspositioning strategy A segmentation-derived position. Here are four other torner target is a major part of nichernanship. nicher: of a meirket characteristics thatit canbest products/services those determines 1. The company andcustorler competition, offer givenits distinctcompetencies, (truly market-orientecl). neecls to meet iclentified goods and services 2.It designsspecializecl demancls. marrket it is ffloreeffion specifictargetmarkets, 3. By focusingits energies base. its ct-tstotner in satisfying cient thanits largercounterparts is sought-such firtnsarenot lookingto be like everyone 4. Change seeknew andbetterwaysto conductbusiness. elsebut,rather, marketinnovaaretrendsetters/spotters, Realizethat nichemarketers strategists. marketing tors,and creative the valueof soundresearch firms alsorecognize True niche-based of the characteristics the testof time. Philip Kotler details and stancl in the nichehavea distinctsetof cnstomers marketniches: attractive their they will pay a premium to the firm that best satisfi.es neecls; the nichergains competitors; the nicheis not likely to attract niches; andthe nichehasgrowth, throughspecialization; of scale econorries profit,and sizepotential.l2 Apple CornputeranclAlltel are two firms that have excelledas computinginApple was a pioneerin the personal nichemarketers. itself to surleader,Apple hastransfonned Once an inclustry clustry. of lessthan5 percent. vive as a nicheplayerwith globalmarketshare havebeenusedby and iMac prodr-rcts Macir-rtosh Their user-frienclly Alto the Wintel PC standard. as an alternative millions worlclwicle

I4

HAIV DBOOK OF MARKETSEGM E]V TATIOIV

thoughtheyhaverecentlyclemonstratecl a stron-e comrnitment towarcl marketing digitalconsllrner electronics suchasthe iPod,iPhoto,and iMovie, desktop publishing(design, graphics, media,etc.)and eclucationhaveremained as Apple'scoremarkets over the years.l3 Alltel, an Arkansas-basecl telecomrnunications company hasavoidecl head-to-head cornpetition with the six leadingwireless service providersby focusingon rural subscribers. This nichemarketingstrategy has nettedthem about7 million customers.l'l Box 1.1provicles ten key questions to assess how well yollr firm practices nicherrarketing.

BOX 1.1. Are You a Good Niche Marketer? 1. Do you knowyourfirm's strengths, weaknesses, and competitiveadvantage? 2. Do you understand yourcustomer, inside and out? 3. ls yourcompany dependent on oneor a limited number of customers? Do mostof yoursales comefroma single product? 4. Haveyoudeveloped an ongoing customer information system? Doesit measure profits, sales, and market response links? 5. Howwelldo you knowyourcompetition? (e.g., why do customersusecompetitive products? Howcanyougetthemto switch?) 6. what is your positioning strategy? Haveyou developed and communicated a clear image foryourproduct/product line? How is yourproduct differentiated your from rivals'? 7. Haveyoucreated yourownsafehaven in the market? (Trynotto compete withyourself, butcreate high-entry barriers forothers.) B. Are yourresources spread too thin?(Watch for overexpansion, attacking too manyniches.) 9. ls yourmarketing program synergistic? ls it consistent withyour financial, management, operations, and R&Dstrategies? 10. Are you monitoring shiftsin the marketplace and responding quickly to them? source: Adapted from Tevfik Dalgic and Maarlin Leeuw, "Niche Marketing Revisited: Theoretical and Practical lssues," in Michael Levy proceedings, and DhruvGrewal(eds.), Academy of Marketing Science Miami Beach, pp.137-145. May26-29,1993,

An Oueruiew MarketSegmentation:

15

THE BE^]EFITS OF SEGMEI{TATIOI,{

is to strategy The overallobjectiveof usinga marketsegmentation positionand betterservethe competitive improveyollr company's rnay includeinSomespecificobjectives needsof your customers. and enimprovedmarketshare, sales(in units and clollars), creasecl to acThis is not to saythatit is impossible irnage/reputation. hanced tactics.However,by complish these -{oalsusing mass marrketing it is more likely to that your firm can bestserve, focusingin on areas to maris the shotgllnapproach strategy prosper. Arr r-rndifferentiated rifle. The following is the high-powered keting, while segmentation andstrategy: analysis of marketsegmentation arefour majoro-enefits oJ'thentarketprochrc:ts to rneetthe neecls l . Desigrtingresportsive customerpreferences-an essential plctce:Through reseauching toward moves analysis-the company of segmentation component at a satisfaction concept(ct-tstomer the rnarketing accornplishing andrefines first and designs profit). The firm placesthe customer mix to satisfythe needsof the market. its productlservice e ct nclcost -effici ent pronrcti onal st roteg i es: ct it, 2. D etennini rtg eft'e is and analysis identification As a planningtool, segmentation ancl designdatabase in building a customer extremelyvah-rable ing the firm's comrlllltication mix. Appropriate advertising to the right media that aretargeted can be developed carnpaigns by can be supplernented investment This urarketing vehicles. prornotionmethinitiativesand sales relations focusedpr-rblic sales the personal thrusts, to masspromotional In adclition ocls. representacan be greatlyimprovedby providingsales process recomlrendedsales research, tives with backgroundcustotner and ongoingsupport. arppeals, in particular the contpcttxy's cortrytetitiort, 3. EvalrttttirtgrttcLt'ket by intense marketsare charactetrzed positiort' Toclay's ntcu'ket exstr-rcly A segmentation dornesticanclglobal cornpetition. is perploresthe firrn'smarketposition,i.e.,how the cornpany relativeto the and potentialcustomers ceivedby its cr-rstomers

]6

HA|VDBOOK OFMARKET SECMEIYTATIO]Y competition. Segmentation provicles a competitive inresearch mechanism telligence to assess how well yollr companycomparesto industrystandards. this analysis is r-rseful In addition, for detecting trendsin changingand volatilemarkets. 4. Proviclinginsigltt ot1presentnmrlcetirtg It is imporstrategies.' tant to periodicallyreevah-rate yolu'present marketingstrategies to try to capitalizeon new opportr-rnities and circumventpotential threats. Meuketsegmentation research is also r,rseful in exploring new markets(e.g.,secondary, smAller, or fringe markets).Furthermore, segmentation findingsprovidea systerrtatic approach.for corfirollecl nutrlcet as opposed to the hitcoverage, or-miss.randomeffortsof massor unfocused marketing.

In sum, segmentation providesthat necessary analysis research baseLlponwhich all other marketingstrategies can be successfully formulatedand executed. Is your companyusirrgmarket segrnentation techniques effectively? Segmentation Skillbuilder I identifies fifteen key issues to explorefurtherto help yolr answerthis criticai strategic marketingquestion.

LI MITATI OIVS OF SEGMEAITATION

The pictureis not totally rosy,however, and the marketermust be cognlzant of somepotentialshortcomings of segrnentation analysis, suchas the followins. Increased Costs A segmentation-based strategy is morecostlythana lrass-rrarketing approach. For example,differentiation often irnplies new product/ service promotional offerings, several czunpaigns, channeI developrnentand expansion, increased Internetexpenses, ancladditional resources for irnplementation and control. On the ph-rs side, target marketingmeanslirnited waste (advertising reaches prospects not and improvedmarketir"rg perforrnance. suspects)

An Oueruiew Market Segmentation: SKILLBUILDERI : SEGN,IENTATION HOW WELL IS YOUR COMPANY TECHNIQUES? USrNGSEGn{EhrrATrON

l7

l.DoesyourcompanySegmenttltenrarket?I|not,whynot? or atomizaconcenfatictn, 2, What s[rategy is usecl-differentiation, tionl program'l a nichemarketing 3. Has your company estirblished are How successtul tlying to serve? 1. What segments/niches areyoLr you at meeting thisobjective'/ 5. What is your typicalcustomerpr"ofile? : : on resealch? based 6. Are talgetmarketdeflnitions (methocls) markets? to segment areusecl 7. What clirnensions : conductediJ analysis 8. When was yollr lastsegrnentation ',i, obtained? areupdates 9. How freqr"rently 10'Wlratisyourbudgetforsegnrentationanalysis?; research? on segmenfation I l. Are ploductdecisions based research? on segmentation based 12. Are promotional ciecisions on segmentation? based decisions 13. Are pricin-E andclistribution and trends, competition, usediu assessing 14. Is segmentation analysis changes in the marketplace'J yourpresent ef' . marketing usedto evaluate analysis 15. Is segmentation to pursue)? forts(e.g.,markets Requires a Mcjor Corporate Comnitment requiresa strong committnent by the firm. A marketin-g orientertior-r to hire marin tl-re areasof personnel,resoLlrces This includes sr-rpport and the willingtime investmentof managelnent, keting consultants, This transitionmay take recommendations. nessto act on prescribecl studies of segrnentatiot-t or ineffectiveness months.The effectiveness is limited by lnanagerrent'sability to implement strategicin'rplicajunior-level marketingassociates, the contions (watch for blar-ning ggency). sultantso , r the aclvertisina is not arremedy for other marresearch Reatlize that segulentation in the world informatior-r The best segmentation keting deficiencies. promotional, prodr-rct, by consistent is worthlessunlessit is sr,rpported

]B

HA]VDBOOK OFMARKET SECMEI{TATION

pricing,distribution, and customer thesemust be servicestrategies; and revised,as sitr-rations regr-rlarly evaluated dictate.In additiou, marketsegmentation strategies arenot a panacea for otherorganizational limitations(e.g.,financial,operational, managerial, research and development, etc.). Provides ComltositeNot Individual Profiles Although segrnentation research provicles meaningfulrnarketir-rg infor-rnation, (not individr-ral) it explainsexpectecl pursegmentwide chasebehavior. While customers may appear to be similar basedon demographic, proflles,marketers need,ancl/or Llsage muststill appeal to specific buyers through direct-marketing tactics and personalsellinginitiatives. As an example,two indr-rstrial purchasingagents,may both be male,forty-five yearsold, havean MBA, and earn$85,000annually. By r-rsing basicdernographic analysis only, the marketer may erroneously stereotype thesebr,ryers as sirnilar prospects. In reerlity, they may have different interests, attitudes,and perspectives on life, as well as varying corporate circumstances with which they rnust contend(e.g., busines g i nfluences, s cultures, clec ision-makin purch asir-r g policiesand constraints, risk uncertainty, etc.).Behavioral research via adopter categories, benefit segments, psychoorganizational graphics,or Lrsage analysiscan assistmanagement by presenting more completepictr-rres of rnarketsituations.

SEGMENTATIOIV: SOM E M I SUND E RSTAI{ DI N GS RESO LV EI) Therearethreernajormisconceptions aboutmarket segmentation heldby manybusiness professionals. These areexplored andclarified in thisbriefsection.
' Myth l: Market segntettcttiott is a partitiortirtgprocess.The overall effect of segrnentirtion is to clividemarketsinto two or more manageable sr-rbrnarkets. Howevel',in reality, segmenta-

An Oueraiew Market Sesm.entation:

19

areassemcustomers potential Sillce process, tion is a gathering to in specificcharacteristics bled togetherby commonalities fomr seglnents. This is anor technicltLe. ctprocess is onl1, M),th2: SegnentcLtiort its based, is research other half-truth.Although segmentation marketingvariable. realiinpactcomesfrom its role asa strategic elementin a comstrategic is the primarry Market segmentartion which all other Llpon plan.It is the foundation pany'sntArketing can be based. actions marketing Although this M),th 3: Everyoneis ptLrt of ct mrtrketsegment. al1cusin actuality, for the marketer, rnightbe an iclealsitr-ration It iS likely that a tomersclonot fit neatiyinto a marketsegment. based will be unclassifiable of the popr-rlation small percenterge on the specifieclsegment forrnation criteria. This aberrant in key segmenta"other" grollp hasoneor ffloreinconsistencies prospects theyarenot goocl hence, characteristics; tion clecision arctivity. marketin.q for concentrated be limited in size One cautioniirynote: the "other" group shor"rld an (1ess than 10 percentof the market).In one study,I observed waslargerthanthe three this segment "other"category of 40 percent; and indizattonwas inadequate categori ! Sr-rch identifieclsegments 'wasnecessary. catedthat further subsegmentation

SUMMARY and challenging in the fast-changing To competesuccessfully and technology century,business global marketsof the twer-rty-first andstrattechniques firms (largeanclsmall)shouldusesegmentation marketselection Relevant advantage. egiesto find their competitive atomization. ernd concentration, optionsare clifferentiation, two or moremarthatthefirm designs means Marketcliflerentiation on differingcusbased segments to servedesignated ketingstrategies tze the recogn marketers Concentrated needs. s ancl tomercharacteristic to attacka singletargetmarket choose br-rt diversityof the n-rarketplarce

20

HA]Y DBOOK OF MARKETSEGM E]VTATIO]V

opportllnity-this is generally costefficientanclenables management to focuson what they do best.An atomization approach deveiops indivic1r-ralizedmarketirrgprogramsforeachkeyprospectorcusto althor-rgh costly,this strategy may provevery successful. Also, do not forgetthe valueof nichemarketing in your segmentation planning. Segmentation-driven marketingstrategyhelps cornpanies desigri tesponsive products, develop promotional effective tacticsandcarnpaigns, gauge competitive positions, andfine-tune cLlrreRt marketing initiatives. In spiteof numerolrs benefits, rnarketers mustalsorecognrze that segmentation strategyis generallymore costly than rlass marketingand necessitates a rnajor cornmitrnent by management to customer-oriented planning, research, implementation, andcontrol.

Chapter2

MarketDefinitionandSegmentatton in BZB Markets

andgiveus its rnarkets to reclefine eachof the businesses I askecl "market a page or two of "freShthinking" . . . GE went from a of abour$115billion in 1981to over$l trillion tocleflnition" plenty of room for growth' proviclir-rg clay, JackWelch (2001) as viewed its services business power systems GeneralElectric'S primarily supplyilg sparesand cloingrepairson GE technologyof a$2.1 billion market.A rethis rnonn.r,it helcl63 percent ir-r clefinecl clefinition of the market to ipclucletotal power plant maintenance of a $17billion market. sheue only a l0 percent thatthisunit hacl rneant fuel, power,inventory, to inclr-rde Broadeningthe marketevenfr-rrther in a potential$170 resulted and financialservices management, asset of the market. dheue abouta I percent billion marketwith GE holcling thinkinghelpedthe company Accordingto Welch,this bounclaryless in 1995to $130billion in 2000'l srow from $70 billion in revenlres THE MARKET DEFINITIOI] CHALLENGE

compato win customers, iilustrartes, GE example As the ptevio1ts in which they tnarkets the plesegmented niesmustclearlyunderstalcl
Your Defirtiltg in Art Weinstein, firsf presente.d on a moclel/icieas bLrilcls Tlris chapter tncl SeruiceFirnn (Bin-el-ramton' Iicltt'stt'ictl, High-Tech, i,,:r,,ugiot.fot' Wirirtirtg [4cu.ket; ' p'99-10/' P l c s s1 . 9 9 8 )p N Y : T h eH a w o r t h

2I

22

HA]Y DBOOK OF MARKETSEGM E]VTATI O]V

compete. This mustoccurprior to designing target miutet strategies. Vandermerwe explains thatmanagers pllrsuecustomer-activshoulcl ity arenas based on the results thatbuyersseek.Sheaddsthat"market spaces arenot productslil<ecarsbut activity arenas like personal mobility; not personalcomputers global-networking br-rt capabilities; not fuel oil but integrated energyassllrance."2 How importantaremarketdefinitiondecisions? Smartexecutives must considerthe strategic ancltacticalconsequences to their firm. The impactof effectiveor ineffective marketdefinitionsis evidencecl by therecentactions (or inaction) (see of nineleading colrpanies Table 2.1). Hamel andPrahalad explainthat it is now increasingly difficultto defirre preciselywherean industrybeginsancl ends.Realrze thatrnarkets clevelop from existing,emerging,and even irnaginedbr-rsiness oppor tunities.They add that many unexploited rnarketoppoltr-rnities are found basedon unserved custorner types and unarticulated customer needs. Products such as automobile navigation systems, cell phones, fax machines, and satellite receivers were developed in the factory first ratherthan specificarlly requested by the rnarketplace.3 Ofteu, working mzrrketdefinitions are too sirnplistic.This approachtendsto be limiting and stiflescreativity. For example, some companies definetheirtnarkets solelyby geographic area(thePacific Northwest),product (pr-rmps and motors),industry(telecomrnunications),stateof action(freqr-rent flyers),or stateof mind (techies). Richer,more comprehensive market definitionsare desirable; an integrated, urultidirnensional view of themarketis advocated. For exaurple, a Europeanmanufacturerof agriculturaland construction equipmentanalyzed proclucts such as backhoeloaders, bulldozers, cranes, durnptrucks, excavators, forl< lifts, spreaclers, tractors, wheeled loadingshovels, etc.;cttstonter sectors sr,rch asagriculture, civil engineering, contractors, earthrnoving, extraction, housebr-rilding, landscaping, publicutilities, tool hire,wastedisposal, etc.;andcountries as part of a segtnent evalr,ration matrix.aBr-rsiness Segmentzrtion Insight2 showshow business missionandvision staternents cern assist management in definingmarkets.

in B2B Marltets Marhet Deiutition an'dSegmentation a n d c o r p o r a t eP e r f o r m a n c e T A B L E2 . 1 . M a r k e tD e f i n i t i o n

23

Company Cisco

Actjon/lnaction

lmpact Business

to with resellers solu- Collaborated network Emphasizing soluvalue-added andvoice orovide tionsin data,video, higher to leading tions, Prices applications margins and enhanced vennewbusiness chemi- Seeking froma major Evolving services emphasizing tures intoa valuecal producer of information and information addedseller products andservices

DuPont

TechnolAgilent focuson corebusi- Divested Hewlett-Packardlncreased ComPaq acquired ogies; ness(hardware/technologY) products IBM IBM's bolstered fora small E-business "Global solutions and services fast-growing promotional camplanet" divisions consulting powera change paignhelped company froma technology to a business/industrY Problem solver to training Shiftin corporate knowledge customized "chunks" thantradirather and modules courses tional TechCambridge Acquired nology Motorola's Ableto provide and suppliers, employees, information customers accessand aPPlicationsrightnow" "rightknowledge, of frombeinga seller Moved to sYstems operating network reltools, re infrastructu softwa and consultWeb products, ingsolutions

Motorola University

Novell

a realestatedevelBecame St.Joe Company Soldpapermill,boxfactories, giant in Northwest opment holdings a n ds u g a r the largest Fiorida, Private in the state landowner

Xerox

in keY declines Substantial document, if a copier, Unsure massive indicators, financial i n f o r m a t i oo nr,p r i n t i n g of divestitures and layoffs, company SBUs crashcut revenue Dot-com beportal comPanY Online com75 percent; by stream of its business cameunclear sellon refocused pany now too depremise; founditself and conpendent adsto fad- ing newbusiness on selling S E T V I C E S S U M C T i n q l n t e r n efti r m s

Yahoo

')z

HAhtDB OOK OF X,l ARKET SE CME t ITATI Ohl BUSINtrSS II{SIGHT 2: SEGN,{EN'TATION MISSION,VISION,AND ilIARKtrT DIItrTINITION

Market-tocLrsed companies integrate marketdelinitionsinto corporate and business r-urit planningliameworksto guide programs, procresses, products, itncl people.N{arket definitionprovidesa springboarcl lbr the cier,'elopmettl of rnissionand vision sfatenients that work rather thanjust look good on paper'. perlonrnance Business demonstrates fhat mission statements are e{fective. A stLrdy of Busirte,ss Week's Global 1000comparties shclwecl thzrt those with nrission statements reported an average retum on stockholcler equityof I6.1 pelcentversus 9.7 percent lor thosewhich lackedthis strate$ic planningdocument.-5 A worldwicle str"rdy of top executives' perceptions of twenty-frve hot mallagement toolsby Bain & Company showed thatmission ancl vision .statemettts werethe second mclst wiclelyusecl tool (70 percent utilizaticln rate)but only yielcled the seventh highest satislaction score . In conrrasr, cltsfotner se-untentation was usecl by only 50 percentof the bompanies (it wasninth basecl surveyed on lool usage) but it had the thjrd highest satislaction rate.{'Thlee irnplications o1'lhisrescarch are that (1) br-rsijob in art.icLrlirting nesses can do a better mission andvisioustaterrents, (2) rrrore compzlnies needto usesegmentation analysis, and(3) these two toolsshould together to cr-eate a cnsLorner-centric organization. "vork E1'1'ective missionstatemen[s mustbeclear,relevant, inspiling,encluring, audadaptable. Furthern-rore, missior-rs shoLrld be brief but complete, providestrategic direction, present the big picture,leadto results, and answer suchbasicquestions as these : . What busiltess arewe leally in? . How is our business changing? . What otherbusinesses clowe needto be in? . Who areoLlrcustomers? . 'V/hat do our custorners want? ' How do we create, maxitnize, andcleliveru'alue to our custonrers? . W h a ti s o u r b u s i n e sp sh i l o s o p h y ' l . How arewe diffbrent(andhctter') 1r'om ollr contr,)etitors?

in B2B Marhets Def.nitionand Segmentation Ma,rket

25

is tociay, thevisionstatewhatyourbusiness While themission states it looks at the organizatiori; ancl shouldrevitalize mentis tirturedirec-ted a1viewstypicallywork we11, to ten-year your business tomorrow.-.-tivehorizon. planning Lrse a muchlonger cornpanies thoughmanyJapanese if the organizabut it is doable an idealscenario, may represent A visicln visionis to be the Bellsouth's perform to theircapabilities. tion'speopie intormation, and enterto commllnicaliot-ts, connectiorr besL cr-rstorner''s tair-iment. marketplanning can be a highly vah-rable While vision statemen[s truiy visionaryleaders. f-ew that therearerelatively shows tool,research lrad strongvision of companies that only 5 percent One stuclyreported corntnr.thadonesthatwereeftectively andlessthan1percent statemenrs / Visionstatements they fail because sometinres to theirpeople. nicated for do not fall into the "searching are viewedas fads.Strongcornpanies answer"trap. the nragical ov)neranclcttstotner mcu'ket conpaniesshouldaspiretowarcl Icleally, are collcerns anfitrust areunique, clefinitions market ship.Sinceetfective of inipliesthe identillcation Market ownership a threat. nof necessarily (DBOs),The implicirtionis that it is opportunities business clistinctit,e marketsector(be the big of a well-deflned a rnajor-ity better[o contrcll of a hloadmarket(bethe fish in a smallpond)thanto havea smallshare will placeyour customers lake).In the formercase, small fish in a giatnt canhest at theheadof theirmentallist asto which company organization is unawareness of top-ot'-mintl This high clegree satisfytheir neecls. likely to existin the lattercase. six key factors__ be ableto assess firmsshould to Sherclan, AccorcJing and vitlues,channel,funcplocL-rct/service, neecls customersegmenl, Thecapability of businesses.S clistinct tions,andgeograplry-inclefining aclcompetirive a sustainahle is the key to achieving owning customer"s suchasDell, FedEx,Melck, Microsoft,Southwest . Cornpanies virntflge thisstrategy. liaveembraced Airlines,andothers anc'ltrpdatedll'om Art Weinstein,Definitry Your Sottrce; Aclaprtecl Market: Winnirtg Strcttegies .for High-Tech, Inclustrictl,uncl Serv,ice pp.24-27 . 1998), (Binghamtot.i, NY: The HirwortliPress, Firnrs

26

HAIVDBOOK OF MARKET SEGME\"TATIOI,{

A ST-RATEGIC MARIGT DEFIAIITIOI{ FRAMEWORK

Markets can be definedin rnanyways.For example,Kotler commentsthatmarketers areconcerned with available, penetrated, potentierl,qualified, served,and total markets.9 While this conceptof submarkets is quite helpful from a planning ancllnanagelnent perspective,the terminologyis, at times, confusing.Other research foundthatmarkets consist of a blending of customer needs, cnstomer grollps, competition, products, andtechnologies.l0 Buildingon these ideas,a pragmaticmarketdefinitionrnodelconsisting of threelevels and nine components is developecl andexplained (see in this chapter F'igure 2.1) . Level 1: The R.elevant Market As Figure2.1shows, theinitial "big" objective is to adequately define your relevantrnarket(4); this is the marketappropriate for an organtzatton given its resources, objectives,and environrnent. Identifying the geographic market (1), the traclearea an organization serves, is a relativelyeasyfirst step.This is accornplished by using marketscope(e.g.,local,regional, national, international, or global) and other geographic (e.g.,censlls marketrrleasllres classifications, standardtzed marketareas[suchasArbitron's Areasof DorninantInfluence, or ADIs], andcustomer density). This is discussecl furtherin Chapter 4. Productmarketidentification (2) is alsorelativelystraightforward. Orgamzations canreadilylist thegoods, services, andideas theyhave available for sale.As an example, rny consulting practice consists of the foliowing services : ' Trainirzg.' seminars, speeches, and customized eclucational programson segmentation/niche marketingand rnarketdefinition . Research:segmentertion stuclies, sLlrveys, focus grollps, and marketprofiles ' Strategic cortsulting: rnarketing audits,rnarketing plans,market reclefinition, targettnarketstrategy development, and visioning sessions

in B2B Markets Market Defi,nitionand Segmentation

Levei 1: The Relevant Market (1) Geographic (3) Generic

27

(4) Relevant

(2) Product

Level2: The "Defined" Market Relevant(4) Untapped(6) "Defined" (7) (5) Penetrated

Level 3: The TargetMarket(s)

(8) Segmented

Target(9)

D e f i n i t i oF nr a m e w o r k FIGURE 2 . 1 .S t r a t e g iM c arket

to ensure Explicatingthe genericmarket (3) is a useflll exercise is consideringvariolls and diversemarketingopthat management portllnities. While marketing myopia (narrow, prodllct-oriented a largemarketdefinition(typicalof the generic thinking)is avoidecl, market) may lead to mass marketing lnentality and make a corlseemalmostinsignificant. pany'seffortsandresoLlrces market(4) providesa realitycheckfor the orDefiningthe relevant is larger than the ganrzatlon; here a mltrket definition is specifiedthi''rt

2B

HA]V DBOOK OF MARKETSEGM EIVTATIO]V

prodLlctmarket,but smaller than the genericrnarket.The relevant marketyieldsrealistic boundaries andmarto guidethe management keting operations of yollr business. As an example, research found that the choiceof a relevantmarketin the hospitalservices inclustry affects the technology adoption fetal monitorsandcenof electronic I tralizedene{gy management systems.l (SA) industry. Sell-Soft competes in the sales automation SA systems r-rtilize computers to manageprocesses in the sarles cycle from leadgeneration to postsale service functions. Sales automation prodttctscan be usedfor contactmanagement, sales forecasting, service reports,integrated marketingmanagement, and other applications. Sell-Soft's tnanagement can Llse Figr-rre 2.2 to guicle futurebusiness expansion strategies. Oncetherelevant marl<et is established, we proceed to the next level in the market deflnition frarnework-the defined market.
GENEBIC MARKET C o m p u t eP r roducts

RELEVANT MARKET Business Software

P R O D U CM T ARKET ' Sales Automation Software

FIGURE2.2. Sell-Soft's RelevantMarket(tVote.' Companyname has been disguised.)

B2B Markets Market DeJinitionand Segmnntationin

29

Level2: TlzeDefinedMurket
point, we are now in Using the relevantmarket(4) as a departure its The firm shouldassess our marketdefinition. positionto fine-tllne market(5), and noncustomers, base,or penetrated currentcustorner market (7) will inch-rde market (6). Often the clefined or untappecl are not (althoughsome customers most of your currentcustomers profitableto serveanclyon can afford to lose thern)as well as many new prospects. took the marketredefinition company, Nypro, a plastics-injection to develop strategy As part of its corporate seriously. mandateqr-rite Nypro phased with a selectnnrnberof largecompanies, partnerships from 800to base its cttstotxer reduced This plar-r out smallcustomers. generatecl overa $ 1 million in anaccolrnts B0!Half of the remaining figr-rre.tz thert nual sales,with the other forty approaching intirnacy strategymade sensefor Although Nypro's cr,rstomer thern,do not think that you shouldsaygoodbyeto 90 percentof yollr million-dollar actry to hit homeruns(gain/retain ot jr"rst customers walk away from counts).Rather,the willingnessto occasionally to "bad" ct-tstomers view; it may be a soundstrategy is not a heretical allow yollr companyto do a betterjob servicingsolid, existingacFor example,an electrical colutts and new, promising custoffIers. to win largemarketanalysis usedstrategic rnanufacturer components pricing itself out of a buyerswhile selectively lot, price-sensitive A revised, overservicing. that reqr-rired bLrsiness specialty srnall-lot, in annualgrou,thrates,minirnalacLevel 2 marketdefinitionferctors or othermodilevels, servicing anticipated thresholds, sales ceptable fiers. Level 3: The Target Murkets tnarketdefinition(7) and At Level 3, we takethe "presegmented" Ltsage, benefits, bases(e.g.,geodemographics, apply segmentation or with similar characteristics etc.) to iclentifygroupsof customers this is our behirvior; that arelikely to exhibitsirnilarpurchase neecls to pllrrnarket(B).The specifictargetmarkets(9) selected segmentecl

30

HA]Y DBOOK OF MARKETSEGM E^{TATI O]U

slre with differentiated marketingstrartegies are the finerlelernent of the market clefinition rnodel. As an example, Winnebago learnedthat sellingtraveltrailers(a new business venturethatfailed) wasvery clifferent frorn sellingmotor hotnes(its core business). The customer grollpsare clissimilar, trailersare more price cornpetitive, and they clo not requireservice, whereas motorhomes do.l3

MARI{ET DE F I N I TI OI{ APPLI CATI OI,{S BASED ON THE FRAMEWORI( Most srnall firtns take a product-oriented rather than custornercentered view of themarket. Consider a company thatsaysit is in the emergency vehiclelighting business (productmarket).la This businesscompetes in a tiny part of the aggregate (generic lighting marrket rnarket)anclin a smallsectorof the emergency lighting systems market (relevant rnarket). One plospectivenew prodr,rct that rnanagentetrt czrnconsideris emergency lightingfor rxass transit. Sincethis initiativeis located in the relevantmarketzone, it is likely thatthe firm will rnissthis potentially lucrative opportunity. This marketrnyopiais caused by zeroing in on its curuent productmarket and ignoring new, but relatedbusinessprofit centers. From a segmentation perspective, the emergency vehiclelighting market (prodLrct market) consistsof ambulance, fire, police, tow truck, anclr-rtilities inclustries. Merrket sizeand competition will dictalte which targetmarkets/niches to pursue. As one ingreclient in this business decision, the emergency vehiclelighting firrn must realize that thereare only abor-rt 500 fire trucksproducecl a year,while there areapproximately 100timesthatnumberofpolicecarsmanufactured annually. As thepreviousexatnple ilh-rstrates, not all of the ninemarketcorlponents platya criticalrole in everyanalysis. An integrated and systematicmarketdefinitionpl'ocess, as proposed, can help companies filoreeffectively understand theircustomers, coutpetitors, audchanges

B2BMorkets andSegmentationin Definition X'Iarket

31

This linowleclgemeans increasedmarketing in tl-reirenvironl-nent. of how two companies a con-rparison performance.Table 2.2 provicles definecl their rnarkets based on the three-level market definition rnodel. SegrnentationSkillbuilder 2 gives yoll an opportunity to and targetmarclefinecl, relevernt, abont yollr organiziition's strategize kets.
ON SIilLLBUILDEII 2: S11 GN{EN'TA:[I B L APPROACH DEFININ G YO U R ]\IARK I'T-A TFTREB-LEV

(see Figlranrewot'k tnarket clefinition nine-part tlsing thethree-level, fine yollr niarlcet? 2 .l ) , h o w m i g h ty o u cle Lue Nlarket Terminology l. Geographic market 2. Procluct market 3. Generic martriet 4. Relevant market 5. Penetrated tlarket 6. Untappecl 7. Definedntarket market 8. Segmented 9. Tirrgetmarket(s) [14 unagem erft Chul I enge teatnto with the executive visioninqsessir'rn a ciny-long Schec-lLrle thevaron refining t view,solicitinpLrt rviththemyoltrrnitialmarke share to otlternlauagers this inlormi'rlion clisseminate dellnitions, ious lnirrket lraryollr target to bestserve sfrzrtcgies es,andclevelop andkey ernploye kets. ProposedlVlarhetDefinition

SUMMARY prod(actual neecls, andpotential), of customers A marketconsists One of the mostdifficultchalanclcompetitors. ncts,technologies, relevantand presegmented face is how to clefine lengesmauagers

32

HANDBOOK SEGME]VTATIO]Y OF MARKET t efinition o 2.2.Two Example sf M a r k eD TABLE

MarketDefinition market Geographic Product market Generic market Relevant market Penetrated market

SteelCompany NorthAmerica Fabrication Sheared/bent plate Extra-long and fifty-foot sections

CPA Firm Midwestern UnitedStates Audit, tax services Financial services Business consulting

Northeastern U.S. custom- Existing accounting clients ers of construction equipment NAFTA steelusers Nonusers (clients and nonclients) of business consulting

Untapped market

Defined market

NAFTA construction equip- Growth-oriented, closely mentmanufacturers heldbusinesses; new lpO compantes

Segmented market Cranes, pumps, Businesses concrete followino a off-road construction, road growth strategy construction Target market(s) Cranes growth Sales > 10percent yearly; acquisition-minded comoantes

lnarkets.A market deflnition too narrow lirnits potentialopportunities;onetoo largeleadsto mass-rnarketing thinkingandcanmakean otgantzation's efforts and resollrces seemalmostinsignificant.This chapterreviewed usefr-rl market tenninology anclexplainedhow a field-testecl, multipart frameworkcan be usecl for cleveloping practical and optirnalmarket definitionsand segrnentation approaches for business and high-techcompanies. Ten segmentation planninga1d research guidelinesare developecl in the next chapter.

3 Chapter

andResearch Planning Segmentation Marketers for Business Guidelines

It was not the possibilityof planningas such which has been planning. of successfr-rl . . . but the possibility questioned F. A. Hayek(1935) SDR of Atlanta-based to William D. Neal,the for-rncler Accorcling hasmade by companies research the useof segmentation Consulting, "Business have managels He ardds, in thepastdecade. stricles positive now recMost nlarketers the benefitsof targetmarketing. releerrned on demographics, based schemes segmentation sirnplistic ognrzethat at are suboptimalat best-and disastrous geographyor SIC cocles worse."l needs that havespecialized submarkets clominate Today'sleaders being market orioften advocate anclwants.While top executives I havefound that the majority of B2B entedanclcustomerfocusecl, (large firrns, anclserviceot1anrzations high-technology corrrplyries, targetmarketingto its fullest potential.In and small) fail to r-rtilize theory andpracticeover in segmentation spiteof the lxany aclvances fifty-year evolution,rnanyfirms still basetheir marketing iis r-rearly However, or intuitivemarketanalyses. incornplete, planson cLlrsory, on sollnd planning usecleffectively,strtttegicseEnentcfiion-based salesand for increasing a strongfor-rndation anclresearch-provicles performance. irnprovingoverlrllrnarketing by changimpacted arecontinually rnarkets Realizethat br-rsiness reglllatoryreform, global customers, detnetnciing ing technologies, and a myriad of other time pressllres, costs, conpetition,escalating 33

34

HANDBOOK OF MARKET' E]VTATI SEGM OI,{

environmetrtal factors. In the clailycollrseof "fi-ehting fires,"iI is easy to seehow excellent people ancl greatcompanies canquicklybeconre sidetracked frorn their corporate pllrpose.

SEGM E N TATI ON ROAD B LO CKS Getting"closeto the custorner" hasbecorne a rallyingcry for successfulcolnpanies. Market segrnentation is a key ingredientin the transfortnation of business cultures. Organtzatrons now Llse segmentation strategies to find/attract new customers and enhance existing cltstotner relationships. Unfortunately, in many cases, segrnentation str-rdies are not practicalenoughto have a major intpact on overall strategic directionand marketingperformance. Why doesmarketsegmentation often fail to achieve its much heraldedexpectations in the business world?Here arethreeprimaryreaSONS:

1. Relativelyfew individualshave the r-rnderstanding, expertise, and authority to incorporatethis techniqr-re into a cornpany's tnarketing plan; hence,underanalysis of a marketis common. Occasionally, companiesrnay overanalyze their merrkets. One leadingstatewide, healthcareinsurance providercommissioned eighteen differentsegmentation studies over a five-yearperiod; yet, noneof these were turnedinto strategy! 2. Many segmentation analyses ernphasize methodological ancl statistical procedures oversubstance. The endproductof sucha studyis a complexmodelunderstood only by theresearcher ancl not impiemented by managelnsnt-theclassic"report on the executive's (In contrast,a documentwith shelf" syndrorne. smudgemarks,coffeestains, and/ordog-eared ed-ees is a working plan.) Appropriateanalyticaltechniclues for segmentation analysis arereviewed laterin this chapter. 3. Marketing research can be expensive; lnanagement may not perceive the benefits of urarketsegmentation analysis relativeto its cost.In oneprojectI did for a rnajorntedical devicemanufacturer,seniorexecutives authorizecl the first phaseof a segmenta-

Mo.rketers GuidelinesforBusiness PLanningand Research Segm,entation

35

marketprofile)oncetheyretion study(aninclustry/cornpetitive for the study wasonly the equivalent ahzedthat the investment (about$5,000). pacernakers of the costof two cardiac Study The Remedy: Desigrt u Practical Segrnentation "handsprovicle ancl segmentation the valueof merrlcet To enhance into informationthat is readily translatable on" decision-oriented needs Management is of the essence. practicality strategy, mairketing and a cooperation, Coordination, involvedin the str-rdy. to be eictively arnongthe entiremarketingteam (e.9., closeworking relationship etc.)are strategists, researchers, productmanirgers, top management, In my consultstudy. segmentation of a practical vital to the sllccess management, I seekinput from all levelsof marketing ing activities I am working with directly.Management not just the professionals theprojectis a worthwhilemarketthart then"buys in" andrecognizes ratherthanjust an expense. ing arctivity and procedr-rres introduceor improve segmentation How do yor-r and profitablesegEffective,cost-eff-icier-rt, activitiesin your firm'?2 requires the following five inputs: analysis mentation identifimay focus on seglnent Objectives l. Sttlteriorplt'Lrutirzg.' etc. Systemvalidation, segment description; cation,segment framework A ten-pointmanagerial atic plannirtgis stressecl. leadsto effective guidelines research arnd ernphasizingplanning in the next section. This is reviewed stuclies. segmentation Choosethe optirnalblend of primary, second2. Solid resectrcli: sollrces. research AndIttternet database, ary,synclicated, Options inclintensiotls: 3. Selecting the "right" segrnenttttiort geographics, firtnographics, benefits, categories, cludeadopter etc. usage, appr-oaches, purchasing Objectivesinclude targetmarket selectlet,elopment: 4. StrcLtegt, anclforrnulatingthe proper tion, positioning,nichemanship, on product,pricing, protnotion,clistribumarketingrnix basecl tools. tion, ancle-marketing and revise ctncl control: hnplement,evaluate, 5. Intplenrcnttrtiort plan. the segmer-rtation

36

HAIVDBOOK SEGME]YTATION OF MARKET

RESEARCH TO SEGMEIVT USING PLANI,{hIG AT,{D BUSINESS MARKETS: A TEN-POINTPROGRAM

results-insightful Will the segmentation deliverthe desired str-rdy market segments A customstrategies? and workable,cost-effective rzedframeworkwithin which informationcan be gathere cl and analyzed is key to the process.Our two-part "game plan" consistsof planningandresearch guidelines (seeBox 3.t;.: SegmentationPlanning Sound planning gets the segrnentation project off to a fast steut. Tlre first step is to set appropriate segrnentatiort objectites.Careful problemdefinitionis critical sinceit can overcome unintended outcorles such as incorrect researchdesign, poor sampling, and/or meaningless or dangerous results.a A sample, br-rt by no meansexhaustive, list of qLrestions relevant for analysis is provided in Box 3.2.

BOX3.1.The Ten-Point Program for Conducting Segmentation Studies

Segmentation Planning Guidelines 1. 2. 3. 4. 5. Establish segmentation objectives population Specify target measurement units Staterelevant definitions Recognize segmentation viability/segment formation criteria Select segmentation bases

Segmentation Resea rch Guideli nes 6. 7. B. 9. 10. Choose appropriate datacollection methods procedures Employ sampling Analyze the data Consider budgetary constraints Knowhowthe information willbe used

Marketers GuidelinesforBusiness Research Planning arud Segmerutation

37

Obiectives BOX 3.2.TwentySegmentation

'l. Whataresomepossible foryourprodsegments/niches market uctor service? withyour compare niches and market 2. Howdo thesesegments prof ile(s)? present customer markets? target 3. Howlargearethesepotential submarkets? these prof ofserving itability 4. Whatistheexpected (names, keyvariables) defined? 5. Howarethesesegments groups? the specific about 6. Whatis unique located? customers 7. Wherearethe potential to thevaribe allocated should and resources B. Howmucheffort now?ln thefuture? segments ous market pursuing? are competitors L Whatsegments havecomdoes your company advantage 10. What competitive pared in the market? to others '1 How havebeen employed? studies 1. What past segmentation findings/strategies? werepastsegmentation useful or services? foryourgoods users 12. Who arethe heavy '1 by customers? aresought or benefits 3. Whatfeatures areavailable? andtactics strategies marketing 14. Whatalternative needs? segment meet/exceed or service 15. Doesyour product (Anychanges required?) '1 the target can bestbe usedtoward appeals 6. Whatpromotional markets? arethe markets? 17. Howpricesensitive playin the market? channels 18. Whatroledo distribution withand serve be usedto communicate 19. Howcan the Internet yourcustomers? and monibe measured purchase behavior 20. Howwillcustomer effectiveness? marketing toredto evaluate A two-stageailproachto problernclefinitioncan be effective.s These proviclea objectives(ROs) are estitblished. First, research and development checklistof informationneedsusefulfor strategy intargetmarket description, on segmenticlentification, may focr-rs oI validatingmarket segof product useige, depth understancling questions a seriesof reseerrch Seconcl, opportlinities. rnents/niche as is thencleveloped, focal problernstatement (RQs)that relateto tl"re Box 3.3. shownir-r

3B

HA]Y DBOOK OF MARKETSEGM E I'{TATI O]V

BOX 3.3.A Segmentation Research Objective and ResearchQuestions

for an Automotive Services Study

Research Objective Todetermine thefeasibility of wH Motors sponsoring a membershipprogram for smallbusiness owners of leased or purchased vehicles including the postwarranty packsegment. The service agewould consist parts, of discounted auto/truck routine andextended maintenance, paint, repairs, bodywork,short-term fleet increases, or other benefits sought by clients. Research Questions
'1.

2.
e

4. 5.

what are customer perceptions (reactions) and levels of interest,by segment, toward thisprogram? what specific features of theprogram aremostandleast attractiveto newandexisting buyers/lessees ofwH Motors'vehicles? what is an acceptable price program? forthismembership considerations include price customer price-level expectations, thresholds, cost-benefit trade-offs to wH Motors, andcompetitive offerings. Who is the "typical customer" for this program basedon firmographics, behavioral dimensions, andvehicle usage factors? purchasing what are present habits of wH Motors' buyers for parts, accessories, maintenance, repairs, etc.?

In analyzingmarkets, we rnlrstoperationalize andquantify thetarget polttilationmeosurentent units.E,xarnples might includebuyers, clients,cttstotners, decisionmerkers, influencers, leadLlsel's, fflanagers,patients, prescreened "tryers,"etc. prospects, pr-rrchasing agents, Oncebasicdescriptors havebeenset,adclitional rnodifiers areneecled to cleal with rnultiple buyinginfluences, decision-making (DMUs), r-rnits and br-rying centers. In adclition to ct-tstomer specification, otherrelet,ant clefinitiolz.r are itnportant in segmentation planning. The marketservice areais a critical one; geographical lirnitations shouldbe noted (seeChapter4). Factorsthatrnayaffectthis rnarketdefinitionincludethe natureof the business, the proclucts offered,the custolrer profile, cornpetition,

Marketers 39 Business Gu,idelinesfor anclResearch PLanning Segmcntation

globalizainitiatives, e-business channels, clistribution [echnology, etc. patterns, Llsa-qe iion strategy, as to segmentctbe assessed Defined markets(seeChapter2) rnr-rst to thefollowing"Four R" questions Iespollses Positive tiortt,iabilitV. A negativereis recomrnended. suggestthat market segmentation that a redefinitionof tneans to one or more of theseqr-restions sponse pivbasedon these your situation Evaluerte the marketis necessAry. otal criteria: to yollr overalltnarketingproget marketsby their irnportance gram? 2. Are your targetanclniche tnarketsof realistic size, i.e', large enough to profitably pursue? (Avoid the temptationto overof minimarkets, ,.gro.nt-divicling the market into a tnr-rltitucle this is extremelycostly ancl generallyan ineffectivemarketing strategy.) journals,ineasilythroughtracle r.o.h your customers 3. Can yor-r mailing lists, the Internet,or other media? clirectories, ch-rstrial respond to marketinginitiatives? customers 4. Will targetecl within the seghomogeneity Segrnent .fonnatiortu'iteria inch-rde heterogeneity amonggrollpmembers), ment (the testfor sirniizrrities amongthe variousmarket (the test for clifferences among segments usable,and ancl rneaningfulsegmentdata (practiczrl, segments), strategy)' into marketing translatabie reaciily in many ways.Thereis no one clear, Marketscan be segmentecl and inmarketsituation on a colnpany's a lot clepencls bestmethocl; iortbases aredimensions ntcfi ment.Segnrc by manage on neeclecl fornrati of them will need several in most cAses, erncl, ntarket ar for segmenting procustomer a complete to provicle sirnultaneously to be considerecl file. (which are is physicalattribr,rtes for classification A usefulciichotorny (which aregenerattributes behavioral versus often reaclilyobservable) ir-rsegmenting regnlarlyr"rsed Physicalattributes ally ulobservable). codes classification indr-rstrial rlarkets incluclegeographics; business rank (prioritize)your tarobjectivelyanclsubjectively 1. Can yor,r

40

HAIY DBOOK OI- MARKETSEGM EI,{TATI OIV

(NAICS/SIC);andfinnographic factors in business, suchasyears sizeof the company, salesvolutne,etc. (Chapter 4:).Behavioral arttributes featuredasbusiness segmentation (Chapter prodr-rct bases inch-rde Llsage 5), (Chapter benefits 6), andpurchasing andorganizational behavior psychographics (Chapter 7). Physical (categories attributes area pliori variables known in advance), while behavioralattribr-rtes may be both a priori, suchasLlsage, or posthoc (segments detennined afterthe analysis), such as benefits or psychographics. A list of twenty segmentation basesfieqr-rently ernployed in B2B market sitr-rations is shown in Table 3.1.6How many of theseapproaches is your company clrffentlyusing? Which of these approaches yolrr organization shor-rld consider in your segmentation initiatives?

TABLE 3 . 1 .B u s i n e sS se g m e n t a t i B on ases
DecisionMakers (DMs)/Decision- Product Organizational M a k i n gU n i t s or Situational Characteristics ( D M U s ) Variables Supplier loyalty Technical requirements

Typeof Industry

Industrial sectors- Company size NAICS/SlC codes End use,product application Geographic location Purchasing volume Purchasing frequency Purchasing situation

Benefits derived Price sensitivity fromlong-lasting relationships Personal background of DMs Speedof delivery

Levelof riskfor a Service quality product purchase required Seniority of DMs Benefits derived fromproduct use

Corporate culture Number of participantsin the DMU Roles of thosein t h eD M U

Source:Adapted f romStavros P. Kalafatis "Business and Markos H. Tsogas, Segmentation Bases: Congruence and Perceived Effectiveness," Journal of Segmentation pp.35-63. in Marketing, 2(1),1998,

Segm,entation Planning and Research Guiclelinesfor Business Marketers 41

Segm entutiort Reseurch A goodsegmentzition studyis built on objective, workable marketing information.Five clcLtct collectiortmethocls are vital to this proMarketers cess. cantap (datagathered 1. published secondary research for a pllrpose other thanyollr currentproject), 2. prtmary research(quantitative or qr-ralitative information collectecl for your project), (shared, 3. syndicated research purchased information), 4. database information(customer files),and (seeChapter 5. Internetsolrrces 3 appendix). Sinceseconclary dataoffertremendous costandtime savings overprimary research, this inforrnationshouldbe incorporated into your segmentation project,wherever feasible. Althor-rgh datarnanipulation may be reqr-rired, anclpubiicationlags and inarppropriate rneasurement or classification units may be encountered, secondary research is a logical startingpoint for a segrnentation study.As an example, tradeassociareference tions amd sollrces suchas theMcLrket ShareReporteror StanclarrlcmdPoor's htchtstry can be very helpful in determining $y5,e\1.r the sizeof the market,major cornpetitors, arnd otherbasicindustryinformation. informationwasusedasonedeterminant Secondary of thefeasibility of establishing a battery(automobile, truck, and industrial)assembling plantin SouthFlorida.Datasupplied by theIndependent BatteryManufacturersAssociationanclthe Battery Council International inch,rded suchvaluablereferences as statistics annuals, convention proceedings, andTlteBrftteryMtut (a tradejor-rrnal). Table3.2 sr-rmrnarizes the major sollrces informationuseftrlfor segmenting of secondary business markets. Although secor-rdary areimporlantfor solving"piecesof the sollrces pLrzzIe," primzu'y dataarerequired to providetl're balance of the marketing informationthat rnanagement needs. If you were seeking information on cLlstorners' perceptions aboutyollr product,a prirnaryresearch wor-rlcl approach be reqr-rired. Secondary datawould be of limiteclhelpin

42

HA]VDBOOK MARKET SECMEI{TATIO]V OFn formation se g m e n t a t i I o n 3 , 2 .S e c o n d a r S yo u r c eo sf B u s i n e sS TABLE

References

Category

Trade, (Retail Wholesale Trade, Reports Census Business censuses Business Industries, Mineral (U S Government,Services, Construction, Manufacturing, Patterns <www.census.gov>) CountyBusiness and Transporation), Demographics Business USA, Dun's Censusof AmericanBusiness,Editor& Publisher MarketGuide,HooversHanddemographics USA, Marketsof the books, Manufacturing & Distribution U.S.for BusinessPlanners Center, Resource Business research ABI Inform, Business and Company File Business Business Dialog, General databases/indexes and Industry, NewsBank (seeGaleDirectory ASARMergent Newspaper Abstracts, Online, Predicasts' TimesIndex, LexisNexis, of Databases) NewsFile,NewYork and Abstracts, US Industry UMI'sNewspaper Series, Index, WilsonBusiWallStreet Journal Trade Outlook, Periodicals knownas Business ness FullText(formerly Index)

Directories

EncyDirectories, Directories in Print,Dun & Bradstreet clopedia of Associations,Findex Directory of Marketing CorporateAffiliResearchReports,lnfo USA, LexisNexis and ProfesBook, National Trade ations,MacRAE'sBlue Direcof the U.5.,StateIndustrial sionalAssociations tories, ThomasRegister,Ward'sBusinessDirectoryof U.S.Privateand PublicCompanies,Standardand Poor's Directories ln' (U.S./states), and Poor's Sfandard Abstracts Statistical of ComTableBase, U,S,Department dustrySurveys, mercePublications

Forecasts, Predicasts MarketShareReporter, Statistical sources Ameristat,

journals Trade (includes special issues)

and BroadcastMedia, Gale Directoryof Publications Harlax Guide to lndustrySpeciallssues,Publicity Salesand MarketingManagement's Checker(Bacon's), Surveyof BuyingPower,Speciallssues lndex by Greenwood Press, StandardRate and Data Service-Business Publications and Data, Ulrich'slnternationalPeriodicals Directorv,Writels Market,Gale Directorvof Publications

providedby Dean Research assistance Source:Prepared by Art Weinstein. A,p r i l2 0 0 3 . U Librarian , o v aS o u t h e a s t e r nn i v e r s i t y V e l l e n g aR , eference N (secondary) sources ic information Note: Although this tablelistsa lot of specif legwork is in manycasesadditional valuable for business market segmentation, journal you can consult references to determine trade required. For example, p u b l i c a t i o nis . h e n y o u w i l l n e e d t o o b t a i nt h e s e relevant n y o u r i n d u s t r yT particular helpfuf l orlocating canbe quite s o u r c e sS . imilarly b,u s i n e s s indexes the specific articles to collect citations or abstracts, but you then mustresearch you need. Also, realizethat some of these sourcesare likelyto information (e.9.a , s t o t h e i rn a m e , coverage f, o r m a to , r e v e na v a i l a b i l i t y ) , change overtime field-astute marketing information the and new sourcesare alwaysentering analysts shouldbe on the alertfor these.

Marketers GuiclelinesforBusiness Planning and Research Segmentatictn

43

pristudies, For mostsegmentation qllestion. sllcha speciflc answering direct meetings,telephone, via face-to-face mary researchobtaineci sites,ancyorfocus grollps will be the rnajor mail, faxes,e-rnailAVeb dimensions infonnation.Behavioralsegmsntation sollrceof rnarketing reand usagerequirecustomized beneflts, such as adoptercartegories, that arereadily Evenfirmographics projectsfor givensituations. search marketmeaupdated frequentlyneecl sollrces seconcliiry availablefiorr-r to maxinrizetheir value. analyses anclcletailed sllres,projectious, sollrcesgenerallywill solve part of the problem, and Seconcieuy or standardtzed is coniplexand costly.Syndicated primary researrch or middle groundThis hybrid alternative is arn information/services can be of Sources, secondary primaryancl a crossbetween approach, a firm's informationneedsat feescollgreatvaluein complementing resyndicatecl Essentially, projects. research belowcr-rstom siderably are pllrinformation.Two or more companies searchis cooperative supplier. informationfrom a commonresearch chasingrelatecl reportsrangingfrom a few hr-rndred reseauch Low-cost synclicated for a multiplicity of indusareavailable of clollars to many thousancls such as Dun & Bradstreet, of con-rpanies, try sectorsfrorn clozens MarketResearch. For example, MarketResearch.com. FIND/SVP,ancl fiom over 350 leadingrecotn offersmore than40,000publications Re2002-The DefinitiveGlobal Marlcet firms.7Their Finclex searrch The following are strongresource. Director)'isa particularly search providersand some of their research four other leading synclicatecl specialties: . BizMiner-area profiles,high-growth firms, industryfinancial profiles technologies . Dataquest-computers, information electronics, tele. Frost & Sgllivan-meclical devices,rnilitary eqr-ripment, ations commLlltic financials energy, . J.D. Powet ancl Associates-automobiles, and sllrveysare highly usefil, reports, str-rclies, While syndicatecl insufprovidedis generally the informettion realizethat,in isolartion, dasecondary, Additionalprirnary, flcient for effectivesegmentation.

44

HA]YDBOOK OF MARKETSECMEIVTATION

An adthe totalpictr-rre. areneeded to present tabase, or Web solrrces arethat they are generic of syndicated sources ditionalshortcoming specific. and marketdriven,as opposed to companyand customer is clatabase marresearch A recent development in segmentation marrelationship metrketing, keting, which is also calledintegrated This powerhouse experts. keting,and single-source databy indLrstry technology is definedin detail: in real Managing a computerized systern, relationalclatabase relevant dataon custolriers, time,of comprehensive, up-to-date, your mostresponprospects, to iclentify inqr-riries, arnd suspects, sive customersfor the plrrposeof developinga high-qr-rality, long-standing relationship of repeatbusiness, by developing rnessages at predictive moclels which enable us to senddesired the right time in the right form to the right people-all with the rate custorners, increasingoLlrresponse result of pleasingor-rr per marketingdollar,lowering our costper order,building ollr and increasing ollr profits.8 business, measures marketingperformance This computer-driven approach (e.g.,sales, etc.)via dataproductusage, prornotional effectiveness, (e.g.,aclvertising/couponing, frequency applications bases, electronic arnount programs,scanners), etc. A tremenclous factory shiprnents, rnaking segrnent-of-one customer datais generatecl, of individualizecl in infonnationtechnology rnarketing a viableoption.hnprovernents databases. The key to create andsortever-expancling allow marketers recordsand Lrse this informationefis to properly managecustomer fectively. Tracking changing custornerpatterns over time-longitr-rclinarl technology. This has analysis-is an irnportant benefito[ database for custorner retention, customer upgrading, importantimplications prornotionalactivity,and cornpetitive strategy. however. First, Be cognizant of databases, of someshortcomings custornerbehavior is not explained;the data are qllantitativeand (this can easilyleadto dataoverload) and do not qualivoluminor-rs act as theydo. Dataibases areonly partativelyprobewhy customers sincethey aredatadrivennot strategic. tially usefulin segmentation

ss M arketers Segmentat i on P I anning and Resear ch Cuidelinesfor B usine

45

of priaboutan invasion may be concerned somecustoriers Seconcl, and implernenting, vacy.Finally,thereis thehigh costof developing, These issuesmust be carefully lxonitoring computer diitabases. benefits. to potential weighedwith respect realisticprofile of a providea cost-effective, proceclLu'es Sampling sampling include the segtnentation market. Ma.1orconsiclerations samirlternative elements), listing of populartion frame (the rnaster judgrnent, rAndont, SySquotal, (e.g.,coltvenience, pling techniques and the sarnple and clustersamples), stratified, tematic,snowba'rll, size. frameis sirnilarto the totalpopllthatthe sampling It is presurned Directoryof Technolthe CorpTech For example, str-rdy. lation uncler (contacts, SIC codes, infortnation providesdetailed ogy Companies U.S.-based, on Inorethan 19,000 annual sales) clescriptions, business of productcategothousands representing high-techrnanufacturers list This database/mailing groLrps.e ries in eighteenmajor indr-rstry marketfor reachingtop-ranking source wasfounclto be an excellent meirkets. high-technology in inclr-rstrial ing executives to choosefrotn: noncategories There are two broaclsamplir-rg arethe samples Nonprobarbilistic probabilityor probabilitysarnples. (parto use.Theseincludeconvenience leastexpensive sinplestancl jr-rdgrnent (expertopinions), on easeof access), ticipationis basecl to matched are intentionally (lceycharacteristics and quotasamples samis probabilistic The othersetof options of thepopulation). those andcostlythan clifficultto adrninister, ples,which arelrloreobjective, often lead and time pressllres the former groltp. Cost, pragmatics, samplingrnethods marketersto choosenonprobabilistic business from a methodWhile lessthanicleal to execute. sincetheyareeasier "good enough"front a mantheyarefrequently ologicalperspective, information. marketing to collectvah-rable perspective agerial on depencls to specifyancl is clifficult The sizeof the ideal sarnple setechniques arethe type of sampling Among these factors. severatl characterisused;the population approach the clataanalysis lectecl; and skills andthe time, budget, of the clecision; tics; the importiince for the study.A reviewof pastreavailable researchers of marketing in by the f-irmcan alsobe quite helpfLrl conducted initiatives search

46

E]VTATI O]V HAI,I DBOOK OF MAKKETSECM

with very small sarnples I haveseert research stuclies this clecision. seg(in-depth /?- 2l) providetremendolls of physicians, interviews mentationinsightswhile o[herprojectsthat had 2,000respondents were of lirnited valueto management. data are collected. beginsbeforethe segmentation Data anal\;sis of whertinformationis being sought. Have a clear understanding rnodelfor the anala research canprovicle Dummy (blankdata)terbles computations-spanysis. Coding,cross-tabulations, and statistical (measures tendency and of central ning thegamutfrom basicanalysis (seeBox 3.4)-are centralat techniques variability)to multivariate andamong between therelartionships this stage. The goalis to assess the key marketingvariables. BOX 3.4. MultivariateStatistical Techniques provides of analytioverview a nontechnical Thefollowing synopsis These studies. in segmentation frequently employed cal techniques by experiwhen usedin the rightsituation are valuable techniques generally be usedonlyonce However, theyshould enced researchers. theycan be In thiscapacity, exists. of a market a basicunderstanding prior findsegmentation veryhelpf ulforenhancing andcomplementing ings.The objective of this summaryis not to explainhow to use the (thatis a bookin itself), to acquaint butrather multivariate analysis planner for theseprocedures. applications marketing with potential the segmentation manytoolsin theirtoolbox, Justas carpenters carry proceanalytical aboutvarious researcher should be knowledgeable research or marketing to consult lnterested readers areadvised dures. statistical techon multivariate statistics textsfor furtherinformation Here andHairet al.b areby Churchilla niques. Twoverygoodsources forB2Bsegmentation. options are eightmajor multivariate CHAID(Chi-SquareAutomatic lnteraction Detection) categoCHAID of alltreeclassifiers. CHAIDis the mostcommon by variables integer andmultivalued rizes allindependent continuous "similarity for a categories the resulting measures" and considers purposes.c forsplitting variable as a wholeunit(group)

Business Marketers Guidelinesfor PlcLnning arud Research Segmentation

47

Cluster Analysis (e.9., objects or variables a set of related Underthis procedure, grouping andthrough is analyzed, geodemographic or psychographic) in the overall thathavesimilarities are formed segments techniques, purchasing similar to exhibit likely andaretherefore measure statistical behavior. Conjoint Analysis method meathisanalytical analysis, trade-off Alsocalled'multiple on the purchase product mixes attribute of varying suresthe impact conpreferences to product or reactions lt models customer decision. ranks approach Thisstatistical of attributes. ceptsin termsof bundles products. Theseare toward percepttons and preferences customer meaConjoint homogeneity. forsegment andgrouped thenevaluated pricing value design, usedfor new product is frequently surement selection. andmedia evaluation, vendoricompetitor studies, Discriminant Analysis segments between differences comparing isusefulfor Thistechnique is pedormed analysis groupmembership. Discriminant or predicting (discriminant This functions). equations computer-generated through buyers, American versus Japanese in profiling is effective technique or adopters customers, nonloyal versus loyal lightusers, verSUS heavy to showa fewapplicaconcept, for a newproduct nonadopters versus tions. Factor Analysis a thatanalyzes technique research is a marketing analysis Factor of number themto a smaller and reduces of variables largenumber Factor analysituation. marketing a given explain to better keyfactors segmentation. research and psychographic sis is usefulin benefit segmenusedin market analyses of factor types aretwomajor There of databyf inding theamount reduces analysis R-factor studies. tation (the analysis variables. Q-factor to particular in responses similarities of peof indsgroupings means) segmenting customer moreimportant issues. plewho respond to research similarly (continued)

4B

HAwDBOOK OFMARKET SEGMEI,|TATIOw

(continued) Multid i mensional Scal i ng Also referred to as perceptual mapping, thisanalytical technique graphically product represents perattributes basedon customers' preferences ceptions and for brands, product or service categories, andlo idealproducts. Theobjective of multidimensional scaling is to identify market segments of customers withsimilar needs or attiiudes towardproducts. Sincemorethantwo attributes cannot be visually depicted in two-dimensional space, variables are computer reduced to portray appropriate market measures. Thistechnique is f requently usedin benefit andperceptual segmentation studies. Multiple Regression This versatile research technique is usefulin analyzing associationsamongmarketing variables. A mathematical equation is derived measuring a singledependent (criterion) variable basedon two or more independent (predictor or explanatory) variables. Predicting product usageas a function of yearsin business and revenues is an example of regression. Structural Equation Modeling This is a causalmodeling approach'that explains relationships among a setof manifest (observed) (unobvariables interms of latent served) variables.d Thisapproach wasusedfortesting competitive intensity, marketand technological orientation, and their impacton market definition success in industrial high-technology markets. aGilbert A. churchill Jr., Marketing Research: Methodologicat Foundations, (FortWorth, SixthEdition TX: Dryden, i gg4). DJoseph F. Hair Jr., RalphE. Anderson, and Ronard L. Tatham, Multivariate Data Analysiswith Readings,Second Edition (New York:Macmillan Publishers, 1gB7). cNissan Levinand Jacobzahavi, "Predictive Modeling Usingsegmentatio n,"JoL)rnal of lnteractive Marketing, lS(Z),2001, pp. ia-t S. oJ.scottLong, "confirmatory Factor Analysis. A preface to LlsREL," S_age UniversityPaper Seiles on Quantitative Applications in the publications, Social Sciences, (Beverly 07-033 Hills: Sage l9B3).

sfor Business M arketers Resear ch Cuideline Segmentati on P I anning ancL

49

A cornplex segmentapracticzility is of theessence. h-rdataanalysis, provides the if a sirnpler designadequately is not aclvisable tion n-rodel packages as SPSSand sr-rch software Statistical requiredinformation. a wide rangeof to analyze SAS arebeingusedfrequentlyby marketers ofresearch, analysis problems. For secondary reseauch segmentation and verifying inforrnation,tnanipulatingfigures, ten meansupclarting for a givenstudy. unitsof measure the clata to appropriate andadapting corlstraints.In erbout buclgetctry is alwaysconcerned Management The companymay have is desirable. a hybrid approach many cases, but consultants anirlysis, in the segrnentation to assist the resollrces plern, oversee the data collectionprocess, can designthe research useful when confronted and/oranalyzethe data.This is perrticularly Also, conbenefitsegmentation. suchers by a complexmethodology proresearch A $100,000 valueof theinforrnation. sidertheexpected ject shor-rld only $75,000 if it is likely to procluce not be authonzecl worth of answers. ,-vill be usecl, ltow the inlonncLtiort element, knovv The final research resecLrch obguideline(estcblish directly to the first planr-ring relartes jectives). Careftrlly preparecl provide yolr with clues to objectives New knowlasked by management. to questions manyof the answers unless they arenot important statistics or surprising edge,serendipity, or control.Written reports areusefi;lfor marketingplanning,strategy, mr-rltibriefingsthatincorporate research areseldomsufficient,Mairket lotsof Q&A (quesancl sllmmaries, segmentation mediapresentertions, technical informafor conveying arerecomrnended answers) tionsancl to management. recolrllnendations segmetrtation tion ar-rd Research of the study. is the "real" plrrpose Anotherconsideration opinion, in order to justify a preconceived authorizecl is sometimes In suchan inby management. attitude, or positionheld on a sr,rbject notion,the rethe findingsagreewith the established unless stance; or ignored. projectwill be downplayed sultsof the research Marketing informiition servesa definite pllrposein the business provicles a knowledgebaseLlpon uncer tainty arnd worlcl.It redLrces SkillBuilder can be made.Segmentation clecisions which marketing issues that needto be aclthe key planningand research 3 captures segmentation in the designand executionof a successful clressed

50

HANDBOOK OF MARKET SEGMEAIT"ATION

SEGMENI-ATION SIilLLB UILDER 3 : DESIGNING THE SEG]VTENTATION STUDY

Managerlor your companyand , You are the Market Segrnentation y-ourinpr"rt is solicitecl for developing next year'smarketingplan. ReviewingyoLII'research lreeds, you noletheneecl lor a majorseg]nentation analysis lbr an importantproductor-procluct line. L Explain the background .situation anclncecl1or this study to yolucontpilrly's Vce Presiclent (notc:yoLr of Marketing will likely havero scll rhisprojecL, infernally). 2. TlreVP likesyortrconcept (#l) ancl is thinking about movingforwar.il r'vith thisproject, Sheaslts you to fleshout sorne planning apcl met6ociological cletails l'egarcling the scgmentation project. Colrprenlon the fbllowingissues: a. Rese archdesigrr-explolatory, clesc.riptive, or causal l-r. Data sollrces printary,seconclar'y, syndicate ci,dalabase , or Wel-l c. Segrlentafion dintcnsions physicalol' behavioralalcl types (primaryancisecondiiry bases) d. Survey ittsLrr-rrnent/approach tcl be used-clLrestionnaire (type), lccusgl'ollp, obserl'ati on I'orrn, etc. ancl control s ; fi el clploceclures e. samplin-r plan-probability or nonprobability sarnple (type ): samp l es i z e 1'. Analyticaland stirtistical methocls g. Persontrcl, tiile I'rat-ne, bLrdgeted invcstnrcnt. pr-oiectccl ancl valrre ol'the stLrdy. 3' How woulci you explaitt yourresearch neecls lo arroLrrsiile marketipg rcsearch/consultitrg lirm? Developthc specilicob.jectives o{' a prc> posecl stLrcly attcl associatecl research questions b2secl o1 lhe ob1cctives (seelhe carliercliscussiotr ol' segmentalion planningin the sectigl Using Plattnin-e anclResearch to Se--pment Business Mar.kets and rev i e wB o x e s 3 . 1t h r o u s h 3.3).

str-rdy. The bottorn line is that the informationr-r-rnst be practical, worlcable, and utilized.Br-rsiness Segmentatior"r Insight3 clarifies the segmentation research challenee.

rketers search Guidelines. Segmentat i on P I an ning ctnd Re for B usiness M ct INSIGHT 3 : BUSIM]SS SEGN,IEN'TATION IIN'I'AT TON It.I'S EA R C H-A N ASSESSNIBNT SEG1\,I

51

of seggreatly on thbstage depends a firm uses approach The research if a companyhas that the flnn is in. For example, analysis ntentation targetsegto derivepotential the nrarketplace neverfonnally analyzed :of The prrrpose thii r:e'is recommencled. research ments,exploratory to thatmay be relevant is to obtainas much marketintormation search areindetetminneeds intormation Sinceprecise aspossible. thesituation role in fheiewill play a prominent soLrrces seconclary ableat this stage, : search. 1orinitial stud advisable areseldom analyses Complexsegmentation At thisjunctltre, andvariables. bases ies or onesusingnew segmentiition rathetthanrlndertaking aspeople on custorrlers is to locLrs rhechirllenge needs, chatacteristids, Explorecustontsr exercise. a number-cnrnching yotlrprelirninar"y to best serve strategies marketing ancl wantsitnddesign rnarkels. tirrget abetter understanding ernd is sifiedthrough inlbrmation As themarket canbe projects primaryresearch eviden[, becomes of basicrelationships thathasdecompany is thewell-versed extreme At theotl-rer nldertaken. profiles through finecl ancldescribedthe rnarket in terms of segment' A nee clfor factors. criteria,andpurchasing prodr,rct usage firrno-{raphics, A causality may becomeevident. analysis segrnentation a higher-level pur:wherteby (suchas benefitsegmentaticln) can be introduced, clesign vl a r i a b l e s . chase b e h a v i oirs l i n k e dt o i s o l a t e t advanced exists, situarion pth unclerstanding of a market Onceanin-cie muitidimenClusterand lactor analyses, rnake sense. methoclologies (e.g., siolal scirling,ancl other multivaliatestatisticaltecirniques etc.)can be modeling, eclr"ration structural CHAID, multipleregression, by skilledreseat:chers. if usedrn the right situations qLrire insightfr-rl can takemanylorms.It can vary from an iniresearch Segmentation or moreasinto o-ne studyto an investigation tial full-blownor baseline recognizmay oftenbe necessary, Somecompt'olnises pectsof a market. constraints, and buclgetary neecJs research ing the contpalty's shouldalso be planned,given the dyOngoingor periodic str-rclies use shoulcl The bottomline is that a comprttty l1mic natureof mar*ets. at a costit thatcan bestmeetits neecls of irilormatiou source whatever pri* Typically,this wiil nreanmultiplesources-secondary, cirn aflorcl.

52

HAIV DBOO K OF ]VIARKET SECM E]YTATI OIY

IltAIy, syndicated, databases, ancl/or lhe Internet. This research caneither be condr-rcted in-holise[hroughthe marketingresearch department or confactedto a commercial mirrketing reseau'ch flrm oi rna:'keting coltTalkto industry expelts or visit theAmericanMarketingAssoci"sultant. atiorr'sWeb site (www, marhetingpower.com or www.quirks.corn) for' gtridance in selecting companies capable of doingsegmentation projects. In addit,ion, universities canbe of greatvalnein designing anrJ/or implernenting segmentatiotr stndies, Many universities haveresearch bureaus, specialized br-rsiness centers, or Snrall Br,rsiness InstitLrtes thatcan piovide aclviceatrd technica[assistance for such projects.Of course, marketitrg laculty can alsobe an excellent source for obraining consultantsspecializing in segmentation analysis. As Table3.3explains, scholars ancl practitiouers haveditlelentexpectations asto thevalueof'rnarket segmentation. While on thesurface it appears thatwe havetwo competing target rnarkets, thisdoesnot haveto be the case.Knowledgetransf-er and collaboration betweenboth factions shouldbe highly et'tcolrra-qed. As a prof,essor/consultant with onefoot in the"ivory tower"andtheotherin the"real-world trenches," I havelouncl thatgoodsegmentation research andthinkingcomesfronrlloth perspectives.In fact.eachgroLrp cangrea[ly benefitlronr whattheotl-rer bringsto the tableirr ternrsof expertise, experience, aricl objectivity.l0 Consider andprofit frotn this dualityasyou reacl fhemzrterial on mad<et segmentation thatfollows.

Althor-rgh at timesit canbe costly, research shouldbe ar high priority in a firnt's marlcetin-q bud,eet. The alternative to research is trial anderror.Canyollr company affordthe costof failurethroughguesswork? The costof "missingtlie boat" is often much greater thanthe costof solid inforrtration. Marketingr-esearch can be thoLrght of as a high-yielcltng cashvalueinsurance policy.It cern protecttl-re company from marketingrriistetl<es bLrtalso return great clividends thlough identifyingpotentialnew oppoltr-rnities. Merrket research facilitates executive decisionuraking.RaphaelanclParketoffer five soliclrecgers ornrn endett i or-r s for nterrl<eti ng ln Ltna : 1. Marketreseat'ch shor-rld be proactive, not reactive. 2. Bring in rnerrl<et research early in the decision process.

Marketers Business Guidelinesfor Planningand Research Segm,entation

53

from marketrea representative inch-rde shor-rld 3. Productteatms

A

search. to utilize market policiesrequiringmanagers Developcorporate research. a directline to uppermanagement.lI 5. Give marketresearch

research-based is about9Bpercent), Most of the time (my estimate The "hit list" apsitr-rations. are possiblein segmentation answers Developa for conductingthis research. is a usetul technique proacl-r asresearch thatcometo mind immediately list of the six to ten issues or two to addto this list andlet your right Ask a key associate needs. side)takeoverthis taskfor a coupleof days.The exbrain(creative list rnaynow containtwelveto twentyitems.From my expepanded rience,it is likely that yoll can find abouttwo-thirdsof yollr answers Primary research or Internet sources. syndicated, from seconclary, (in Sometimes for mostof thebalance. shouldaccount andclatabarses is not the way to go; research however, of the cases), about2 percent effectively cannot i.e.,it is too costlyto solvetheproblemor reseatrch insightmay provideus with solvethe problem.Hence,management solutiott. the appropriate thereis still a placefor "gut Despitethe inherentvalueof research, know that the Top executives environment. feeling" in the business betweenwhat works "judgmentcerll"may at times be the clifference
Views Research-Two TABLE3.3.The Valueof Segmentation mentationlssue AcademicConcerns curiosity, of the study Intellectual Purpose research develop/refine findnew techniques, industry applications -the-art, state-of Objective/desired Advance get published outcome basis Research Theorybasis Goncerns Practitioner problems, Solvemarketing makesoundcustomerrelated decisions sales,increase Increase enhance market share, rate retention customer

if withsomerelevanceRelevance-rigor Rigor relevant important Relatively unimportantRelatively onlyif theory important in accomplishing assists statedobjectives

54

HA|Y DTJ OOK OF MARKETSEGM ETVTATI OIV

and what doesnot. Althor,rgh Japanese cornpanies use qurantitative surveys, primarily,they rely on their instincts. Their soft or qLralitativeresearch ofteninch,rdes observing customers in theirnatural environments and in-depthtalkswith marketing channel members. Creative and winning strategies are often the end result. Intuition and analysis offer a logical basisfor builcling first-draft segmentation representations. The collective experience and expertise of marketersoffers great insightson customerneecls, product preferences, buying patterns, anclrelatedsegmenting clirnensions. Par-rl Millier illustrates thisprocess flora new alurninurn alloy aimecl at the automotiveindr,rstry. He concludesthat ir-rtr-ritive knowleclge yields highly testable segmentation matricesanclthis is a vah-rable starting point for subsequent refinernent.l2 SUMMARY The success of yollr marketsegmentation pro-qrarl is clependent on theplanningandresearch process entployed in designing, collecting, andanetl y zing relevant customer information. Segmentation analysis mustbe practical to be effective. This canbe accomplished by utilizing systematic planningframeworks, solicitingthe inrrolventent of management at all levelswithin the company, and usingappropriate analyticalmethods. The resultof sucheffortswill be segmentation findings that are readily translatecl into marketing strategy;ultimately,this will irnprovebr-rsiness perfornlance. A ten-pointprograrn for designing a goodmarketsegrnentation studywasintroclucecl. Five planningguiclelines and five research guidelines were discussecl in this chapter. Chapter 4 considers geographics anclfinnographics. APPENDIX : I NTERI,{ET SEGME |{TATIO /BUSINESS X,TARI{ETI IVG APPLI CATIOIV S Two of the mostinteresting anduselulaspects of'theInternet marketplace areprovidin-9 research ancl targetin-q speciflc n-rarketing segments. A
"lntentet wasextt'itc[ed l'r'orl an altic]eby SLrsie Ciian,e. Se_ernentation: _ T'hisappenclix State-o1'-the-Art MarketingApplicatio'ns." JountatoJ'Segtnentcttiort irt Mctrlctirtg, 2(l). I 998,pp. l9-34.andis reprinted with perrnission of TheHaworth Press, Inc.At the-tirre o1' thewritin-q, sltewasBusiness Analyst, Olacle Corporation. Redwood Shores. Calif'onia.

Marketers 55 Btniness Guidelinesfor Planningand Research Segm,entation

exists on theWeb. andtheirhabits on Net users plethora of freeir-rfornlation inexpensively theirown onlinereseAlch canconduct marketers In acJclition, on marketing tools.Target a varietyof Websiteanalysis e-mailancl thror.rgh for eachindividual contentiind aclvertising the Web lreans cr,tstourizing e1medir"rm how to usethistwenty-first-century explains This briefing Llser. tocliiy. fectively, useof theInternet of theWorldWideWebin 1991, Since theintrocluctior-r thetelegraph. incluciing meclium, thananyotherelectronic hasgrownl'aster (popularly known as the "Net") hasbeensignifiGrowth of the Internet andmardevelopments of newtechnological nce d by a number cantlyinflue inthe most dramatic useshavewitnessed factors. Commercial ketplace con]merce and electronic in Net LlselS increase The exponential crease. and the that the Internet yearsdemonsttates several the precedin,u dLrring WWW, as initialism, by its three-letter WorlclWicleWeb (knownpopLrlarly cannot af'thatmerrketers form,the"Web") Aremeclia well asits abbreviatecl who clemands cousllmel a sophisticiited attracts The Internet forclto ignore. that businesses It alsoattracts personalized service. ancl timelyinformation marketplace. andthe chan,Uiug neecls to ct-tsLomet areresponsive to marketbeneflts provides sevelal nature o1theInternet The interactive is the do not. Chiel amongthese n-redia thattraditional consLlmers ers anci are tar from a Net users markets. target ancl segment ability to elfectively An evergrollp:in fact, they delightin their heterogeneity. homogenolls ancl organizations indivicluals of diverse onlineworld composed changing mass-pl'oduced mass-marketed, to escape them the opportllltity alforcls andrevolutionis so successful The Internet andicleas. proclucts, services, intorma( I ) up-to-tl-re-minute it off-ers because ary as a malketingn-redium form of andmoreexpansive rs,(2) a lessexpensive andbuye tion for sellet's ancl services, (3) custotnization of advertising ancl distribLrtion, aclvertising practices. of marketing to trllckthesuccess (4) theabilityfor businesses ancl Deternining Market Segnrcrts in gathering rnarketers hasthe abilityto assist The IntemetMarketplace to essential is, of course, lesearch Onlinernarket marketresearcl-r. acculate online marlietingand sellingelforts but it can also be valuableto otlline

56

HA]Y DBOOK OF MARKETSEGM E]V TATIO]V

marketing campaigns. Research cern beconclucted in a variety ol'ways. Mar'keters cansearch theWebfor l'ree sllrveys or purchase research fl'ornprof'essional finns. Organizatiotts that n-raintain a Web site can examineLlsage logs or conductprivateresearch throughthe use of cookies(seewww. cookiecentral.com) andopt-inaclvertising. A plethora of freeinformation on Net Lrsers andtheirhabitsis available on theWeb.ManyIntet'net market research flrms,suchasNua Internet Consultancy (www. andDeveloper' nua.ie), CyberAtl as (www.cyberatl as.com), and GVU UserSurveys (www.gvu.gatech.edu), maketheirfinclings availableat no charge. Nua'ssite, in particr-rlar, is anexcellent sitefor research, as it inclexes studies f}om manyf irms on a varietyof topics. The siteis also searcliable andinch"rdes links to primarysyndicated research firms suchas (www.lorrester.com), Forrester JupiterComm unicart i ons (www.j up.com), (www.gartner.com), GartnerGror-rp Lrternati ( www. onal Data Corporation idcreseat'ch.com), CotnmerceNet/Nielsen (www.commelce.net), and acl(www.advantage.com). vantage Theseorganizations ntake most of' their str-rdies available for relatively high I'ees but oftentheyofler execntive sLlr.umariesfor free or norninal-fee downloads. These firmsalsoadvertise customized malketresearch services. Because cyberspace greatly reduces theclifflculties of conducting business long-distance, the Internet exposes marketers to a wider choiceof flnr-rs that might be available within an organization's geographic region. ln adclition, marketers can pllrchasedemographic and psychographic inlormatior-r fron-r othercotrtent providers. providers Content maythenniaketheirregistratiorr anduserpreference (l{ote;a great listsavailable ro thirdparties. dealol controversy surrounds access to userdataby third parties.) Ethicallycreatecl and distributedlists contain highly reliable prospects becauseLlsers prequalify themselves by visitin-e sites related to a marketer's procluct ancl by "optingin" to receive third-party solicitations. Registered nsers may also specifyin what way they would like to receive inlormation-via e-rrail, telephone, or postal mail. In acldition to thewealtho1'r'esearch available fl'orri outside sollrces, marketetscan conducttheir own onlinereseal'ch inexpensively throu-Qh Web sites, e-mail,anda vauiety of Websiteanalysis tools.Surveys, for example, areeasyto administer throLrgli a link on an existirig site,through dedicated sites, or throltgh e-nrail. In exchange for a tl'ee sample of a proclLrct, service, or tirnelyinformation, users will answer a questionnaire, especially if they believetheir participation will improvethe services they receive. This is alsotrueof registration ancl/or access fees for specific sitecontent. Users are

Marketers Guidelinesfor Business Planning and Research Segmentation

57

if they andpassword, a username moreinclinedto takethetime to register it from doingso. ber-ref a tan-eible receive lrom serverlogs and psychographics can also inler Llser Businesses Webpage,thelast at a siteor particr"rlar thetime spent cookiesby analyzing to and to navigate inpLtts that the Lrser site the uservisited,or keywords of stuclies can takeadvalttage marketers a Web site.Furthermore, thror.rgh on the Web, often their services tjrms advertising by researcli concluctecl Web downloads. tlirourgh available makingtheirfindings to theirmarketaccording segment helpssellers All ol this ir-rformation family size,ancl sottght, aflinity,age,income,benefits geographic re-eiou, from traresearch segmentation onlinemarket What clistingLrisl-res lif-estyle. andtheWeb's ssof theinformation is thetinreline methocis ditionalresearch proallowsWeb sitecontent technology State-of-the-art reach. worlclwide respond. immediately ancl activity monitorcustomer viclers to continLrously with the together Net applicittiot-ts, ancl connections low costof Internet Tl-re organienables tlieUnitedStates, t oLrtside of theInterne growingpopularity the world. across marlcets potential to research zations rts Targ et M arket i ttg I ntplic cttio mediumlor marketing it a prin-re nature of theNet makes The interactive for information-ricl-t trr"re This is especially to specifictargetsegntents. informatimelyandrelevant thatprovicle Companies anci services. products the to them,will realize marketing while only sLrbtly clients, tion to tl-reir siteswili oller I'acts, Successtul commerce. with electronic most sllccess every to customize allowLtsers Theywill irlso andadvice. linowled-ue, news, theyseeto theinbaunets fi'omthe aclvertising experiences, o1'their aspect Web meanscustomizing content.Targetmarketingon tl-re terest-specil'ic ol users. tor a commllnity user-not jLrst fol eachindiviclr-ral conteut lists,are or clisct"tssion to ase-zines referred ol'ten Electronicncwslettels, competitors, clients, of ideaslry sellers, fomms for exchanges mocleratecl dueto thefactthatusparties. Theyarehighlytar,eeted, andotherinterestecl e-zines, "subscribe" by e-mail.AlthoLrgh to leceivea newsletter ers mLlst pewsletters, theyeachdirecttarlistsareslightlyclift.erent, cliscussion ancl and moderator Most listspermitonly tl-re to subscribers. getecl inforrniition promotion areelfective Newsletters to postcomments. who sitbscri[-re those of ttamebel'orea groLrp tliey continuallyplace the marketer's becagse informar-rseful plovicle tirnely, E-zines clparties. intereste largelycpalil'ied, or seLvice, with a procluct andfailures sLlccesses tion on newcleveloprlents,

5B

HA|V DBOOK OF NI ARKETSEGM EI{TATIO]V

aswell asanswers [o freqLlently qLlestious. asked Marketers cal]r-rse theirlist of newsletter subscribers anclthe feeclback they t'eceive in the list cliscr-rssionsto condr-rct additional onlineandolTline marketin_u. Anothelmethocl to target segments is to sponsor Intemetcontent. Mar'keters cansponsor related Websites, newsletteLS, ancl contests. Sponsorship supports relevant content on theInternel withoLrt intrusive aclvertising messages. Sponsors alsoreach highlytzrrgeted prospects by linkingtheirnames with related products, services, andconcepts. A method [o target segments basecl on geographic prodlocatic-rn and/or uct category is to participate in a regional or inc'lustry-speciflc Webrnall.As the Web becomes morect'owcled, marketers zrre linclingthatoneof the best strategies to bringvisitors to theirsitcs is to link thesiteto a speci alized Web mall. These cooperative sites areparticr-rlarly popr-rlar in the mannfacturin-e industry atrdamong"comrnunities of Lrsel's" dellned by a commoninterest or background, suchasregion, or product ownership. The iclezi is applicable to anyindr-rstry. Users canclLrickly linclnews, company listings, ancl discr-rssiongroups, aswell aspurchase goods andservices. In adclition, regionally specificsitesattractInternetuserswhosecommonality is their location. proviclers Content can sponsor purchase a cybermall, adverl-isin-e banners, or link theircorporate sites to themall throLrgh hypertext. The advantage s of a Web mall or electronic plazaarea highlyconcen[rated target marketand shared costs for a Webpresence. Finally,the tnostefTective ancl themosttechnolo-eically advanced rnethod of target marketing is custoniizable Websites. These reqLrire sites userregistratiot-t anduserprofilesto display personalized content. Personalizecl Web content makes possible target nrarketing to audiences of one.Cool<ies, CGI (commongatewayinterface) sclipts,and Javaappletsremember demographic andpsycho-eraphic inforuration suchasuserpasswords, crediIczu'd numbers, keyworcis, prociucts ownecl, anclso ol-t. CGI scriptsand Javaappletsarecodeinserted in zinHTML document thatenables Web servel's to run atrdinteract with external applications stoledelse whereon the remote system or network.

PARTII: ES OIVBAS S SEGMtrIVTATI BUSIIVES

4 Chapter

andFirmographics Geographics
of both busicharacteristics by demographic Segmentation quiteusefttl,and easy, is relatively and the marketplace nesses segmentation with traditional And whencombined inexpensive. dataprovide a much factorssuch as productuse,demographic inusingdemographic clearerview of the market.Segmentation allows formation in the early stagesof market developrnent to be proactive. managers RodneyL. Griffith and Louis G. Pol (1994) characteristics a myriad of descriptive Marketersshouldevaluate critThese marketsegments. business andselecting wheniclentifying attribby analyzinggeodernographic can be understood ical issr-res basesprovide important Thesesegmentation utes or firmographics. insightsabout high-tech,industrial,and service decision-oriented pointbeis a logicalstarting segmentation Geodemographic markets. governsollrces, throughsecondary ( I ) the clata areobtainable caLlse (2) it providesa qr-rick snapvendors; or detnographic nrentargencies, andpotential of marketstructure shotof a rnarket-an understanding to repcanbe sampled popr-rlations and(3) target segments; customer of the entiremarketat a much lower cost than resentcharacteristics segmentation. otherforms of business Wincl and Cardoza advocatea two-stageapproachto indr-rstrial microsegments.l etnd of rnacrosegments that consists segmentntion charof key organizational consist thatmacrosegments They explair"r Industrial suchas size of the buying firnt, SIC (Standard acteristics factors(see andusage location, geographic category, Classifrcation) primarily based segmentation single-stage 5). In somecases, Chapter
6I

62

HAIVDBOOK OFMARKET SEGMEIVTATIO]V

on business detnographics is sr-rfficient for iclentifyingand teugetilg markets. More typical,however, is thata two-stage approach thatwii employ benefits(seeChapter6) ancl organtzational psychographies and purchasingcriteria (see Chapter7) will be neeclecl to provicte cornplete marketprofiles. Finnographic segmentation beginswith geographic factors. Geographicanalysisis one of the simplestrnethods fo1 clividilg markets into possibletargetsegments. Regionalclifferences can greatly impactpurchasing behavior andprocluct consumption. Geogrlphicsegmentationbases, market areadefinition,anclusing the belsus B'reau'sbusiness informationprodr-rcts are the key issuesdiscr-rssecl in the first part of this chapter. Major business demographic variables-i.e., age of the firm ancl stageof the prodr-rct life cycle, financialfactors,market size, (bLrsiness)ownershipfactors,and industrystructure-are the focusof the secondpart of the chapter. Due to their strategic irnportance in br-rsinesssegmentation, particular attention is paiclto two incl-rstry structure/business type classifications: NAICS (North Aperican Industrial Classification Systeni) codesancl NACE, a European tzrxonomy. GEOGRAPH I C SEGM EN TATIOIV BASE S Thereis no single,bestrnethodfor geographically segrnentipg the market.Factorsto consider includethe marketyou are cornpeting in, available corporate (assets, resolllces capitzrl, personnel, and tech'ology),competitors'strategies, flexibilityin thernanipulation of themarketing mix variables, and the firm's operating philosophy. Major geographicsegmentatiott dimensions can be gror-rpecl into two categoii.r, marketscopefactorsand geographic marketmeasllres, as follows. Market Scope Global Scope

Is yor:rnrarketing strategy designecl to be worldwide,international regional (e.g., LatinAmerica or Asia),selected courrtries (e.g.,Can-

gr aphics ogr aphicsand F irm.o Ce

6s

marketonly? An interesting aclaor UniteclKingdorx),or dornestic view of North Arnericastatedthat therewere "nine nations"rather thanthree.Thesenations(andtheir capitalcities)wereIslands(Mi(Kansas City), Quebec Breadbasket ami), Ernpty Quiirter(Denver), (Boston),Dixie (Atlanta),Ecotopia (Qr,rebec City), New E,ngland (LosAngeles), andFoundry(Detroit).2 (SanFrancisco), Mexamerica-t their marketingand Many high-techanclindustrialfirms organize to the usual North In acldition salesefforts by worldwide regions. Asia Pacific,and Latin Americandivisions, American,European, an ROW ("restof the worlcl")designaBayer Llse suchzts companies marketopportunities. tion to refer to otherinternational g iortal Scope ortctl/Re Nctti may go afterthe entirecouncompanies Within the UniteclStettes, or metstates, (Southeast or PacificNorthwest), markets try,regional alsohavesimilaroptions companies Non-American ropolitanareas. province; French-speaking (e.g.,Western Canada; available Qr,rebec etc.). Vancouver, Montreal,Toronto, major citiessuchas Catlgary, Local Scctpe andl codes, cities,townships,ZIP includecounties, Local markets Co. has As Anexarlple,New SouthConstruction or neighborhoocls. in 1990 to $65 million a decade grown from $4 nrillion in revenlles work,privateschools, corporate on airportproiects, laterby focr-rsing in and aroundthe Atoffice bLrildings privateclubs,anclindr-rstrial lantaarea.3 Geograplic Murket Me crsures ssific ati orts Census Clct StaAreas(MSAs),PrimaryMetropolitan Statistical Metropolitan MetropolitanStatistical tistical Areas (PMSAs), and Consolidated breakAreas (CMSAs) are souteof the more importantgeographic

64

HA]V DBOOK OF MARKETSEGM EIVTATI OIV

downsU.S. mat'keters needto be familiarwith (see Box 4.1 for a further discr-rssion of U.S. Census classifications). From 1990to 2000,the five fastest-growing states were all locatecl in theWest:Nevada (66percent), Arizona(40 percent), Coloraclo (31 percent), Utah (30 percent), andIdah o (29percent). Overall,California registered theIargest numericincrease--4.1 rnillionpeople. Also, all ten of the fastest-growing metropolitanareaswere found in the Southand West.a Stcmclardizecl M cLrket Are a M easures The use of standardtzed market areasis often a useful first-cut approachto segmentation. Leadingrnarketing research companies have designatedgeographicmarket areasfor media coverageancl other

BOX4.1.CensusGeography
According to the Bureau of theCensus, an areaqualif iesforrecognition as a Metropolitan Statistical Area(MSA) in oneof twoways: iiit is a citywithat least50,000 inhabitants or an urbanized area witha totalmetropolitan population of at leastl oo,ooo (75,ooo in NewEngland) In addition t_othe (the"central county county") containing the largest city,an MSA also includes additional counties ("outlylng counties") having strong economic andsocial tiesto thecentral county, determined chiefly by the extent of the urbanized areaandcensus data on commuting to work. An MSAmaycontain more thanonecitywitha population of 50,000 and maycrossstatelines. lf an areahasmorethan1 million people and meets certain other specified requirements, it is termed a Consolidated Metropolitan Statistical Area(CMSA). Thisconsists of major components called Primary Metropolitan Statistical Areas(PMSAs). As of June30, 1999, pMSAs, there wereeighteen CMSAs consisting of seventy-three and pMSAs, 258 defined MSAsin the fiftyU.S. (oneCMSA, states three andthreeMSAsmaybe foundin Puerto Rico). source:u.S. censusBureau, Population Division, Revised August2, yax 2002.For furlher information contact LauraK. at <www.census. gov/pop ulatio n/www/est imates/a boutm etro.htm|>.

k ogr aphics and F irmn graphics

65

studies.Arbitron'sAreas of DominantInfluence(ADIs) and A.C. Designated MarketAreas(DMAs) aretwo suchexamples. Nielsen's an The thirty-twoNationalF'ootball citiesrepresent Leaguefranchise of alternative schemii for iclentifying largemarkets(with the exception penetration indexes cern be GreenBay,Wisconsin). Geographic market readilycomputed to compare specificmarkets to nationalaverages. itv ttnclClintate-Relcttecl F actors P opulationD erts levels Urban,suburban, or rural markets revealpopulationclensity beand other relevantmarket characteristics that relateto purchase havior.Securitydevices arepoplllarin inner cities,while rural marfarm equiprnent. kets are likely to pr,rrchase Defining Market Areas geogrelphic providea basic marketmeasures The marketscopeancl Llponwhich geographic frameworkof the most corruronclimensions are not mutuallyexcan be based. The categories marketdecisions Within sorne classifications, nrorethanonevariable however'. clusive, bases shouldbe andseveral forrls of geographic be examined, shor-rld to meixir\rzethe value of the marketinginformation.How assessecl (You shouldreview Segdo you defineyolrr marketgeographically? point.) 4 as a starting Skillbuilcler mentation face is how to define decisionthatall cornpanies A rnajorstrategic Many optionsarepossirnarket areas. and bestservetheir geographic comthe giirnutfrom the globalview (themr-rltinational ble, spanning SegAs Business owner). patny) to the local view (thesmallbusiness firms freqr-rently leadingphannaceutical Insight4 explains, mentation meukets. as a basisfor segmenting geographic sales territories Llse marketers cem benefit their marlcets, business To betterunderstand tradearea area(PTA) and secondary by identifying a primary tracle For (STA). Sometin-res, evena tertiarytradearea(TTA) is desirable. based in Jacksonville, example, an industrial pumps distribr-rtor of might defineits rnarket as primarilyregional(65 percent Floridet, national U.S.states-its PTA),25 percent frornthesoutheatstern sirles (TTA). (STA), and l0 percent international

66

HAI,,I DBOOKOF MARKETSEGM EI'{TATI OI'I

SEGIVIEN'IATION SKILLBUILDER 4 : DEFINING GEOGRAPHIC N{ARKETS

Usingthe geographic segmentation insights described in this chapter, how cloyou presently yollr market? clefine Are thereothergeographic approaches thal you arenot Lrsing br-rt Lrse? Here aretenissues shoulci to ponder: L 7. 3, (If not,go to clurestion Do you compete internationally? 3.) Are your products worldwideor to selec[ed marketed nations/ regions? Specifycurrenlandproposed nlarke ts. Are yourproducts soldin two or moreU.S.states? Specifycur(If you do br-rsiness rent andproposed regions/states. locally or in a single s t a t eg , oto question 9.) What CMSAs, PMSAs, anclMSAs are you targetingno'wot' thinkingabouttargeting? Are you Lrsing ADIs or DMAs to deflnenrarkets'l

4. 5.

(Lrrban, 6. DoespopulaLion clensity yolrl' suburban, or rLlral) inrpact geographic nralltctdellnition? l . Doesclimafeaffectyour geographic marrket ciefinition'? 8 . How do regionalfirctorsimpactyollr rnar'liet? 9 . Are your proclucts sold locally?Specifycurrentancl proposed counties, cities,townships, zrnd/or ZIP cocles. t0. Haveyor:identiliedpriniary,secondary, and/ortertiarytradeareas? BUSINESS SEGVIEN'TATION INSIGHT 4: HOWA NIA.IOR PHARN,IACEUTICAL COIVIPANY USES GITOGRAPHIC ANALYSIS TO SEGNItrI..{T SALBS ITS I\,IARKETS One would haveto describe the segnrentation apploach at a maior (MPC) ascon[i]ruiilly pharmaceutical company evolving. Originally,the entirebasisof segrnenta[ion wasthatof geographic distinctions. The design wassirnpiyto overlay thenumberof available sales tenitoriesto the entirecollntryproportional to thenumberof physicians in the target fitflrket in eacharea. This approach had the dualadvantages ol'keeping sales forcecostslow (redLrced ravel) anclirn in-depth knor,vledse of the local marlceting situation.

Ge ogr aphics and Firmngr aphics

67

The rnarket. target d in thegeo*eraphic werenot include All physicians mosf likely to prethe type o['physician portlolio cletermined prodLrct physifhe typicalterritoryinch-rcled ConseqLrently, scribethe proclucts. (pediatriprimarycarephysicians clepartments, ciansin certainhospital cians,tamily practice,internalmedicine,aucldoctorsof osteopathy), ly ignore safe MPC coLrld andurologists. enclocrinologisLs, cardiologists, that the prime, the rest of tire physicianmarketand be relativelysr-rre werebeingcovered. of the rnarket mostprofitablesegltents lorce to call a portiorlof its sales o1divicling MPC beganthe process partners. that would likely alffactcomarketing on importantspecialties call costtheycoi1ld to MPC was tlratfbr little aclditional Tlie zrdvan[age revenLle and profitability. and greatlyenhance on the sAmephysicians on cettain based began to setttp territories lore, they secluentially There specialty Tlie first wasthe cardiology specialties. physician ancl hospital of'years, and in ii sttccessiotr endocrinology, group,Then they addeci werecovered. otherspecialties that revenue worhedwell. The additional strategy This sognlentation that,perhaps, led to theiclea into theconrpany hrought agreernents these outcompanies by buyingthe originating moremoneycould be rnade The salcs was pul'sr-red). strategy iicquisitions a corporate right (hence, by outResearch one-third. lry approxirnately forcewas now expanclecl fonnclthat it would be bestto haveeachprinrarycare consllltants sicle and thendivisionalize drugs, three) lorce sell four (in somecases sales o1'MPCto call on prin,iary in ninedivisions force.This resultecl the sales force,the specialty to theprinrarycaresales In adclition carephysicians. in intensive . This resulted in size expanded werekeptintactancl clivisions tal3etmitrket. of thc intertclecl coverage for a blockbustet agreenrent of a comarketing With the introcluctirtn to call on allerfiorce sales an allergyspecialty MPC setr-rp dmg procir-rct, of the most prolitablepotential ices.An exarnination gists in their ol'f certethat growth in this pharmaceutical ho'uvever, alignmentrevealecl, antihista( l) usage o1'prescription by threekey factors: gory waslin-ritecl (2) tlie useof asrapidlyas hadbeenanticipated, mineswasuot gr-owing (OTC)mar(3) thegrowingover-the-counter Ancl increasecl, sprays nasal wererapidlyexpandirigclasso1clrLrgs ket. At the sametime, another pain, and relaledsynfor arthriticsymptoms, COX-2 Inhibitors(r-rsecl it was deof'thismarket, the growthpattern After examining clromes). to redeploythe allergysiileslorce to the COX-2 Inhibitor sales ciclecl

6B

HA.V DBOO K OI" MARKET EIYTATI SEGXI OAI

fbrce.This ledeploymertf meantthesame couldlreirllocated resoLlrces to a much faster-growing market.This lepositionin-e slrpported two MPC "stars"basedon the BostonConsulting prodr-rcts considcrcd Group's matrix,i.e., a largemzu'ket strategic in a fast-growth share market. In addition to thissegmentation by geography andspecialty, MPC uses microsegnenfaLion withineach of these categolies. Tl-re abilityto sortphysicians by any numberol'parameters hasevolvedto a ljne degree. Siiles (aud representatives anyone elsein thecompany 1orthatmatter, e._e., distt'ictmana-qers anclmalketin-p ntanagers in the regiona-rl anclhomeof ices) cansimultetneously (whichis deflned sortphysicians in anyten'itory both geographically and,bytype of-physician) parzrmelers: accordin-e to these speed of adoption o{'newdrugsin a particLrlar class, r-rse of managed care versLls f-ee for service, amount ol'use in thedrr,rg class, antoltnt o1'nse of the MPC clmgheingconsiclerecl,ZlP cocle, ancl anrount of useof theclrr.rg category relative to all otherdoctors. Usingan Excelspreadsheet with rnacros enabied, tlte sales l'epresentatives needonly specilywhich parameter to sortby fl,rst, and thensecond and thenthird.Cun'ently, the maximumis threesimultaneous sorts. This sorting process is dynamic andnewupdates arecontinLrally atdvin-{via electronic dolvnloacls lo laptops. Consequently, the sales replesentative at MPC hastheability [o maxirnize tirle with the pltysician-cLrstomers who havethepotential andlikelihood to dramatically increase sales andplolits. Source: Contributed by G. H., a sales memager with one of the world's pharmaceuticaI largest companies. He requested thathis company name not be identifiecl in this segmentation application, hence,the MPC designation.

TAPPII{G CEIVSUSPRODUCTS FOIT GEOGRAPHICS AIVD B USI I] E SS D E M OGITAPH I CS It hasoftenbeensaici thatthe business world is a jungle.Perhaps that meansthat yolr needto add a TIGE,Rto your side.The TIGER (TopologicallyIntegratedGeographic Encoclingand Referencing) system is oneof tl"re Census Bureau's newerancl rnor-e innovative services;it provicles cornputer-readable nrapping andar geographic databaseon a statewicle basisand for the entir-e lJnited States. Plotting geographic coorclinates, TIGER serves as the underliryfor acldress/

ogr aphics and F irrut gr aphics Ce

69

etc.)thatresultin high-qr-raleconomic, clenrographic, dirta(e.g., areel ity, cligitalmaps. Here are some rnarketingand geographicinformation system and defor the TIGER system.Direct marketers (GIS) applications can greatlybenefitfrom TIGER. For exbusinesses livery-intensive to destinations locatetheir targetecl can eatsily 1mple,FeclExclrivers andecisions, for siteselection TIGER is alsovalr-rable faster. cleliver subscriber traclcing routes, settingup clistribr-rtion areas, zrlyzingtrade Futureenpromotion(e.g.,direct rnailings). ancltargetecl services, behavioral of detnographics, throughthe incorporation hancements datacan make TIGtrR evenstronger Llsage and procluct approaches, for rnarketsegmetrtation. yoll might Silce TIGER/Line files requireftrrtherdataprocessing, to generate using a "TIGER trainer" (specialist) werntto consicler yollr maps. Dozens of vendors,such as Claritas,a demographic TIGER files.For furtherinformato process havethe caparcity leacler, censlls business list and otherreleveut tion on the TIGER resoLlrce Bureau(a divisionof the Departcontactthe U.S. Census proclucts, (4636), <www.censlls.gov>' at (301)763-INtrO rnentof Commerce) or e-rxail<tiger@census.gov>. prodBureausellsnon-TIGERrnapping the Census For exatmple, afea wall nlaps--great for plotting geographic ucts. Metropolitarn for $16.A set marketpenetratisn-nrsavailable ancl territories sales pagemaps(8.5"x I I ") for all the states area of fifty-twometropolitan andPuertoRico costs$25.Thesemay the District of Colr-rrnbia ph-rs online in PDF form via the Adobe AcrobatReader. be viewecl everyfive yearsendare clisseminated Censusproclr,rcts Business of reports ing in 2 ttndl (1991 ,2002,2001,and so forth).Hundreds DVDvarietyof formatssuchas CD-ROM, diskette, arefor salein a-r typically rangingfrom about $30 to $200 ROM, anclpublications Web site and (rnostare about$50 or so).In additionto the Census abouteconomic on materials queries earlier, phonenumberprovicled The to <econ@census.gov>. can be clirected sta-rtistics ipcl business for businesspeople. of serninars ar series Bureaualsosponsors Census (consult the latestancompanies many clen-rographic Ip aclclition, for a deMurketing ToolsSourcebook nualAnrcrictutDentogrctphics'

70

HAIV DBOOK OF MAKKETSEGME]YTATI OIV

tailedlist of leadingindustrysr-rppliers) offerCensus-based etnd other geodemographic products. Microsoft'sbCentral.com Web site is a recententrantin the online demographic datamarket,a sectordominatedby Claritas,SRC, and Maplnfo. As parrt of its nichemarketing strategy, Microsoft views the 5 rnillion Americanbusinesses with fifty or fewer employeesas an attractivetargetrnerrket,-5 County and stateplanningagencies can alsoprovicle usefulmaps and demographic infortnation.A forrner small business client of mine obtained an armfulof reports, rnaps, ancl publications statistical from the Miarni-DadeCor-rnty (Florida)PlanningDepartrnent for under $50. This informationwas vital in making future strategic ntarketingdecisions for his business with respect to siteselection, market definition,segmentation, prodr-rct mix, andpromotior-r. Also, let us not forget computerrnapping, which has becomea popr-rlar tool for marketanalysis. To get started yon need in rnapping, a qualityPC,printer/plotter, cartographic database, demographic database, and softwArethat links therntogether.6 Box 4.2 llsts ten im-

BOX4.2.Computer Mapping: KeyQuestions

1. Whattype of system is appropriate: PC-based, mini,or mai nf rame? 2. Whattypeof software is provided? 3, Howgoodis the quality of thefinished maps? (theability 4. Are zooming to blowup the picture) procapabilities vided? 5. Canyou addyourowndatato the system? 6. Howflexible is the output? 7. Howeasyis the system to use? B. Canyou "test-drive" the system? 9. Howmuchsupport is provided by thevendor? 10. Howmuchdoesit cost? questions Source: Several are adapted from the list developed by Marci L. Belcherin MarlhaFarnsworlh "Computer Riche's arlicle Mapping TakesCenter Stage," American Demographics, June1986, p. 30.

s and F irmngraphics ogr aphic Ge

71

ask when thinking about a compllter yoll shor-rld portantquestions system. rnapping FIRMOGRAPHICS havebeenspecifiedand batses The next step,after the geographic variables. demographic of relevant ze abattery is to anaiy cleterminecl, firmographicsare alnong the most Realize that geographicsalncl markets. in indr-rstrial variables widely usedsegmentation in companies usedby leacling variables of segmentation In a str-rcly was the tnostpopular SouthAtiica, it was reportedthat geographics rate,and buying situation Llsage (87 percent). Demographics, berse (alsocalled Application/use place(62 percent). were tieclfor seconcl werethe third mostcommonly andvalues psychographics, enclr-rse), and (50 percent).Beneflts,purchasingorganrzation, used varii'rbles by thesecompanies.T usecl wele infreqr-rently other variarbles debusiness a wealthof relevant publishes The U.S. government rnographics-e.g., U.S. BusitiessCensusReports (Construction, Manufacturing, Mineratl Industries,Retail Trade, Transportation, Coruttl' reports by stelte, Tracle,etc.), businesscenSLlS Wholeseile agencies so forth. Local, county,anclstarte Puttents,aincl Brtsiness the federalpublications. nicely allgment in themix sector roleof theprivate Also, clonotforgettheprominent (D&B) reDun & Bradstreet (Dtut's Census rf Anrcrictm Brtsirtess, (JSA, of the USfor Business Mctrkets ports, Hoover's,Mcmtrfctcttffit'tg software Powe6etc.).D&B's MarketPlace Btn'ing Pltumers,Strrvel,of thathasbeenwidely mailinglist service ancl database is a cornbination MarketB2B marketers. praisedby many small and medium-sized More of over 10 rnillionU.S. businesses. D&B's database PlaceLlses allowingtarget areprovided, for eachbusiness elements thanforty clata etc. key personnel, marketingby location,size,industry, gntentutiortBuses Bttsiness Se are sirnilarin conceptancl or flrmographics clernogrerphics Business (see 4.I). Table butvaly in purpose clemographics to consumer plupose

72

HA]Y DBOOK OF MAKKETSEGM EI,|TATI OtV TABLE 4 . 1 .B u s i n e sv se r s u s Consume D re m o g r a p h i c s

Demographic

Category
Age and stage(of life cycle)

Business Demographics

Consumer Demographics

Number of years firmhas Agedistribution; familyl been in business; staqe household lifecvcle of producVindustiy lifd cycle profits; Sales; market share Income; occupation; education

Financial factors Marketsize

Number of potential Population; number of customers; number of households/families; locations, plants; household/family stores, size number of employees Own or leaseestablish- Homeowner versus plant, ment(store, office, renter; typeof dwelling; warehouse); own or lease household mobilitv/staproperty and equipment; bility length of timeat facility

Ownership factors

Industry structu relsocial MarkeVindustry position to upper; Lower-lower class high-tech versuslowgeodemoupperclass;

tech;goods, services, graphic/lifestyle clusters information; NAICS/S lC/ (suchas PRIZM) NACEcodes

The length of time a firm has beenin br-rsiness and the stageof its industry/prodr-rct life cycle can be usefr,rl segmentation dirnensions. New colxpzrnies do not haveestablished relationships with vendors and can be good targetsfor computerequipmentdistributors,accountingand law firms, and a rnultitr-rde of otherproductsor service providers.Growing colxpanies arein an expansion modeand areripe for major investments in plant and equipmentandmarketing/prontotional services. Maturecornpanies makesizable purchases but often havewell-entrenched relationships with sellers. Firrnson the decline will cut back on their spending and buy selectively in categories relevant to their business sitr-ration, e.g., imerge-based pr-rblic relations, specialized management consultants, etc. Targeting customers based on sales volumeis a commonapproach usedin business markets. Large companies havedifferentneedsand purchasing policiesthan their smallercounterparts. In one study of industrialhigh-techcornpanies, a nationalsamplewas divided into

ogr aphicsand F irrut gr aphics Ge

a.) (J

small (lessthan$10 million anon salesvolLrme: two grollpsbasecl Otherstudsales). (over$10 million annual nonsrnall ancl nual sales) to $300 million flrms as $ l0 n-rillion ies may iclentifymeclium-sized exceeding $300million.Analyses with largecompanies in revenues, can also be insightful in seby client profitability or market sherre lectedsitr-rations. (SBA) publishessize Administrertion The U.S. Smalt Business as well as revenlles. basedon the number of ernployees standards procurement for loan or government While theseare typically r-rsed marbusiness in segmenting they ciin alsobe informative programs, was 500 employbreakpoint the small/nonsrnall kets.Traclitionally, Sometemporarysersector. this may vary by inclr-rstry ees,althor-rgh havingtwentyor microenterprises to target may choose vice agencies or sitesthat an Similarly,the nuurberof customers fewer ernployees. markets. hasmay be usedto segment organization For exdecisions. canimpactpr,rrchase fatctors ownership Business at but is operating ample,considera factorythat owns its equipment opportuMarket segmentation only 60 percentproductioncapacity. markets,cttstomizinternational new proclucts, nities lnay consicler goodsfor othercompaationfor key clients,andevenmanufercturing niesunderits brandnat:ne. sectorsor nornls (e.g., business structurevia acceptecl Inc|-rstry business andgenerahzed versuslow-volumemachines) high-vollurre havebeen a mainstayof industrialrnarketers systerns classificartion InStandard for years(the latter is our focus-see the next section). by the (SIC) codes haverecentlybeenreplaced Classication dr-rstrial Systern(NAICS) in the Claissification North American Indr,rstrial hasalso NACE system Mexico.Europe's ancl Canacla, Ulitecl States, merrketers. receivedattentionbv inch-rstrial I,IAICScutdMCE Classification Industrial SIC-hello, NAICS! Star-rdard Good-bye, wererewell for manyyears, marketers business which served cocles, by a more ongoing) with changes tn 1991, (theprocess begirn placecl SysClassification relevantsystem,the North AmericanIndr-rstrial

74

HA]Y DBOOK OF MARKETSEGM E]VTAT I OIV

tem. SIC cocles, itt existence for riore than sixty years,transitioned frotn a U.S. government statistical clata facilitatolto a customer/supplier tool for indr-rstrial marketing. SIC analysis providesa usefulfirst-cutapproach to business segmentation. For exanrple, a nationerl uniform sllpply cornpany reglllarly br-rys seven-digit D&B dataon computer tapeancl CD-ROM ancl targets channel endusers by indr,rstry type.Approxirnately 80 percent of its salesare rental r-rnifortns to lar-rnclries, l5 percentto enclLlsers, ancl5 percentdirect. OutwaterPlastics,a New Jerseyfirm selling formeclmillwork to br,rilders, rernodelers, and architects, reapedclramatic gains in new business via SIC analysis. Usingeight-digit SIC listsfrom D&B Marketplace software(iMarket,Waltham,Massachusetts), Outwatercloubled theiroveralldirect-rnailing response rateto 2.14percent. In aclclition, the cornpany found a profitablenew nichentarketthatgeneratecl a 14 percent response rate.Overall,sales increasecl by 60 percent.8 In its currentincarnation, NAICS (rhymeswith "snerkes") is an evolving, responsiveinclustrycategorizatior-r tool that is useful for segmentation, forecasting, marketshare analysis, research, andplanning. There are several, notableirlprovemeutsof NAICS over SIC. There are twice as many major indr-rstry grollp sectors (seeTable4.2 for the list of tltese twentycategories). Thereis a much stronger emphasison the ltew econorly,reflectedby the inclr,rsion of nterny new services andtechnology sectors. This results in a morecletailed directory consisting of 1,710industries-358 of theseal'enew and250 of themareservices proclucing.9 For example, the new Information sector, which was not represented in the SIC rlanual, is cornprisecl of rlore than fifty subsectors. The resr-rlting six-digitmarketiclentifier', the NAICS cocle, replaces the basicfour-digitSIC cocle (an exarnple is providedin Table4.3). Finally,the NAICS systemis regionalin scope; Canadiern anclMexican indr-rstry analysisis br*rilt into the framework. The beautyof the NAICS systetn shouldbe its widespread acceptance(note,SIC analysiswns a staplepart of indr-rstrial marketer's toolkits for many years).Many rnarketing references, both public (Censr,rs Bureau)andprivate(sr,rch as Dun & Braclstreet ancl Inforrna-

s hics anrJF irmngr rt'phic ogr a1t Ge T A B L E4 . 2 . T h e N A I C S S e c t o r s

75

Code Industries 1'1 21 22 23 A N DH U N T I N G FISHING A G R I C U L T U RF EO , RESTRY MINING UTILITIES CONSTRUCTION

RING FACTU 3 1 - 3 3 MANU W H O L E S A LT ER A D E 42 L RADE 44-45 R E T A I T 48-49 TRANSPORTATION 51 52 53 54 55 56 61 62 71 72 B1 92 Information A N DI N S U R A N C E FINANCE and Leasing and Rental REALESTATE Services andTechnical Scientific Professional, and Enterprises of Companies Management Services and Remediation WasteManagement and Support, Administrative Services Educational Assistance Careand Social Health and Recreation Arts,Entertainment and FoodServices Accommodation Administration) (except Public OtherServices ADMINISTRATION PUBLIC

System, Classification Industry CensusBureau,NorthAmerican Source: 19 9 7 . areasof the 1987Standard thefoundation formed letters in capital Note:Sectors C f ation. In d u s t r i a l l a s si c 4 . 3 .T h e N A I C SH i e r a r c h Y TABLE NAICSLevel lndustrvDescriPtion NAICSCode 51 513 5 13 3 51332 5 13 3 2 1

Sector Subsector group lndustry Industry U . S i.n d u

lnformation munications telecom Broadcasting, Telecommunications

satellite except carriers, Wireless
Paqin

htm>. aics. census.gov/epcd/www/n So urce: <www.

76

O]V ENTATI HAI,{DBO OK OF MARKETSEGM

will usethe NAICS codeas a basicdatation AccessCorporartion), rnultiplesources thror,rgh market analysis gatheringunit. Therefore, the use of recolnfflend is feasible.Anecdotaland scholarlyevidence and targetingbusiness SIC/NAICS coclesas tools for segrnenting assoand technological productcomplementarity Because marlcets. thesecodes in many suchcategories, ciation are clearlysignificant This approach offer a useful startingpoint for defining tnarkets.l0 may be especiallyvaluablewhen there are no strong demancl-side Furthermore,SIC analysis market boundaries. factors clelineatihg too naravoidthe errorof drawingmarketboundaries helpsmanagers rowly. a free servicea fast keyword providesars The NAICS association industry codes/ searchengine with over 19,000 "plain-E,nglish" NAICS prodat <http:llwww.naics.com/search.htm>. clescriptions (rnanr-rals, CD-ROMs, etc.) cost frotn US$35 to $200 atrclare r-rcts now availablefrom the following link: <http://store.yahoo.com/ html>.I 1 naics/ntisnaicman. however. The NAICS/SIC systemdoeshavesomekey lirnitations, infrequently-about evis r-rpdated reference First, the basicrnaster with clonot alwayscorresponcl procluct classes Second, ery ten years. (may be too broad or too narrow).Third, NAICS marketers'neecls geographicmarket data do not necessarilycorrespondto actr-ral all marketsareNorth Arnericanandneglect They assume boundaries. haschanged Fourth,the NAICS reclassification import competition. that may be importantin governsizestandards U.S. small business A final limitation is the nonment contractingand loan progran-ls. that This means publications. by government rule imposed clisclosure tnarketcannot in a geographic information for a sole establishrnent of yollrs,you wor-rlcl If thatfirm was a potentialcustomer be released. that conlpany. abor-rt to datafrom public sollrces not haveaccess and informais a convenient Although the NAICS/SIC approach that a rnajorityof hasfor-rnd research zittg markets, tive tool for analy do not usethis tool.l2Hence,edumarketers andinclustrial high-tech Also, detailed cation in how to effectivelyuse NAICS is desirable. In tnarketers. may be usefulfor business codingsystems proprietary bestusedasa secondary is probably form, NAICS analysis its current

Ceogr aphics and F irmogr aphics

77

dimensegrnentation with other indr-rstrial variable in conjr,rnction sions. systemis the E,uropean A secondmajor industrialclassification generale desactivites for "nomenclature Union'sNACE, an acronym as the Eurowhich translates E,r,rropeennes," dans les Communiiutes As Table4.4 Activities. of Economic peanCorununityClassification with ISIC (the United Nation'sInternashows,NACtr is consistent of all EconomicActivities). Industrial Classiflcation tional Standard The NACE systemis also evolving;for example,the United KingClassificationof Economic Activities dorn's Standard Indr,rstrial "operation200l " to be (SIC) is undergoing a rnajorrevisiondubbed with NACE,,ISIC; and its North American equivalent consistent to globalmarketers NAICS.I3This initiativewould be aclvarntageous can comparability Cross-national for data collectionand analysis. development. andstrategy segmentation help greatlyin inten-rational

SUMMARY can be utilized for segrnenting As you will see,many dirnensions includegein thischapter The basicoptionsdiscussed markets. business (firrnographics), and NAICS/NACE demographics ography,business cocles. marpoint for inclustrial is the logical starting analysis Geographic is low costandreadilyavailable. This information ket segrnentation. insightscan tell is on the rise.Often,geographic Regionalrnarketing bases Geographic patterns. purchase Llsa greatdeal aboutclrstomer or inch-rde miirket scope(global,national/regional, for segmentirtion (census stanclassifications, marketmeaslrres local) andgeographic densityanclclimateAndpopulation marketarealneaslrres, dardized basesIt is a good idea to use variousgeographic relatedfactors). and custsm-ts definetnarkets. starrdardized The U.S. CensusBureau and privatevendorsoffer good, basic proclttctsfor marketers.Computer mapping has geoclemographic for prosegmentation tool for business support asa valuable emerged explore important beThe next three chapters gressivecompanies.

A( O )
I

OIV DB OOK OF MARKET SEGME]YTATI HA]V

( N A C Er e v i s i o n Activities Classification of Economic TABLE 4 . 4 .E U Statistical l r a f 2002\ t 1 . 1 ,F i n aD Description hunting, andforestry Agriculture, Fishing Mining and quarrying Manufacturing and tobacco foodproducts, beverages, les/texti le p roducts texti products leather/leather products wood/wood publishing products, pulp,pap erlpaper and printing products, petroleum coke,refined fuel and nuclear NACE

rsrc
0 11 - 0 1 5 0 050-0502 101-1429 151-3720 151-1600 171-1820 191-1920 201-2029 210-2230

A 01-01.50 B 05-05.02 c 10-14.50 D 15-37.20 DA 15-16.00 DB 17-18.30 DC 19-19.30 DD 20-20.52 DE21-22.33

DF 23-23.30 231-2330
241-2430 251-2520 261-2699 271-2899 291-2930 300-3330 341-3599 361-3699 371-3720 401-4100 451-4550 501-5260

products and man-made DG 24-24.70 chemicals/chemical

fibres products rubber andplastic products mineral nonmetallic other products metal metals/fabricated basic n.e.c. machinery andequipment equipment andoptical electrical equipment transport n.e.c. manufacturing furniture, Recycling gas,andwater supply Electricity, Construction of motor repair trade; Wholesale andretail personal and motorcycles, and vehicles, goods household Hotels andrestaurants Transport, storage, andcommunication

DH 25-25.24 Dl 26-26.82 DJ 27-27.85 DK 29-29.72 DL 30-33.50 DM 34-35.50 DN 36-36.63 DN 37-37.20 E F G 40-41.00 45-45.50 4 50-52.7

H |

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benefits sLlchas prodllct Llsage, havioral segmentingapproaches purchaspsychographics, (common buying factors),organizational segof multiplebusiness The Llse categories. ing criteria,and adopter to providethe richestview of be consiclered mentationbasesshoulcl and targetmarkets. potential market segments

Chapter5

lJsageAnalYsis
of the for 80 Percent account Twenty percentof the custotners turnover.
(1911) VilfredoPareto sizeancl account typicallyLlse techlologycompanies ancl Inc|-rstriirl as An initiil basisfor identifyingand targeting classificarion inclustry theyoftenprovidelitWhile thesedataarereaclilyaccessible, markets. used(and areactually andservices goocls tle insightabouthow speciflc shor-rld analyses Llsage Therefore, by customers. how much are usecl) the maConsider climension. segmentation as a business be employecl may providebasic rine marketasLlcasein point.A fabric tnanufacturer acrylic fabrics for power anclsailboatcoversas well as higher-value' for insidethe boat.l seatcovers ..rrio,-r-,-clesigned alresollrce marketing, in strategic can assist Usagesegmentation retention,and proflt planlocation, relationshipbuilcting/cttstomer rnarketing Inc. GRI), a Minneapolis-based, ning. CnstomReseaich, to cut its customerbasein half yet triple its fi'n was erbre research periodendingin 1998' its profitsover a ten-year and dor-rble revenlles "surpriseancl uy practicinginclividualized This was accomplish.,t clients for three,lot.n high-volume/high-margin delight" marketing anclgrowingprofitablenew achand-picking (CRI's core partners), eliminatand systematically arnnually), $200,000 counts(averaging cr-rstotners'2 ing more thari 10b low-volutne/low-margin behavior(e'g',think about pr-rrchase yollr indivic|-ral If you anirlyze that gro..ry shoppingj,you will lotice that therearerlany products Many other items on a ."[uto, basisor in largequantities. you br-ry with a vastmajority (tensof thousa'ds) tesi frequently, yoLlpllrchase B1

B2

E]VTATI O]Y DBOOK OF MARKETSECM HA]V

is thebasisfor prodr-rct if everbought. This scenario of goodsselclorn on a based ancl tar-eeted areiclentified segments usagesegmentation: consulnptionlevels within a given market. cornpilationof prodr-rct may actdifferently alsorecognize thatindividuals Usagedimensions a purchztsFor example, or useoccasion. depending on theirsituation at the office and br-ryer f'act-seeking ing agentmay be a conservative, at home be an irnpulsivefree-spender.

EIVD USE AI{ALYSIS Argr-rably, a firmographicvariable(seeChapter4), with the end approach, Llse the final applicationof the productis the segmenting raw ntateriproductscan takemany forms,inclr-rding Indr-rstrial base. goods. The end useof the product als,work-in-process, and flnishecl (Is it a relatively insigdecision. hasa definiteimpacton thepurchase part or is it a critical componentof a nificant, perhapsreplaceable, machine?) and process can be useful for indr-rstrial A five-stepsegmentation components, high-tech markets.3 Producttype (systerns/eqr,riprnent, manufacOriginalequipment or materials) is the flrst consideration. (maintenance, repair, and overhaul turers (OEMs) or afterrnarkets cut. Stepsthree segmentation market,or MRO) provide the seconcl applications. Finally,gecustomer areSIC/NAICS levelernd andfor-rr factors,and br-ryer size completethe segography,common br-rying in business nreukets. mentation analysis . Input-outpnt This analysisis closelyrelatedto productend r-rse. passthrougha transactions recognizes techniqr-re that mostindustrial a coma series setles, By analyzing of intermediary channel of users. pany can more accllratelyfocus in on its actr-ral targetmarkets.Yot-t is being usedand by whom. now know how much of your procluct data are availablefrom such sollrces Such production/consumption Patterns, of CttrrentBttsirtess, Salesartcl as Comt4,Busirtess Suntey Departmentof CommercepLrblications, Marketing Managentent, firms. tradeassociatior-rs, and privateresearch

Ei' i;' '

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e:1!
gJj.

Analysis Usage

B3

tr
F] !t-.,

ai
E

r:;
F:i,

?l F.
r_i-

is a mr-rltivolume Mcuutfctctrtrers of Antericctn The Thonns Register Although most busindustrialmarkets. usefulfor targeting clirectory yoLl can find new cllstomers use it as a sLlpplysoLlrce, inesspeople the register,too. Let Lls assllmethat you developedan inthror-rgh jack to aircraftor automotive that was of interest coinponent dr-rstriai for yollr severaldozenprospects The clirectoryiclentifres procllrcers. area down by state, can alsobe narrowed searches Customer proclllct. The cocle,or specific worcls mentionedin company descriptions. to receive now availableon CD-ROM, allows yor-r Register; Tltorrtcts prosandtelephone print labels, adsby fax, view textualinformation, of your friendlyPC.4 pects-all frorn the conveuience USAGE SEGMENTATION patterns canbe mostinsightby consllmption rnarkets Segrnenting directrnarketmix. Sophisticated the customer firl for unclerstancling which and how ers Llsecustomerpurchaseprobabilitiesto assess marketing many catalogsto senclto buyers.Hence, differentiated repeat grollps:flrst-timeusers, for variollsLlser are needecl strategies customer By classifying and former LlSeIS. heavyLlSerS, customers, can defrequencyand variety,companies on Llsage basecl accounts for retainingand upgrading velop effectiveand profitablestrategies As Box 5.1 shows,there are rlany highly informative, customers. by that shouldbe considered analysis of usage low-costapplications management.

BOX 5.1.UsageSegmentCategorization
(categorized as HU, . Heavy, and nonusers former, light, medium, MU,LU,FU,and NU or A, B, C, D, andX) . HeavV (B0l2O rule) halfsegmentation . Users nonusers versus . ComPetitive users . Loyal customers nonloyal (degree) versus . Product/service by usergroup applications . Adopter leadusers laggards; followers, categories-innovators, growth rates . Geographic penetration indices, comparisons-customer

B4

HA]YDBOOK OF MARKETSECMEIVTATION

For example, a "businesspersons"'hotel may -grade clientsbersed on the numberof rooms bookedannr-rally. The key accounts are A 1 Lrsers; theseare large organrzations more than 500 room that reserve nights and conference facilities.A2 customers also book 500-plus rooms without the conferencearrangements. A third categoryof heavyLlsers is the'A.3 account; this is a solid,loyal customer thatgenerates 100to 500 roomsanntially. Llsage Descending levelsof B cllstomersare considered mediurnLlsers. Finally,C accounts represent light Lrsers. A C4 guestmay visit the hotel only oncea year. By classifying customers into Llsage categories, rlanagement can readily designappropriate strategies for each narket segment. The objective is to move customers Llpthe usageladder, wherepossible, e.9.,turn a Cl into a 85 or an A.3into an A.2customer. The impliczrtion of Lrsage (theheavy analysis is thatall buyers arenot equal;sorne users)are clearlymore valuablethan others. Medir-rm users(B cr-rstomers) form the solid for-rndation of a business. Revenue enhancement strategies suchascl'oss-selling or valueaddedservices can be used to keep thesecustomers satisfiedand grow their business. Regr-rlar telephone calls,e-mails,and personal sales callsaresuggested to stayin touchwith this _eroup. By knowing who the bettercustomers are (theAs and Bs)-thror-rghgeographics, firmographics, benefit studies,or behavioralreseerch-a profile of "typical Llsers" is established. This informationis very helpful in planning subsequent customer attracti on/conques t marketi ng efforts. Realize thatthernarketing information yoltrdatabase, system, playsa pivotal role in customeranalysisand decisionrnaking(this is discussed nearthe end of the chapter). For unprofitable (generally customers the C accounts), cornpanies must find new, low-cost ways to servethern effectively.Computer technology suchas Web sitesor Web catalogs can be usefulin this regard. Occasional contact(perhaps qllalterly)via directmail, e-mail, e-newsletters, remincler postcards, and phone calls maintainsadequate colrllnltnication with low-volumeusers. In somecases, it is advisable to sever therelationship with unprofitable custorlel"s. A goodundersterncling patterns of purchasing helpsfirms keepcllstomersand gain a largersherre of their business. Shareof custorner

iit:

F-'
6-t

s!.f' H.
e:

Analysis Usage

B5

!;

market has sllpplanted (an important custolxerretentionmeasure) attractionobjective)as the relevantperformance share(a cr-rstolner markets.For example,if a companyis in many business climension from 20 to 30 percent, shareof business a cllstorner's ableto increase irnpacton marketshareand profitability. havea drzrmatic this cern is a helpanclmonetaryvalue)analysis frequency, RF'M (recency, Recency and loyalty patterns. Llsage customer ful tool in evaluating frequencyassesses or trarnsaction; serviceencounter refersto the larst occur; and experiences how often thesecustomercontact/company or commitinvested, that is spent, monetaryvalueprobesthe amor-rnt A few years for the flrm's productsand services. teclby customers about $75 worth of brochurematerials ago, this author pr-rrchasecl project.This firm for a one-timeconsr-rlting from a clirect-marketing placedour writer into the preferredcuseagervendorimmecliately aboutevcatalogs him expensive sending and began tornercategory ery threeweekswithout any follow-Llporclers. that this is not sound marketingpractice RF'M analysistells r-rs "tryers"asbestcllsall one-time treats essentially sincethiscompany fared poorly on all of the critical tomers.Note that this transaction (a sin(three-plus yearsago),frequency RFM dirnensions-recency (relativelylow). vah-re and tnonetary gle purchase), analyvia Llsage is to classifycustomers A more effectivestrategy marketingapdifferentiated and clesign sis (as previouslydescribed) lor eachtargetmarket.According to Rttst, Zeithaml, and proaches internallyas the good,the its cttstomers categorized Lernon,FeclE,x on profitability.Thesemarketingscholars bad, anclthe ugly basecl system(seeBox segmentzrtion four-tierLlsage proposea generahzed,

5.2;.s
acretention itr customer cangreatlyassist analysis In surn,usage Llpandkey accounts, Think abouthow to "hold" heavyLlsers tivities. graclelight anclrnedium users,burildcustomerloyalty, understand selling appropriate Llse expectations, buying motivesto meet/exceecl grollp, win back "lost" cttstomers, Llsage targeted for eaich strategies to a valueproposition. are not responcling ancllearn why nonllsers in(CRM), an expensive melnagement relationship Note,customer for by largecompanies is alsofrequentlyr-rsed formationtechnology,

B6

HA]V DBOO K OF MARKETSEGM EIVTATI OtV

BOX5.2.Customer Tiers
1 . Platinum Tier-lhe company's mostprofitable customers, typi-

pricesensitive, callyheavy users, notoverly willing to invest in andtry newofferings, andarecommitted customers of thefirm 2. Gold Tier-profitability levelsnot as high as Platinums, seek pricediscounts, lessloyal, vendors anduse multiple 3. lronTier-essential customers whoprovide thevolume needed to utilize the firm's capacity, butwhose spending levels, loyalty, andprof itability arenotsubstantial enough forspecial treatment 4 . Lead Tier-customers who costthe company money, demandi ng moreattention thantheyare due given theirspending and prof problem itability, sometimes customers whocomplain about the firmandtie up resources Source:Adapted withthe permission of TheFreePress, a Division of Simon& Schuster AdultPublishing Group, from Driving Customer Equity:How Customer LifetimeValuels Reshaping Corporate StrategybyRoland T.Rust, Valarie A. Zeithaml, andKatherine N. Lemon. Copyright O 2000Roland T. Rust,Valarie A.Zeithaml, Katherine N. Lemon. All rights reserved. business Llsage analyses. y, this rnr"r Unfortunatel ch-hypedalternative hasbeencrtttcized recentlyfor promises unftrlfilled,i.e.,not being an effectiveandprofitablecorrmllnications system with customers. As a result,the CRM business has experienced decliningsales, ongoing (An in-depthdiscussion consolidation, and r-rnhappy end users.6 of CRM is beyondthe scopeof this book.)

COAICEPTUALIN A{GAIVD OPERATI OIVALIZI NG USAGEDIMEI{ilOIVS Usage analysis (how consists of two components: Ltsage frequency often the productis r-rsed) and usage variety(the differentapplicationsfor whicha product is used).7 Forexample, two account executivestnaybothusetheirlaptop computers three hours daily (same usagefrequency). Onesalesperson mayonlydo e-rnail andcallreports, while the otherprepares clientproposals, analyzes financial spread-

AnaLysis Usage

B7

projects, as well as e-mail and call reports(greater rlAnAges sheets, variety). Lrsage to it is first necessary patterns, on Llsage To analyzemarketsbased An often-used categories. into specificconslrmption classify Llsers verslls versllslight Llsers mediumLlse,rs versus Llsers methodis heatvy yoll probably For example, good or service. for a parrticnlar nonllsers axPrinciple.This business rule,or Pareto arefamiliar with the 80120 iorn statesthat approximately80 percentof your salescome from aboutB0 (also,notethat generally only 20 percentof yoltr customers or servicesofpercentof salescome frorn 20 percentof the goocls areandwhich prodfered).Hence,knowingwho your bestcllstomers edge. ncts are yollr fast sellersoffersyoll a tremendolls,marketing that26percent revealed analysis Inc.'susage Consulting, Strategy for 84 percentof its (long-termclients)accounted of its business (mergers and acquisiof its revenues 22 percent profits. In aclclition, projects(33 pertions) yielcled87 percentof its profits.Operational were found to be a losing propositionfor the cent of its revenlles) futureinquiriesin this areawerefarmed and,subsequently, company, of examples detailed Two additional, consultancies.8 out to specialist the effective use of ABCD analysisby Novartis Genericsand the Segmenin Br,rsiness presented erre principleby FastIndr,rstries 80120 tationInsight5. basesinceheavyusers to defendyour corebusiness It is essential These to key competitors. targets (A accounts) areprimary attraction promotions, reqllirefrequentadvertising, hi ghly profitablecustomers efforts. calls,and ongoingcolnlnllnication and sales your very bestcllsservicemarkets, and professional In business rankon customer based askey accounts be earmarked tomersshor,rld volume minimumsales customers), ing (e.g.,the 100mostirnportant or marketshare(e.g.,an level (e.g.,$1 rnillion in annualrevenlles), Four helpful of the totalbusiness). 1 percent exceecls annualaccount (KAM) are offeredby Mcfor key accounttnanagement gr-riclelines in Box 5.3. Thesearesllmrnarized and Roeers.9 Donalcl

BB

HANDBOOK OF MARKETSEGME]YTATIO]Y

BOX5.3.Guidelines for KeyAccountManagement (KAM)Programs

-l

t.

Partnership KAM should be the goal. Threeto five-year contracts and up to fortyperformance criteria can be established. Partnership KAMsimprove processes, quality, increase andreducecosts.

2. Individualized client plans strategic marketing areseldom done but mostsuccessful. Areasto develop include, but are not limitedto,achievements, customer value, problems, costsavings, andopportunities. 3. compensation plans thatworkbestfor KAMpositions are5i to percent plusbonuses BO salary tiedto specific criteria thattake a long-term view. 4. Otherrelevant planning/implementation issues: . Do a SWOT(strengths, weaknesses, opportunities, threats) analysis for eachkeyaccount. ' Assess the degree of entrenchment withthe client (potential for switching). Design program. a relationship management Thinklong-term contracts. growth Consider prospects. "others." Findsimilar Measure timecommitment withtheclient. Understand salesand nonsales (advice, functions installation,service, support, etc.). . Givekeyaccounts special treatment/status. . Communicate regularly withclient. . Provide value-added initiatives. Source:Adapted fromMalcolm McDonald and BethRogers, Key Accou nt Manage ment(oxford, Eng land: Butterworth-Hei neman n, 1gg8).

Usage,Analysis INSIGHT 5: BUSINESS SEGNIIINTAI'ION APPLICATIONS USAGI'SEGNIENTATION Example 1: lVovartis Generics

B9

world's is oneo1'the company, a European The NovartisCorporation, a key divisionin Generics, |r{i11r.'i;tis pharmaceuticals company.l0 largest in usis a strongbeliever fir:ms like manypharmaceLltical the company, miixim in thepharmaceuThe 80/20ruleis a well-accepted ageanalysis. of'thedoc20 percent it is known thatabclut For example, tical industry. overall,andwithin selectecl of prescriptions torswrite about80 percent cs. Lrct cal"csori plocl doctors classifies gr"id, Generics Novartis Usinga2 x 2 segmentation position. and relativecompetitive attractiveness basedon cLlstotnel' of the consists thefot'rner is self-explanatory, While thelatterdirnension getterics, r,vrilten, interwhethertheyprescribe numberof prescriptions on theirpotential, loyalty.Basecl iine, and company est in the procluct is as folThe ABCD analysis into oneof tour groups. areplaced cloctors and D C low potentials, B-high potentials, iows:A-top clients, nsal. isl-ac to|y. Lt of a trewproduct arethe tocLrs A andB se-{ments As Table5. I shows, arenot acandD customet's target is a secondary The C segntent lar:nch. on based is furtheradapted ABC approach The resulting tively pursued. regions.Anrong usedin variousworldwicle strate-{ies cor.rntry-specific infor NovartisGenerics of usageanalysis irnplications the miirketing of marketpofential long-terni profitability assessments; clLrcle segment posicorporate iuter-nal and specialty; prescriptions by region,cloctor, clitferentiation; stra[egic atritlysis; cornpetitive tioningwithin segments; and the deploymenl; resource prornotional zrnd saleslorce allocation to heavyusers. service exceptioniil neecl to provrde Exuntple 2: Fast Inchstries Key Accorutt Strategy in Fort located company nlanufactuling s is a plastics FastInclLrstrie proclucer o[' Florida".llThe companyis the worlcl'siargest Lauderdale, inclucling Wirl-Mart, retailstorechair.ts, serve s leading labelholders ancl Crafts. Michttel's anci CVS l)t'ugs, Tarset.

90

HAIV DBOOK OF MARKETSEGM EIVTATI OIV TABLE 5 . 1 .N o v a r t iG s enerics'AB A C nalvsis

Annual Number of Visits per Doctor

SegmenV Strategic Name Focus A/Top clients

SETVICE

Service Level P r o m o t i o n aE l mphasis High Sampling-low level

Customer Medium

B/High Marketing/ High potentials promotion C/Low Servephysi- Low potentials cianscosteffective

Medium Sampling,mailings, promotions-h igh levels Low S a m p l i n g - l o wm ; ailing and promotions-medium levels

FaslInclustries is Lindergoing a h'ansl'ormation from a smallerl'ermilyrlln' Lnoln-and-pop manufacturing companyto a rl-]ore prof'essionally strttctttr0d, and nrarraged sta{fecl, organizaLion. BccLlLlse o1'therecognition thatcustomer retention is moreirnportant thancustorrelal-traction, tnuchef'foftwas spent ensuring thatFast'smostvalualrle percusfonrers ceivedthischange aspositive andweremorelihely fo remaina customer. Two ma.jor stlategic initiatives thatplayeda central role in the new marketingstrategy werethe 80/20principleandthe valueproposition. The 80/20 princ:iplc r,vas integral in detemtining thelocLls andlocation of Fast's mostimportant customers. Alrhough the re areover2,000retail chainsin theUnitedStates, due tclvariations in the nurnber o1'stores and per chain,it wasestimated sizeof store.s thataboutninetyof tlrern will purchase 90 perce nt of the storetixturescorxponents thatFastcan oiler. Cur:'ent1y, Fastdoesbusiness with thirty ol these retailers, andfor eachof these key accottnls, clelivering sLrpelior customer valueis a top ruanagemen[ priority. Ir{ext, the valueplopositiort wasutilizcdto deferminc the exactnalure o1'each cllstomet''s rclatiorrship with Fast. Sincethere ale Ionr basic pro(plice,service, vidersol'value to a cirslomer' quali{.y, andinrage), all custontelswcre surveyed by their l,espective saies representative on exactly why they do l-rLrsiness with Fastand what aspects of valuewere derived I'tontdoing bttsiness with the company, Using an internallyclesigrrecl sttategic assessment form based on the valueproposition, it wzrs founcl thatno relationships with Fastwele based on inlageor price alone, but thatsetvice andqLrality wereladenwirli furthernlrarlce s. Service to one

(Jsage AnaLysis

91

it might To another orclers. clstolrer might meanhigh levelsof-in-sfock atterition may be conslant To yet anothet'it an order. in placin,p ease n-leAn hour a salesrepresentative. Quality as a criterioncan be brokendown onand design, engineering the producf's as varjedL1s into componen[s and/oltheproductbeingpackedandbilled correctly. time clelivery, opweaknesses, tool was a SWOT (strengths, assessment A second and aggregate at indivldualized conducted threats) analysis portgpities, An customer. lrom eachstrategic levels,and inlormationwas gathered plus a future with all accottnts relationship overi-rll of'Fast's assessment wasperhaps weredeveloped.'V/hat strate-ey anclrecommenclecl torecast the strateto describe wasthatit sou*uht mostuniqueaboutthis analysis proposition. in termsofthe value lelationships ol'husiness gic position Through the sounclapplicationof strategicmarketingprinciples is now devalue,FastInclustries anclcustomer in segmenteition rootecl to its mostimportant products/services superiorclelivering signingaricl retention strat' it is workingin a big way,This cttstomer cnstomers-ancl lor the year2001,with reveirnpact on protitabiliry egyhada signi{'icant by 25 percent. andprolitsincreasiiig by 20 percent nuesincreasing

ASSESSMEIVT OF TTIE USAGE DIMENSIOI{ ars a asa step-child hasat timesbeentreated analysis Althoughr-rsage thatcan is still a veryviabletechnique this"sleeper" base, segmentation Segrnenting tnarkets. insightin most business you with grezit provicle providesfour rnajorbenefits: categories on Llsage basecl markets e.9.,commarkets; for understancling 1. It is a usefulclin-rension print carlaserpaper, zip drives, cliskettes, purchase puterLlsers etc. contracts, service triclges, in moderately amongheavyusers coltsllmption increase 2.lt cain identifieclfive clifferentapcompetitive markets.One str-rcly coulclbe calculatecl.12 proachesby which heavy Llserinclices zrnd resources of marketing impactthe irllocation Thesesolutions efforts. amongiight anclmediumusersin consllutption 3. It can increase in pointis thehotelchainexa case r-narkets; highly cornpetitive earlierin the chapter. amplecliscr-rssecl

92

HAIYDBOOK OFMAKKET SEGMEA|TATION

4.By providing newbenefits, to attract nonllsers it is possible or neglectedsegments. Systematic tracking and evaluation segment provides direction for reaching marketoppor overlooked tr-rnities. Marketers needto be cognizant of threeshortcomings associated with the usagedimension. First, usage segments areoften difficr-rlt to explainthroughtraditionaldernographics only. In rnanymarkets, additionalsegmentation bases shouldbe employed, e.g.,benefits, organizational psychographics, and/orpurchasing criteriaexposure. Second, thereare someinherentproblemsassociated with targetingthe heavyLlser segtnent. Othercolnpanies arelikely alsoto recognize the valueof the heavyLrser. Therefore, competition for custorlersin this segment canbe great.All heavyusersarenot pr,rrchasers for the same reasons. Customers may wantprice,performance, service, or quality. Sincecustomers havedifferentneeds, fr-rrther subsegmentation within the heavy-user category is usuallyadvisable. Also, heavyLlsers are not productloyal: theytendto buy heavilywithin a productcategory but often have little allegiance to individualproducts,services, or' cotnpanies. Industrialbuyerstend to be rrioreloyal than consllmers, however. Third, thereare somedefinitional probleurs in r-rsage analysis.For instance, how do we distingr-rish between a heavy,medium, and light user?Also, what criteriashor-rld be r,rsed in specifying consumption segments? Theseandotherquestions mustbe answered by the market segmentation analyst. In generaltenns, usagesegmentation does not have the widespreadacceptance of demographics, nor the explanatoryvalue of benefitsegmentation or organizational (it is descrippsychographics tive not causalinforrnation). Additionalresearch is needed to maxinrrzethe valueof Llsage analysisin the rnarketplace. This can be accomplished by treatingLlsage meelsllres asbothprirnarysegrnentation bases(a clependent variable)or as a cornplententary tool (an independent variable) that can extendothersegmentartion findings. Usage analysis hasmuchto offersince it is a flexible,low-cost, and easy-to-Llse Inarketing research technique. Goodsand services can be analyzed for consutnption levelson botha unit or dollarvolumebasis.

AnalYsis Llsage

93

relate to segmentation Llsage regarcling Marketing irnplications Loyinformation. andmarketing loyalty,promotion, brand/company (e.g.,frequent pfograms ongoingcttstotner alty cirnbe built thror,rgh service contractsand relationship flyers) and offering lon-e-term be cllsAclvertisingand selling efforts shot-tld rnarketingpractices. ingrollps.Customer of variouscustomer to meetthe neecls tornizecl and datapapers, tracle directories, inclustry voices,credit recorcls, pastbuyerbehavior dataabor-rt valuable to -{arner canbe tappecl bases purchases. future customer to preclict ancihow it can be r-rsed accountingfor a aisrnall core of key accounts Many firms hetve heavyusmarkets, In indr-rstrial of their sales. proportion substantial a doseof LGD (lunch,golf, callsanclperhaps sales ersreqllireregr-rlar canbe informedof yollr cllstomers Infreqr-rent marketing. clinner) ancl newsletters, quarterly thror-rgh newproducts ancl conpany'sactivities Also, realtze calls,ande-mailcorlmllnications. telephone occasional new thancreating easier is generally that winning backformerLlsers questions 5 liststen key Llsage Skillbuiider Segrnentation cnstomers. (you may wantto addothers). by rnarrketers be aclclressecl thatshor-rld
5: SKILLBUILDER SE,GN,IENTATION ISSUES ANATYSIS-KEY USAGE l. Who arethe ttsers? 2 . W h o a r et h e n o n u s e r s ' / (Think aboutthenumtrom iight users? diff-er 3. How do heavyLrsers sales.) clollar attcl sales, ur-rit ber o1'orclers, A, B, AndC ctrstomers? 4. Haveyou identified win backfortnercustomers? 5. Can yoLt difler trom yourcompetitors? 6. How cloyour customers l. How loyal areyollr customers'l hy usergroLrp? of productLlsage 8. Whzrtafe the applications (Cortlpare ctrsby rnarket? cliftelences 9. Wliat are the geographic rates anclgrowth patternsof variousregional [omer penetration indices.) Llsage develop markets; effectively? system inl'ormalion a marketing 10. Are yon usin-e

94

HA]VDB OOK OF MARKETSEGM EIYTATI O]Y

A rnarketing informationsystem(MKIS) captllres the vital information needed for analyzingproduct grollps.In additionto reLlsa-qe cording key den"rographic and psychologicalcharacteristics, one business consultant tracksclients'key advisers (attorneys, bankers, and CPAs),publications theyread,organtzational affiliations, andthe trade showsand seminars they attend.l3 This inforrnationseparates prospects from suspects. A strongMKIS mustbe ableto prodr-rce segmentationdataat variouslevelsof aggregation-a requirement that is easilymet with today's powerftrl information technologies.l4 A completeMKIS consists of the followingfour subsysterns: 1. A marketing recordssystem tracksrecurringsales andcustomer data. (Remember, yotu' ct-tstomer is yollr most importantmarketingasset!) 2. A marketingintelligencesystemmonitors market conditions (e.g.,competition, syndicated data,sales rep input,etc.). 3. A rnarketing researchsystemobtainsanclinputs primary data abor,rt yolrr customers (reviewChapter3 guidelines). 4. A marketingtools supportsystemconsists of corporate intranets, databases, graphicsprograms,statistical packages, and othercomputersoftware. This pennitsthe userto access andanalyze customerdata from sr-rbsystems I through 3. HewlettPackarddoesthis extrernely well. This allows them to find the segments of greatest marketingopportunityfor their br-rsiness r-rnits and new prodr-rcts.

SUMMARY From a segtnentation perspective, a differentiated approach to target marketingbasedon Llsage segments and key accountmanagement are two importantinitiativesto implement.Should yoLlrcompany focus its resourcesand energieson heavy,mediurn,light, or nonusers? Marketers must reahze that all customers arenot the same. Clearly some Llsers are Inllch more importantthan others-the A customers or heavy users" This targetmarket requiresspecialattentionvia in-

Analysis Us,age

95

time commitpersonnel, sales/support dedicated investment, creased for the top be reserved shor"rld ments,etc. Key accountmanagement marketingplans shor"rld tier of the A cnstornerclass.Individr"rahzed assigned, manager/tearn for theseclients,a relationship be prepared marketingirnplemented. and one-to-one often proor medium Llsers B customers(the "bread-and-butter") for keepingand Strategies vide the core basefor corporateaccounts. or light ttsC customers must be designed. growing thesecustomers call programssuchastelephone be servedin cost-efflcient ers sho1rld centersor Web sites are the key and relationshipmanagement Usage segmentation marketing activities to obtain the desiredresults of retaining more customerrelationLlpgrading getting better customers, cLrstolners, for acquiringnew as advocates ships,and using existingcustomers customers.

6 Chapter

BenefitSesmentation
that benefitshavelost their role as Thereis nothing to suggest deflnition. one of the bestpossiblestartingpointsfor segment
*
ti
!iir.

I. Haley (1999) Rr,rssell Is it price/value,quality, reputation,service,or, perhaps,some custom(e. relationships, g.,buyer-seller of otherfactors combination ization, deliveryreliability,durability,easeof use,innovation,warBusiclecisions? purchase ranties,etc.) that clrivesyollr customers' to help answerthis can turn to benefitsegmentation nessmarketers is alsovery useof benefits an'analysis In addition, criticalquestion. expectations customer for identifyinggapsin the marketbetween fr-rl line management prodr-rct on technology, cornpeting andexperiences, repositioningvia comlnLlnication development, and new proch-rct pricingpolicies. ancl decisions, clistribution and strategies, search "point-of-care"(or POC) market Bayer Diagnostics For example, (e.g., bloodgas,criticalcare, testing of all in vitro diagnostic consists etc.) performedoutsideof a centrallab by health urine chernistry, who may not be trainedlaboratorytechnicians. care professionals (sitelocations), on geographics a goodhandle While thisdivisionhacl (volume),a major segmen(customer type),andusage finnograrphics factors,as shownin behavioral to assess tation initiativewas neeclecl of where,who, and how much were 6.I. (I,{ote:the qr-restions Figr,rre canbe answered 5.) The "why" qr-restion 4 ancl in Chapters discussed (reviewedin this chapter),while the through benefit segmentation "how" and "other variables"qneriescan be exploredvia pr-rrchasing atcost,loyatlty, innovation, (seeChapter 7). Technology, approaches
97

v 6
H
i ts ?

r
k

SECME\"TATION OF MARKET HA]YDBOOK TargetMarket Profile

Who? Where? How Much?

whv?
How?

OtherRelevant Variables?

f o r t h e P O CM a r k e t A pproach Segmentatio n 6 . 1. A P r o p o s e d FIGURE

variablessllch as economicdevelopment titudes,and international andcultllrewereidenmarketgrowthrates,segmentsrze, irrclicators, tified as potential"others." testtraining,the POC diagnostics At the time of the segmentation 7 percentannually'Bayer's ing market was growing approximately and to generate objectivewas twofold: to defendexisting accounts stratthe market(a protect-and-grow double-digitgrowth to outpace systernatiopportr-rnities assessed approach egy).This fr-rtr-rre-focused and rationalefor allocatingresollrces cally and requireda strategic According to Rick Kates,Bayer Diagnostics targetingcustomers. the "new" segmentation POC TestingSegment, MarketingManager, andlead andvalidated differentiated, modelshouldbe cornprehensive, I aclvantage. competitive to sustainable

APP LI CATI OI,{S CON CEPT S AT,{D OF BEI{ EF IT SEGMEIVTATI OI{ of customer The marketing conceptis basedon the satisfaction by askfollowsthis guidingphilosophy Benefitsegmentation needs. going What is this prodr-rct qr,restion: ing a relatedmarketing-oriented advanBenefitsare the surl of prodr-rct to clo for rne, the customer? They exor wants. needs thatmeeta custorrer's tages or satisfactions tend beyonclprocluctfeaturesand serve to satisfy physical, elrloof what a benefit Two clearexamples needs. tional,or psychological

Segmentation Beruefi"t

99

salestraining:"Sell the stzzle,not the is are often cited in personal buy clrillbits,theybuy roundholes'" steak"and"Peopleclott't schools, hospitals, to banks, complltereqr-ripment leases CompuRent of renting/leasing and industry.Aclvantages nopprofitorganizations, can try beforethey buy, includethese:custotners versllspurchasing cashflow is for the eqr'ripment, neecl rlay havea short-term cllstolnefs Entowardthe purchase. canbe appliecl expenclitures ancl controlled, niches,such to other benefitsegment appealing are allso treprenellrs equipment' computer preowned as thoseseeking A buyingmotives. deeplyinto users' probes Benefitsegmentation marpertinent in deterrnining is analyzed of key benefits cornpitratiol of benefltsis often A prirnarybenefitor a summation ket segn-rents. for example, pllrposes, identification for segment anclusecl featurecl seekers. the vctlue serfreight transport purchasing In an Irish Seastuclyof shippers were vicesbetweenGreatBritian andIreland,threebenefitsegments (35 percentof the market)were shippers founcl.The rotrte-sensitive of the rottte,while theprice' in the convenience prirnarily interestecl and the a low-costservice, were seeking ones(40 percent) sensitive (25 percent)were expectinga high level of Llsers ttot-price-sensithle servicecate.2 through However, will haveoneprimaryLlsage. elproclr-rct Generally, may other potentiallyprofitablebenefitsegments effectiveresearch, can of benefitsegments the composition In many cases, be revealecl. alone.A study classifications geodemographic differ narkecllyfron-r that traditionalbusiness clataterminalsindicartecl of nonintelligent do not actas sizeandSIC codes company suchLls bases segmentation for benefitssought.3 lneeisllres surrogette study of Indian industrialsupplierselection etn Usilg slrrveyclata, The choicecriteria. fifty-oneclecision assessecl rnanagers purcharsing extent,anand,to a lesser ownership folncl thatorganizittion research of benefitsegmeasllres qualify as sllrrogate volumecor-rlcl nual sales (posicharacteristics industrytype, responclent ments.In contralst, werenot for-rnd sizeof purchase ancl experience), tion,age,eclucation,

r00

OIV HA]Y DBOOK OF MARKETSEGMEIVTATI

hence,they were not surrobasesfor segmentation; to be adequate gatesfor benefits.+ behaviorcanhavea greatirnpacton benValuesandpastpr-rrchase efits soughtby buyers.According to the confirtnation-disconfirmameansthat the customerwill tion paradigm,a positiveexperience leadsto avoidance. experience a negative seekrepeatsatisfaction; benefit-seeking are now cultivatingthe lor-rg-tertn, Many companies cr-rstomer. of usersof electricaland meAs an example,an Australianstr-rdy to identify factors br-rying usedcomrnon services maintenance chanical g, pri ce-sensitiv e, li gh-exli p -seekfu s: relcLtions four market segment tomer -focuseclserv i ce user s. Si gnifi cant clifferences p ectat i on, andcr,ts alnong the segmentswere found basedon five clustering variables foctts,andrelact-tstomer needs, (price,organizatior-r size,col'eservice (the gap between and provider),problem al'eas tionshipbetweenLlser concentration.-5 and indr-rstry andperfolmance); expectations to variousproduct and are attracted Different customersegments offeredto them.By of benefits on thepackage offeringsbased service an industrialmarketthrough analyzingcotnlnonbuying segrnenting to the can be tzrilored factors(benefitssought),marketingstrategies Hence,custotleraction(interest, sectors. of specificcustomer neecls are rlore likely to resatisfaction inquiries,and orders)and postsale marketinginitiaunfocused than thror-rgh sult throughthis approach tives. on its marketbased prodr"rcer segmentecl An electricalcomponents of high-volconsisted One segment comrlon buying characteristics. of Another segmer-rt Llffre buyersthat were extremelyprice sensitive. but were ancl specialfeatr-rres buyersinsistedon high qr-rality srnall-lot was able to meet The rnanufacturer price conscior-rs. not noticeably by raisingpricesin of the fortnersegment the low-pricerequirements lossof business.6 with no appreciable the latter25 percent, in marketingin the pastfew yearshilsbeen One of the hottestareas value,which is closelyrelatedto benefitssoughtby cllscustomer this linkage. Insight6 explores Segrnerttation Br-rsiness tomers.

BenefitSegmentan'ort

101

6: INSIGFIT SEGN,TENTATIOI\ I}USINE,SS AI\D BENEFITS VALUE CUSTOTIEIT tradeprac' value(CV) is as olcl as ancient The conceptof cLrstomer ofsellers' carefullyevaluatecl hLlyers rices.In earlybartertransactitrns, only iI the benefits(productsobto clo business ferilgs; they irgreecl as a fair (or items) were perceived relativeto the cost (trlclecl tainecl) as perspective fl'ornthecustomer's value.CV may bebestclelinecl better) thepricepaid.Valueis versus flts receivecl the bene between a tracle-off usesitua particular witl-iin use r cometogether ancl whel plochlct createcl satisf-acasto a clissatisfactiorr, is evaluatecl eachtransirction ation.Tl-ius, Theseserperspective. a valtte fl-orn experience or high-satisfaction tior-r, the benetrts regarciing vice encountefsimpact cLlstomelclecisions relzrtionand whetherto torrn long-tertn (not .justprornisecl) cleliverecl shipswith organizations. World War Electricaf-ter at General thinkingoriginatecl Virlue-basecl in ten at'cas: helporganizations straregies marketing II. CV-ch'iven choiccs cutstomet l. Understandirlg segments cttstomer : 2. Iclentifying otferingmore optiols (for example, theit'con-rpetitive 3. Increasin-u products) p r i c ew a r s 4. Avoiding clLraiitY setvice 5. hnprovirtg colrill-]Llnications 6. Slrcr-rgthcning to cus[onters on whatis n-ieaningful 1. Focr-rsing lt o' Y a l t Y 8 . B u i l d i n gc t t s t o m e sLlccess ,9. Improvingbrancl relatiotlshipsT cltstomet' strong 10. Developittg Service,Quulity, Inmge, snd Price: Tlrc Essence of CustomerVahte for value has becomea manclate customer outstanclin-u Provicling of powerhas shifteci the balatlce arenas, ptaltagemcnt. ln choice-tillecl CV caube excustomers' fit- andvalr,te-seeking to bene 1rolrcoppanies pressecl in miittywiiys.

102

I O]V EAITAT HAN DBOOK OI'-MA]LKETSECM

of seris a combittation c.reation thatvalr-re states The SQIP approach cotnpatiies often difvice, productqnirlity,image,and price.Top-notch to sinlargelydLre reputations andcreate legenclary thenrselves ferentiate tirms must is advisable, gularattributes. While a focuson a key zrttribute l'ormito eachdimensiou; tlrreshold levelswith respect meetacceptable in any area. provicles little room for weakness dableglobalcompetition organizaThe servic:e fac[or mllst reign suprerrein valr-re-creaiing that basecJ ou a strongvalueproposition tions.FedExbuilt its reputation gLrarantees package delivcryby l0:30 a.m.the nextmol'ning-"When it positivelyhasto get there." absolutely, found that only 4l percent A recentstudyby CustomerRespect.com respondedto an Internet corlmulticafion of Fortune 100 companies 37 perandamazingly responded, even[ua11;, wi[hirrtwo days ,22 percent (The insurance sectorwas the most lesponsive; cent neverresponded! indiHence,this research wefb the leastresponsive.) drug companies fail to take their Web catesthat nearly six nut of ten giant companies defect for serpreselrce Ful'thenrore,rcalizethat customer:s seriously.B of the time. more thantwo-thircls vice reasons rvith procluctquality and introvation. is obsessed Her,vlett-Packard prodLrcts to its areessen[ial thatcluality Softwarealsolcnows Broderbund to offeringsandnichemarketing innovative ss.It hasusecl business succe markets. andgamingsoftware ef1ectively in the educational compete investby redr-rcing Value innovationcan be fosteredin conrpanies (offer: and serme-tooproclucts ment in business units tha[ are settler,y with value imvices),increasing in ntigralols (br-rsinesses investrnent initiativesfo create entreprenelrrship provements), and usingcorporzrte on the Research valueinnovafions). pioneers(businesses that represent for-rnd thatonly lzl percent organizations of high growthin diverse sollrce yet these breakweretrne valueinnovations: initiatives o1'new'business attdan impressive yielded38 percenfof totalrevelrlres thror-rgh concepts of total profits.9 6l perCent thise-tailer's imageandphie-Bay's cultlikefoliowinghighly vahres at goodprices.eselection merchandise losophyaswell asits increclible sellers a stre anrof corporate attracted Bay'sbusiness modelhasrecent[y via this site. suchas Dell and IBM to marketto br-ryers mail service sufl'ers to FedEx,theU.S,PostOffice'spr'iority In contrast enveWhile the{lat-rate, one-por:nd va.lue statement. o['a weaker because

Segmentation Benefi,t

103

is deliveryr ly slowtwo- or three-day its relative eLt lopeis a lticecieal $3.85, ofien senditemspriority mail beMany customers a serjousclrawback. looks package white,andblLre ratherthanspeecl-fherecl, of irr-rage caLlse on a client'sdesk.A 30 mail whenit arrives thanregular lnoreimportant two-daydeliverywould greatly (to $5,00)to ensure priceincrease percent still be abouta thi|d of thepriceof it woulcl thoLrgh thisprociuct, itr-engthen ngs. tiveo f1eri compr'ti anddiscount companies specialties sr:chas someaclvertising Others, to offeringgreat arecon-]mitted suclrasCareerTrack, seminarcompanies Realizethat low costis only partof the valueequation-valueis prices, benesuchcustomer . This may inclr.rde experience ihe totai purchasing six sigma technology, mix, the latest/greatest fits as product-service posttitle shvings, for customels, IeSpeCt reputation, cotporate cluality, etc. saleservice, cannot companies exist amongthe SQIP elements, Sincetrade-ot'[\ andsus* The costo['developing in all areas. ro be marketleaclers expect positionwould be overwh3lmineleaclership rilning a foLrr-cJimensionai just th-an is a muchricherconcept valtte seethatcustomel we Lrap Clearly, and a unique image are also setvice,top qLrality, a fair price; sr-rperb Realizethat CV is a multidimensiona'l markets. by tar-uet highly valLred es companf lationresearch, lrom segmen i nsi ghfs gainecl [rnct. Usin-e cons on SQIP to explicatetheir valueproposition can vary theil Lmphases : markets' by target clesired the beleflt packa-ues while provicling

PROS AI\ID COI{S OF BEI{EFIT SEGMEI]TATIOI] with a new marketers provides useof benefitanalysis The pruclent When properly insightinto marketsittrations. p.rrp.itive anclaclclect to iclentify is oneof the mostpowerfulmeans this approrich Lxecutecl, andexploittlarkets.Here aretwo exarnples' in werefor"rnd segments high-tech ope;Four soh-rtion-based, Cctse analymarketvia a value-added the rnobileprofessional reseerrching out of their officeat business who concluct sis.Theseareincliviclurals pagers' colnputers, 20 perceptof their tinle usilg cell phones, leeist is the "besolutiortcustomer The sltecictlized technologies. otl-rer ancl hiirdwareand one-of-a-kindsofispecializecl f'irst" buyer reqr-rinng problems userwantsto solvebusiness soltftiott imi:.ecl ware.The cilsr

t04

HA]V DBOOK OF MARKETSECM E]VTATI OIV

problems. not technical Value solutiortr areaimedat midlevelmanag(which technologists. packagecl ersratherthansenior Finally, soltftiorrs areknown solutions to known problems)aregeared to the massmarket and sold via re[ail channels.l0 Forty-eightcustorlerservice attributes wereanalyzed Casetvvo: in a hrgh-tech application in emerging industries. Two segments emerged. For Segment A, customer servicewas important in venclor selection (this segmentwas cornprised that are sma1lbut have of companies largerpr-rrchase requirements B). In contrast, than Segment custolner service wasnot an importantissuefor Segment B. The two potential target marketsrespondeddifferently to prodr-rct, prornotional,and price factorsas well.ll The Benefits of Benefit Segmentatiort The threemajor advantarges of benefitsegrnentation areasfollows: 1. Widespread application:Benefitsegmentation is an appropriate segmentation basefor researching dornestic and international business opportunities. It can be effectivefor assessing rnarket segments and nichesfor goods,services, and ideas. 2. Flexibilitt,: Benefit segmentation with greatadaptis a methocl ability. Here are threeexamples: . Benefit segmentscan be derived through a variety of approaches,inch-rding, br-rtnot limited to, focus grollps, the (a groupof expert Delphi technique opinions), in-depth inter(mail sllrveys, viewing, and quantitative research telephone and personal interviews).Analytical methods for fonning benefitsegments can spanthe gamutfrom tabulation of opinion to mr,rltivariate analysis(cluster,codoint, factor, discriminant, regression anzrlyses, etc.). . Commonor customsegment classifications canbe usedin the study.In pastsegmentation studies, sornegenericbenefitsegtnent grolrpshave been called consen,atives, inner-clirectetl, rcttiorml n'tan, ancl a hostof otherexplanatory segment names.l2 A customtzed typologymaximizes the valueof the reseerrch findings by offering sophisticated segmenters a betterway for identifyingand selecting targetmarkets.

Segm,entatrcn Benefi,t

105

with sev. Benefltsegmentation collaboration ir"r can be Llsed Theseinclr-rde bases. eral otherilosely relatedsegmentation industrialpsychofirtnographics, categories, buyer aclopter etc. productusage, graphics, in favor of benefltsegargllment strongest 3. Ccutsitlbctsis:The facon callse-and-effect is that it is basecl nentation, however, factors. Russell Haley, who piotors rattherthan clescriptive a threeadvocates methodology, the benefitsegmentation neerecl scaledevelopresearch, of exploratory consisting stepapproach Becausebenefit measllrement.l3 ment work, anclqr,rantitative buy-their pllrposesand recognizewhy cttstomers segments product clesirei-a direct relationshipexistsbetweenmotivaSkillbuilder6, In Segmentation patterns. tionr anclpurchasing somebasictoolsthatyouwill needto beginapHaleyoffersyoLl to your marketsituation.la analysis plying benef-it The Lintitcttiortsof Benefit Segmentutiort resemof benefitsegmentation the shortcomings In maly respects datacollection complex namely, research, of psycnographic ble those sampling, anclanalysii (largenumberof data inputs,probabilistic (onthehigherendof costfactors ancl analyses) statistical multivariate An additionallimitation str-rclies). the pricing scalefor segmentation of concern to rnarketeisis human behavior.Although individuals they from proclucts, may say they want specific,rational benef-its ancldeviatefrom their stated do not act as they inclicate sometimes intentions. purchasing

THREE BRIEF EXAMPLES OF BEIIEFIT SEGMET{TATION IA/BUSII{ESS MARKETS andstatisresearcher marketing Mullet is a well-respectecl Dr. Garry for a varistudies of segmentation hr-indrecls concluctecl ticianwho hars andother thatfactoranalysis He expliiins ety of clielts overthe years. are valuanalyses) (ch-rster ancldiscriminant techniqr,res multivatriate of benefitsegmenabletoolsin the "SwissArmy knife" n-rethoclology

106

HANDBOOKOF MARKETSECI\IEIVTATIOI'|

N SKILLBUILDER 6: SEGN,IIINIi\TIO GRIDSTO IDENTIFY BENEFITSEGI\{ENTS USINGSEGN{ENTATION IIOR YOUR COI\TPANY

rnat'kel to identifycutstotner process presc'nts a six-step This excrcise on ceuters for your firm. Althoughthe focusof this approach segments areitlclimensions andbehavioral otherphysical bcnefitsegmentafion, to provrdea clelran-iework into the planningand researc-lt corpi;r:atecl profile. tailedsegmen{. Methodology

in choosarelikely to seek thatcustomers majolbenefifs L List several its in TableA). (recoldthese benef lirm's goodsor sen'ices ing yor.rr if the responclent cllstomerauclarsk 2. Show tliis list to a prospective importantto hirn or her in seiecting benefits thereareany adclitional to TableA anclrecotd new berrellts Add these yollr ljrnr's proclucls. all of themin TableB. B using in Table numerically to ratethebenefits 3. Ask thisrespondent scale: the following imporlance =4 benefit Most impor[atnt benefit = l mostimportant Second Third mostimportantbenefit - 2 mostimportalltbenefit - 1 FoLrrth - 0 Al1 othel benefits of'otherrespondents a sample dataI'r'om 4. Collectsimilarmarketing recordcotrfinue aucl Add in new henefrts usingthe sameprocedr-rre. ln TableB. clata in-uthese with similarrenoteresponclents havebeencollected, 5. After all clata are lows).Thcseresponclents (nurlericalhighsancl patterns sponse segtneuts. tlembersol' specificmarlcet glicl (TableC). on the segtnentation by segrrient 6. List key benefits given description the segmenl complefe Using yollr keenjr-rclgrlent, thezittribtttesprovided'(Note"Typica111'marketill-qresearcht'indin colutnnis cornpletecl. When the segrnent assist us in this process.) ol the overallnrarketchirractet'istics proviclea namerepresenlative t for the otlter ntarke Continuewith this approach tor the segment. segmenl"s.

Benef't Segm'entation

107

Table A: Major Benefits

4.
6

(more?)

Benefit Grid TableB: Respondent

more?

Table C: SegmentationGrid for Your Company

Seoment Attribute Motivations/benefits situations Usaqe Freque o f u of Deqree of vourfirm Medlapreferences
Adoptercateqort Geoqraphics

Otherdescriptors S E G M E NN T AME S E G M E NS TI Z E I C IMP L IC A T ION S ST R AT EG

lrom RussellI'Haley, DeAclaptecl Reacling): (anclRecotlnlended Sottrc'e Ap' A BenefitSegntentation Strtfiegt,; Comntuniccttiort.s t,elrping Efi-ective fnc','1985)' ' (X.," York: JohnWiley and Sotts' prrritch

t0B

HAIV DBOOK OF MAKKETSEGM ETVTATI OIV

tation analysis. In a studycontracted by a cornpllter manufacturer, he shares relevant dataandinsightson this powerfulapproach.l-5 Professional computerLlsers were askedto evaluate the importance of computerattributes and salesoutlet/manufacturer attribr-rtes in their purchase decision. Using benefitsegrnentation methoclology, an initial setof thirty-sixvariables wasrecluced to twelve,resulting in theidentificationof for-rr (seeBox 6.I and Table6.1). benefitsegntents Terri Albert recentlyinvestigated the steelmanufacturing supply chainfor a customized, concrete reinforcement product.A surnmary of the relevantbuying criteria and key user grolrpsare listed in the two-factor, benefitsegmentation solr,rtion shownin Table6.2.16 Finally, the packagingdivisionof the SignodeCorporation used in-housedocuments(salesrecords)and salesforce judgrnentson price andcost-to-serve to determine customer segments in the mature steelstrappings rnarket. Using clusteranddiscrinrinernt arnalyses, four buying behaviorseglnents were identified. Progranunecl btn,st'tused rules of thr,rmb to allocatepurchases to a few vendors . Relationship buysv5are knowledgeableabor-rt the cornpetitionand tend to pay higherpricesfor relativelylessservice; theyareinterested in fonning longer-term"partnerships"with Signocle . Trcutsactiort bt},syswant price over serviceand area switchingthreatif competitors meettheir productneedsat reducedcosts . Bargairtlu.rnterr arehigh-volumeaccountsseeking rnajorprice discounts ancl maximumservice; theyare likely to defectif thereis any incidentof dissatisfaction.lT

SUMMARY Once a basic descriptive understanding of a marketexists(typically via geodemographics and usageanalysis), business marketers shouldturn to behavioral din'rensions to gain grearter insights on why and how cttstomers br-ry and the specificattribr-rtes that they value. Behavioralsegtnentation str,rdies are designedto assess customer (our focusin Chapter benefits/benefit packages 6) and/orevaluate organizational psychographics andpr-rrchasing criteria(reviewChapter 7).

Benefi.t Segm,entation

for the Computer Statements BOX6.1.Benefit Study Industry

important, to'10= extremely On a scaleof 1 = notat all important of eachof thefollowwereasked respondents to ratethe importance a newcomputer. ing in theirdecision to acquire available ls one of the mostreliable ls on the leading edgeof technology available screens resolution Hasoneof the highest of filesanddata number ls ableto storea large ls one of the lightest available words including output, Allowsthe userto printhigh-quality and graphics or computers as otherpersonal 7. Usesthe samesizediskettes with interact to thatthe userneeds workstations technical areanetwork to a local B. Connects easily 9. Hasgoodworkmanship capacity harddiskstorage withadditional 10. ls easyto expand 11. Doesnottakeup muchspace simultatasks to be performed 12. Allowsseveralcomputing neously prices available 13. Hasoneof the verylowest techabout computer whoarewellinformed 14. ls soldby people nology in a few person to getup andrunning 15. ls easylora nontechnical the firsttime hours 16. ls portable helpwithuserproblems whowillalways 17. ls soldby people 'lB. Usesicons the software to operate and a mouse on a battery 19. Can operate thatis veryeasyto learn 20. Hassoftware together andhardware software whoprovide 21. ls soldby people package solution in a tailored graphics, words, and numcombine the userto easily 22. Allows berson a page thatthe as othercomputers system 23. Runsthe sameoperating with to interact userneeds training whowillprovide 24. ls soldby people available 25. ls one of thefastest 1. 2. 3. 4. 5. 6. (continued)

110

HA]Y DBOOK OF MARKETSECM EIVTATI OIV

(continued) computers 26. Communicates easily withlarger graphics the userto do verycomplex 27. Allows whowillfix it in a fewhoursif it breaks 28. ls soldby people yourmanagement 29. ls madeby a company approves of the 30. Uses software that operates the same way as software with useris familiar 31. ls ableto runa verylarge selection of software quickly 32. Willnot become obsolete purchasing power 33. ls easyto expand withadditional 34. Runs only custom-designed a very software that perlorms specif ic taskor f unction prices but 35. ls acquired froma location thatsellsat the lowest provides little assistance foryourindustry 36. Runssoftware designed specifically "Benefit M.Mullet, in Practice," Journal of Source:Gary Segmentation pp 13-36. withperin Marketing,3(1 Reprinted Segmentation ), 1999, Press, mission of The Haworth Inc.
TABLE f o rt h e B e n e f iS t egmentatio V ntheCom6 . 1. M e a nS u m m a r y na r i a b l eis p u t e rI n d u s t r y Study Segments Variables Dealer MACAffindows Expandable Feliable Portable Specialized Easy Compatible Network Low price Notobsolete Management OK I n d e p e n d e n tN o n n e t w o r k S p e c i a l i z e dM A C M I n d o w s 5.66 5 . 3 1a 6,36 7.46 3 . 8 7a 4.08 5.68 7 . 5 8a 5.99 6 . 0 7a 7 . 7 4a 3.21 6 . 7 7a 5 . 4 0a 6 . 7 7a 7 . 8 3a 4 . 4 6b 5.89 6 . 9 2a 7 . 3 1a 3.41 5BB 8 . 2 9b 8 . 2 9a 6 . 8 5a 5 . 4 6a 6 . 8 4a 7 . 8 5a 4 . 1 1a b 7.46 6.16 7 . 6 1a 7 , 5 7a 6 . 0 6a 6.35 8.71 6 . 7 1a 6.29 7 . 0 4a 8 . 0 9a 4 . 1 8a b 3.27 6 . 6 5a 8.1 5 7 . 5 0a 5 . 7 2a 8 . 1 4a b 8 . 3 6a

in Practice,"Journal o f Source: Gary M. Mullet, "Benefit Segmentation 1999,pp. 13-36.Reprinted withpermission Segmentation in Marketing,3(1), of The Haworth Press,lnc. Note: Letters indicatemeans nof significantly different.Boldfacenumbers represent key scoresfor salient variables.

Benefi't Segm,entation' g u p p l yC h a i n S o u g h ta n d t h e S t e e lM a n u f a c t u r i nS T A B L E6 . 2 . B e n e f i t s

111

Criteria
publicaTechnical information tions, technical Answering quesilons suggestions Design or templates on staffto Engineers options discuss of Economics for materials different construction comparison Using tablesof the two materials of Notification during materials job construction to Salesincentives try othermaterials afterthe Service saleis completed

2: Component A c c o u n tS e r v i c i n g K e yS u p p l y 1: Component Chain (Relationship T e c h n i c a lA d v i c e Group Building) a n dS u p p o r t X X X X X

Structural engineer None Precaster SuPPlier Structural engineer DoT rePresentative DoT rePresentative Supplier Fabricator Contractor

X X

Relationship-based pricing

and Custom"Need-Based Segmentation fromTerriC, Albert, Source:Adapted tn y d u s t r y : 4S u p p l y in a complex-commodiI nt r a t e g i e s i z e d c o m m u n i c a t i os 32, 2003,pp. 281-290' MaiketingManagement, ChainStudy,"tndustriat

in buying by sirnilarities grollpsclrstomers segmentation Benef-it we examinedvariousfacetsof benefitsegmotives.In this chapter, studies,corporate Theseincluderesllltsof past research mentation. advantages and derivedsegments, of benefitsegrnentation examples andpractical issues, methoclological of this base, and clisadvaptages can be most helpful to marketsegmentaSuch rneiterial guiclelines. to materialfor preparingorganizations as for-rnclartion tion managers

II2

HA]VDBOOK OF MARKETSEGMEIVTATION

undertake the next step-consider usingthis vah-rable research-based segmentation approach.While the tirne and investmentin benefit segmentation canbe substantial, thepotential paybacks of thiscausal methodology are workable, flexible marketing strategies that cal greatlyenhance yollr bottom line.

7 Chapter

Behaviorand Organuzational Purchasing Psychographics

his shop,nor a good shop shouldnot change A gooclcustomer its customers. change proverb Chinese segmentation; of behavioral ollr discr.rssion This chaptercontinues 6. The openin Chapter benefitsegmentation yoLlrecallwe examinecl factorsdiffer in a brief reviewof how purchasing presents ing section to industrial markets.Next, we will explore three key approaches apnested and Shapiro's Bonorna Theseinclucle B2B segmentation. model), business industrial segmentation proach (an integrative, categories. adopter and br-ryer psychographics, HOW BUSINESSMARKETS ARE DIFFEREI:/T plan, it is research segmentation the inclustrial Prior to designing and consutner between four rnajordifferences importantto recognize trade area,(2) product/ B2B markets:(1) scopeof the geographic and (4) closeness decision, (3) natureof the purchase rnarketfatctors, of the custonter. Scopeof the Geographic Trade Arect is typically largerthan the marketerserves The areaan inclustrial serretailersor personal/professional by neighborhoocl one servecl ancl suchasTargetandPrzzaHr-rt maior retailers vice firrns.Grantecl,
113

114

HAIV DBOOK OF MARKETSEGM EIVTATI O]V

service organizations suchasH&R Block andKinko's arefoundnationally,bLrt they appealto localizedcuston-ler groups.It is comlnon for the indr-rstrial firm to conductbusiness regionally, internationally, and globally,as well as via the Internet. Despitethis larger tradeareafocus,the cLlstolner basefor the industrialfirm is generallyhighly concentrated. a slrpFor example, plier and distribLrtor of industrialpurnpsand motors servicedaccountsthroughout the southearstern United States, but the rnajorityof its salescalnefrom its own backyard(North Florida).As another example,SiliconValley (California), Route 128(Boston), and the Research Triangle(North Carolina)are all areasof intensivehigh-tech activity.While it may appear thatindustrialmarketareas to areeasier qr-rantify and targetthan consurner purchasing are markets, decisions usuallymole complex. Pro du ct/M arke t F actors Most inclustrial sales arelargerthanthose in consumer markets. Of collrse, thereareconsLlrner purchases of autorlobiles, or houses, boats, but, for individuals,theseare raueplu'chases. Generally,consllmer salesarerelativelysrnallcompared to inclustrial salesof equipment, materials, (periodic colnponents, products, or services reorclers of industrialpartsand sr-rpplies may be small orders,however). As a corollaryto this,therearegenerally fewerpotentialcustomers for the compelny to targetin inclustrial rnarkets. For example,Boeing is facedwith only a limited numberof prospective for its airbr-ryers craft. At times,this smallercustomer pool can play havocwith the best-laidmarketingplans.Dependency on a sn-rall core of custorrers often leadsto large variationsin revenlles and profits (greater peaks and valleys), as the finn acquires or losesmajor accounts or macroenvironmental conclitions changedr"re to economicturmoil or prosperity,politicaluncertainties, globalterrorismconcerns, etc. Indr"rstrial salescome frorn deriveddernand(not final demancl), which makesthe firrn rnore susceptible to cyclical marketpressllres. As an example,steel producershistoricallyhave been greatly dependent on autornobile sales.

P urch asing B eh aui or and Org anizational Psychogr aphics

115

Nuture of the PurchuseDecisiort decisionis a joint one betweena husband A cornplexconslimer marketscomand wife to buy new bedroomfurniture.In indr-rstrial plex decisionrnakingoccllrson a regularbasis.Often, many people justifications, authoriSpecial in purchase clecisior-rs. will be involved beforea andmonthscan paSS will be needed, zations, and approvals with more is confronted salesperson The inclustrial saleis transacted. rationalbuyersthan are typicallyfound atnd intelligent, calculating, in the consllntersector.On the positive side, once a customerhas areoftenthe result. been"sold,"loyal, Iastingcustomers based the North Americanbus fleet was segmentecl Traditionally, on based elrea andsizeof the busfleet.A new approetch on geographic (e.g., the process segrnents resulted in six decision purchasing factors feaand six prodr"rct segment) reputzrtion low bid and manufacturer Thinking segment).t (e.g., train andnot drivers the clrive ture segments traditionalindustrysegmentation) of the box (i.e., not r-rsing or-rtside edgein the marketwith zruniquernarketing can proviclecompanies place. of the Customer Closeness Peters and of Excellence, book In Sectrch In their highly acclairned and of gettingcloseto ct-tstomers the irnportance Warterrnan stressed are natucompanies Inch"rstrial listeningto their needsanclwants.2 levelsmay satisfaction br,ryer although rally closerto theircLlstorners, on how well they irnplement clepending vary from poor to excellent effort to satisfy cllsthe marketingconcept-an organization-wide tomersat a profit. personal sellbecause is nurtured rnarkets in industrial Closeness the salesforce typiing is the most effectivepromotionalstrategy, recustomer andlong-term to thebuyers'premises, cally goeson-site to stayin touchwith it is easier In addition, oftendevelop. lationships cover inthat comprehensively your market through tradejor-rmals marketthatprovidedetailed clirectories views,tracle newsancl clustry that shareknowlassociations ing informationaboutfirms, and trarde tools such as new technological Furtherrrore, edge about markets.

116

HA]V DBOOK OF MARKETSEGM EAITATI O]Y

databases, direct and gror-rp e-rnails, online chats,and mobile teleHowever, help keep sellersand br-ryers connected. comrrlllnications marcustomer-centric action-creating and deliveringresponsive, keting programs-is needed to tn-rlymeetthe needsof B2B buyers. loyalty and the The buyer-sellerrelationshipimpacts cr-rstomer "Soft targets" arepotentialcustornlikelihoodfor switchingvendors. ers who haveweakrelationships oftenthis with their currentvendors; is dr-re to features A soft targetsegmenor supplierperformance -qaps. tation strategy with similar needswho may be identifies customers r'esponsive How ento customizedsales and service strategies.3 trenchedare yollr customer relationships?

THE IVESTED APPROACH literaIn a comprehensive review of the indr-rstrial segrnentation ture, Dick Plank notedthat therewere threeapproaches for selecting segmentation notions (a single bases:(l) unordered segmentation for how segmentation dimension with no specific rationale is chosen (2) two-stepnotions (such as the macro/microit was selected), segmentation reviewed 4), or (3) a multistep approach. He in Chapter addsthat therehasbeenlimited work on this latter segmentation tool with the exception modelthatis of the BonomaandShapiro's nested discr-rssed next.a for The nestedapproach and cornprehensive rneans is a practiczrl segmenting business markets. It consists of the following five nests (bases) and relatedsegmentation variables: l. Dernographics-industry, companysrze, andcustomer location 2. Operating Lrser andcustomer czrvariables-technology, status, pabilities power 3 . Purcltasingapproaclrcs-ptrchasingfunction organization, policies/cri structures, buyerandpurchase teria sellerrelationships, 4. Situcttional factors-Llrgency of order'fulfilhnent, product application,and sizeof order 5. Buyers'personal clmracteristics-br-ryer-seller similarity,attitudestowardrisk, and buyer motivation/pelceptions-s

s chographic al Psy ati oru Purchasing Behaui or and Orgaruiz

117

from the outer work systematically shor-rlcl Generally,rnarketers 4 and 5) be1 through3) to the inner ones(nr-rmbers nests(nr-rmbers However,the callseclataArertore availableand definitionsclearer. areoftenmore useful. variables) andpersonal inner nests(situational may beexist,marketers and analysis whereknowleclge I1 situations outward).A balnestanclwork inwarcl(occasionally gin at a miclclle ancebetweenthe sirnplicity and low cost of the outer nestsand the to maximize the of the inner onesis desirable richnessand expense apAn overviewof the nested analysis.6 valueof the segmentation to the visualpresentation 7.1.In adclition in Figr-rre proachis depictecl varirelevantto the industrialsegmentatiotl bf tn. moclel,questions in Table7. 1. ablesarepresented frameworkwasrecentlyapof the nested adaptation An insightfr-rl Manufacturers anclwholesalers).7 plieclto resellermarkets(retailers bases-external,internal,and inthreesetsof segmentation can Llse targetmarkets. rnarketsandfinclappropriate terpersonal-to segment life cysize,locatior-r, type of intertnediary, inch-rde Specificvariables

observable easily General, andusage needs Customer Patterns customer visiting Getwithout

Dem oqr Var iables Oper ating Appr oach Pur chasing Factors Situational

ss i ts , a rd -to -a sse tra Spec i f i cs , u b t l eh Datae x p e n s i v e tt o gather Dif f i c u l

Personal Characteristics

(Source: N e s t e dA p p r o a c h M l a r k e tS e g m e n t a t i o n - A F I G U R E7 . 1 , I n d u s t r i a r o m T h o m a sV . B o n o m aa n d B e n s o nP . S h a p i r o , n w i t hp e r m i s s i of Reprinted Books,1983].) MA: Lexington Market[Lexington, the tndustriat Se'gmenting

HAIVDB OOK OF ]I4ARKET SEGM ENTATI O]V IABLE7.1 . TheNested Approach_Key euestions Characteristic Segment by Questions Demographics Industry Which industry to focus on? Company size produce

rlB

fgay,

enough forlarge

Operatino variables-

Customer location Technology User status

Whatgeographical areas? Whatcustomer technologies?

Heavy, medium, light, nonusers? Customer capabilities Needmany or fewservices? Purchasing Purchasing function Centralized, approaches decent r alized? Power structures N_ational account versus field engfneer_dominated, finance, etc. ? Nature of relationships or most 9ltqnqrelationships desirable companjes? Purchasing policies Leasing, service, price, bid? Purchasing criteria Quality, service, price? Situational factorsUrgency of filling order Quick delivery? Specific application Certain or allapplications? Sizeof order Large or small orders? Buyer-selle r sim ila rity Values similar to ours? Attitudes toward risk Risk-taking, risk_avoidino? Loyalty Highloyalty to suppliers?
Source: Reprinted with oerm.ission from T,homas Shapiro, v. Bonomaand Bensonp. sesmenting thb nariiiilt'ii"'rt u, 1eB3). fr_exingion] rrlX. Lexrnston

Books

ffiiJr1'i'1li::];,To

cle position,form of ownership, a'cr financialconditio' (externar variables); markets servecl, cunentprocluct pr-rrchases, infi-astrllctlrrar factors, location of purchoring, ancr reseiler,s perceivecl irnage (i'ter_ t.",efirs

ualbr-rye., lintltf,rlil::ilt"g

soughr, reseller suse orproctr_r*, buyer_ policies'

and cha'acteristics ofindivicr-

Purchasi'g Behat,ior ant o rganizationarpsychographics

Althotr-eh tlie nested approach was clevelopecl in the rniclholcls Lrp rernarkably it wetito the,.grr;Ln,atioricrialrenges 1g8os, nlairkets' of incrustrial ancl'in firct, no new mr-rltistep rnoclers have earneci spieacr aftentio' by business wiclenrn.t.il.r. g-n shapiro,s the nestecl thoughtson approach twe'ty yearsafterits creveropment in Business ale presented Segnrentation Insiglit7.
BUSINESS SEGA,IENTATION INSIGHI 7: IN CONVERSATION WITH ON NBNSON P.SHAPIRO "The ,l{estecj Approach,isstill applicable to ir trre twenty-f irsfclentur"y.

119

' cloin-Q denrogriiplrics.

It is stirr rerevzrnt butc Alrhough stillusefirl, wharis happeningl, it is r rnar"kets than in these portant tosegment ketswhen marpossible ..
1sal'easinceeveryone is

also t"-lll,i:l: easicr Ioget inlb.marion oncternographics iHil:lTfi: ntatkete., u.o-p?itru. edge r, rrros. 'T.tf who :,f t;]";'::il.s can irn-

twenty-first centu'y. If nrr-rst be notecr thatsegmentafion is muchharcler to clotoioy rhan.u.. r,etore. potentiar research factol's into other thatcoLtlcJ afTect industrial segmentation sho,ld be consicierecJ.,,

inne'mosr rings, rhey now pray rhe mosr ,"*".,,Tii.li:TT:1,:i-#: mentation in the

tio.al lactorsthafc.n ar.e still therebLrt shoul,

tf the buyerand situa_ , The threeouterrings

sreve,, 'i?1;;,T: v Cates on r's,fT#:,?:;T,?T:..j,-,:.,?li, Sep,fiffiffiii:i:iiii,l;',"t'he

egy. I herve founclthat i siottswith key clecision

whire custom..rocrers generairy work be st i' an oranization, the besi*ov,

ieclnlarketingshatttegicplatnning ses-

ror energizing acompany ro

tre me ncr oLr s ins iqf.l'on se.-q m enring bu siness;:, iii,l:ffj :i:r{:lfl Segure'rarion a rearisric sce ;ritlbLrirrrerTprovicres nr.ioro,. opprying upfron.h ro a be*er uncrerstancring HilJ'llll,,illi,]aiLrabre ofyour

120

HANDBOOK O].-A/I ARKET SECX, E\VTATI OIV SEGJ\,IENIATION SKILLB IJILDER 7: USINGTHE NESTEDAPPROACH TO SEG]\.II,NT YOLR IMARKET

;l:XHffi5:rT:il,X,Tl''

Your rross, trreDirectorof Mzu-kering, jusf rras reiu.nedyour market_ ing plan cjr"afr for 200-, *rih rrri. ,;;,;:;;;, Iargerecrink: ,,Ler,srook f'ora new approach to segmerrting our nra.ket!,,Recently, product lxanagers one of your attenclecl a senlirar on BzB.s.gnrentatinn un. ,ugthatyou' cornpany -Sested ,,nestecr consicler usin_p fhe approach,, menf its nrarket.T]re thr.e to seg_ of yoLrrneet,review 'otes on how trrisseganci contemplate

how roacrapr rhis approacrr ro

;aclrfo identifyappropriate segmenfafjon bases rting y'ur nrarket ire'iew trigJr.e 7.1, Tab.e 7.1 , Lion Insight 7 asrefr"eshet.nrater:ial). st4ggestetr Rea'i,g.' Thomas v. Bonomaancr p. shapira,sug_ Benson nrcMing theIncrusiiot rulc,,jtcet (t-exngr.n, M^l Lexingron Books, r 9g3),

P urchas i ng Behauior and 0 rg aniz ational p syc hogr aphic s

121

A longtimepowerfui consllmersegmentation techniqr-re, psychographics hasrecentlybeencliscovered by innovative business marketers.Sinceindivicluals ultirnately makeall buyingdecisions, psychographicscan be an importzrnt climension in understanding purchase behavior and influences. This higher-level analysis assumes thatthe indr"rstrial marketer etlready hasa goocl perspective on the marketsitnation and wantsto expancl the analysis to inclucle characteristics of the tar-{et firm's decisionmaker(s). Now, let us consicler several practical examples. Persouality research found that inclividuals cor-rlcl be classified bv five geometric shapes: I. Boxes are neat, organlzed, anclhighly structured (accountants, computerprogrammers). 2. Trierngles are self-assured, respected, and leaders(executives, entreprenellrs, politicians). 3. Rectangles aregoing throughlife changes ancl areLlnpredictable (college gradr_rates, new ernployees). A + - circles are concerned abor-rt good interpersonal relationsand peace(nurses, secretaries). 5. Squiggles ate creative, icleapeoplewho are not cletailoriented lo (artists, scientists). An inclustrial psychographics stucly, at the wholesalelevel, was usefulfor matching salespeople with purchasing agents basecl on personalitytraitsandbr-rsiness-related factors. The four marketsegments identifiedwere the socictlbu1,s1s, socictl sellirs, and factual bu.vers, sellers. A partial (ten list Jrtcttutl of fifty-two) of the psychographic itemsusedin this research instrument, measurecl on a f (Airogr."; to 6 (agree) scale, is shownin Box I .I.tl A Fortune50 pharmaceutical companyuseda belief-based, segmentattion studyof physicians. Basecl on this analysis, the firm elininated39 percentof the doctorson its call panel (two market segments) dueto theirlackof beliefalignment with thebrand's proposition. The rernaining, hi-ehly rargeted physicians (61 percentofihe market, comprisingtllree segments) increasecl the brand'stotal prescriptions by 50 percent within a year,while the noncletailed physicians cut their

122

HANDBOOK OF MARKETSEGME]VTATIOIV

Box 7.1.serected psychographic Business Statements

. I prefer window seatswhentraveling, say,by plane. . Material things areveryimportant to me. n Before having an appliance repaired, l'lltry to fix it myself. ' when I attend a business meeting, r frequentry offernewideas. ' on weekends andvacations l try notto thinkabout the office. ' I seekout theopinion of others before making decisions. . I am detail oriented. . I liketo worklonghours. ' I prefer to makemy owninvestment decisions. ' Manysalespeopre visittheirbuyers toofrequentry. source: Adapted seymourH. Fine,,'Buyer and seller psycho_ IroT graphics in Industrial Purchase Decisions," Journal of Business andlndustrial Marketing, Winter-spring 1gg1,pp.49_58. prescription writing by only l0 percent cluring thatperiod.Overall,this resulted in a $ l5 million increase in annual incremental sales ancl a $7 million reduction in sales/marketing expenses thatis projected to yielcl $68 million in a three-year net presentvalue rxpvj' gain for the l2 brand. Corporate culturewas for-rncl to be a usefulpsychographic clime'sion for segmenting the rnarketfor corporate financialservices in an entrenched rnerrketplace. Using clusteranalysis, three market sesmentswererevealed: happt, doers(36 percent of the samp le),micldtZof-the-roaders(34 percent), ancl sati,sfctctiort seeliers(30 percelt). Happy cloers tendedto be highly satisfiLcl with top-of-th.-hnbsuppliersandvenclor decisions wele generally niacle bV o top executiye. This grollp was more operations orientedthancustorner focusecl. Multiple buyinginfluences werepresent, the useof several suppliers wasevaluatedin purchase decisions, andpersonalizecl service wascriticalto the nticldle-of-the-roaclers. While multiple buying influenceswere also important with scttisfctction seek",r,Jhi, segmentalso was charactertzed by customers/prospects who were unhoppy with their vendor,s l3 pricing andperformance.

P ur ch" asing Beh aui or and Org anizati orualP sy chogr aphics

Psycltogruphics Pros and Consof Orgunizatiortal

Psychographic research is beingusedmore frequentlyin business targetmarket market segmentation studiesfor four major reasons: buyer behavior,strategicmarketing, identification,understanding and rninimizingrisk. to unobservdemographics Customerdifferences extendbeyoncl (for example, types Strategic strategy). corporate ablecharacteristics (clefentlers, reoctors)and strategicorienprospectors, ernd ctnttlyzers, internal orientcLr ori entcttiort, ictlorientcttiort, t orrte tation ( ctLs fincutc orianclclevelopment relcLtiotts andresearch orientcLtion, tiort,I'uLrrtttrt in a psychographics were found to be useftrlorganizational entcttiort) purchase deby Dutchfirms (a new-br-ry studyof carphonepurchases firtn sizeandinvariables, the two firmographic cision).In contrast, dustry,had little explanatoryvalue with respectto the adoptionor gy.I4 technolo nonadoption of theproposed people,relationBusinessmarket analysismeansunderstanding motives, marBy analyztngpurchase drivers. ships,andpsychological acttheway theydo in themarwhy buyers ketr:rs canbetterunderstand farnily business small and medium-sized ketplace.As an exaurple, insurance, attd serviceproviders(accottnting, clientsof pr-ofessioniil Marpsychographics. r-rsing organizational law firms) wereresearched for operating were identifledbasedon CEO motivations ket segtnents of segments In descencling order,theeightpsychographic the br-rsiness. a third of the owners,which rangedfrorn lnore thern farnily business autowere as follows lovingpctrents, 5 percent, to lessthatn sarnple statusseekers, ct'als,empirebtiltlers,fortmte hunters,recruits,rebels, purchasimpactecl groupingrnotivations These arnd social benefctctors. andbehavior.l-s ing attitudes analysis a psychographic thror-rgh Strategicinformationgathered inSomeexamples areas of the company. all rnarketing can permeate tzing recogn cltrdeproduct modificationandpositioning/repositior-ring, andcampaigns, promotional strategies of pricefactors, the irnportance methods or improvingexistingchannel andexploringnew distribr-rtion stratesies.

124

HANDBOOK OF MARKETSEGME]YTATIOIY

The cost of a new productintroduction, line extension, service offering,or proposed venturecanbe substantial. Fr-rrthermore, alntost half of all projects fail (based on five-yearprofitability). Accorcling to research sponsored by the ProductDevelopment & Managernent Association(PDMA), the new productsllccess rate for B2B organizations was54.5percent.l6 By incorporating br-rsiness psychographics into yollr firm's proclr-rct testing and R&D program, project sllccesses are more likely. Often the key ingredientis locatir-rg the subtle procluctor concept variations that customers desire. Althor-rgh usingpsychographic research in business segmentation studies canbe very beneficial, therearealsotwo key shortcomings of which thernarketer mustbe aware. These aredatacollection/analysis andcostfactors. Unlike demographics, psychographics is primaryresearch, and a more complexapproach to obtainingthe rnarketing informationsoughtby management. Data collectioncan be problernatic due to the large number of questionsaskeclvia the sllrvey instrument.Compouncling this is the analysisof a voluminous amount of clata,requiring the use of mr-rltivariate statisticaltechniqr-res in seekingkey rnarketing relationships. A well-designed psychographic str-rdy is on the upperrlrng of the pricing laddercompared to othertypesof segmentatiorr research. It is not uttttsual to expectto invest$100,000 and up for a cornplete researchpackage. If cost is a prime consideration for your contpany, this type of analysisis not an appropriate use of rnarketingfunds. Now that you are reasonably informedaboutpsychographics, you may be ready to initiate a research projectin your company.Seventeenpoints to considerin negotiating for this type of behavioral research arelistedin Box 7.2. VALS and SyndicatedPsychogruplticsServices Although rnost of the "packaged"psychographic researchofferings were clesigned to betterunderstand consurner marl<ets, sorneof these services canbe readilyadapted to business sitr-rations sincepeople r-rltimately make all pr-rrchase decisions.

P ur chasing B eh aui or and 0 rg anizat i on'al Psy chog r aphics

125

for Contracting BOX7.2.A Checklist Research for PsychograPhic

required? research lifestyle or syndicated ls custom in the project? to assist capacity ls therein-house 3)? (seeChapter objectives whatareyourresearch ically, Specif firms or consultants tworesearch youspoken withat least Have in psYchograPhics? withexpertise related or a closely in your market 5. Do they haveexperience market? qualificaandacademic (experience) 6. Whatarethe professional of the researcher(s)? tions(knowledge) providproposals f romtheseresearch detailed 7. Didyou review ers? in whatis entailed exactly perspective, 8. Froma methodological the study? be usedto identifV research 9. Willthe psychographic lew market in differences or predict segments, existing segmenis,'describe behavior? customer synother ag_ainst bevalidated research 10. Canthepsychographic research? or yourownprimary services dicated (inaddition to thepsychographics) dimensions 11. Whatsupporting willbe usedin the studY? to chanrespond approach segmentation 12. Willthispsychographic gesin the marketPlace? in proworkwithyourcompany willthe researcher 13. Howclosely development? andstrategy jectdesign, implementation, withthererelationship or is an ongoing effort, 14. ls thisa one-shot firmdesired? search be measured? of the information 15. Howwillthe quality '16.Whatvaluedo you expect f romthisstudy? to you? worth 17. Howmuchis thisanswer 1. 2. 3. 4. is a U.S. lifestylesegmentation VALS program SRI Internationai's customers that categorizes is also available) (a Japan-VALS systern Three on high or low levelsof innovationand resources.lT basecl and self-expression. powerful motivatorsare icleals,achievement, and principles. are drivenby knowledge incliviclLrals Icleals-oriented positionanclposipeopleseeka clear sociatl Achievement-orientecl

P urchasing B ehaui or and Org anizati onal Psy chogr aphics

127

VALS information has been Llsedsllccessfllllyto clevelopnew targetnew markets, products,createproclllctpositioningstrategies, andpredict rnedia audiences, measllre clesign advertising campaigns, with trends.In addition,SRI hasjoint ventureagreements business andDonfirms, suchas Claritas ch"rstering leadinggeodemographic suchas informationproviders, productusage/media nelley,and witl-r analyses arepossible. Hence,powerfullinkedcustomer Sirnmons. Moniincludethe Yankelovich lifestyleservices Othersyndicatecl List oIValues(LOV), andproducts tor,the Universityof Michigan's firms. (Check and marketresearch agencies by leadingadvertising with the American Associationof AdvertisingAgenciesanclthe AmericanMarketingAssociation.)

BUYER ADOPTER CATEGORI E S basedon the rate of customeraccepMarkets can be segrnentecl toResearch, Accordingto Forrester concepts. tancefor new prodr-rct why to determine day's vendorsshouldconsider"technographics" and othersfail. Of the twelve productsslrcceed certaintechnology herearefive that they Llncovered, rnarketsegments technology-based miniprofiles: frequently and invest heavily in trendy r-rpgrade 1, C),ber-snobs technologies. arewell-to-doand shortof tirne;they seektime2. Fctst-fortt,ttrcls technologies. savingandproch-rctivity-orientecl who and professionals executives are sllccessful 3. Hctntlsltttkers personal retheybelieve clotheircon-rpr-rting; let their secretaries arethe key to success. lationships ^ individuals are affluent, technology-loving +. Motrse potcttoes and they arePC-focused who constantly seeknew experiences; into CD-ROMs. or hostileto computertechnoloare inclifferent 5. Trctclitionctlists products.l8 proven,ubiquitous gies;they only aclopt

I28

HAMBOOKOFMARKET SEGMEI\|TATIOIV

Adoptercategory segnrentation is based on two key ideas: the cliffusion of innovationsand the identificatior-r and effectivemarketing to early Llsers. Accordingto the diffusionliterature, therearefive categories of new productacceptance: innovators, early adopters, ezirly majority,late majority,and laggards.l9 Lead Llsers or sllperinnovators face strongmarketneedsmonthsor yearsbeforethe bulk of the rnarketplace ancl expectto benefitsignificantlyby helpingto find a solution to thoseneecls.20Innovators may be (users techies excitecl by the newtechnology) (rnanagers or visionaries who can seea prodr-rct's potentialfor irnprovin-q processes, enhancing operations, or deliveringvalueto gain a competitive aclvantage).2t From a practicalstandpoint, we can often saythat marketsarecolnprised of three broad adoptercategories: "early br-ryers ancltryers," "maybe-laters," and "forget-about-' erns." while adopter category segmentation is usefulin many industrial market.sitr-rations, it is particularly insightfulin high-tech markets. The followingexample illustrates this processbasedon a segmentation research project conclucted by this author(and a colleagr-re) in the cardiac pacemaker market. Segmentqtiort Exantple-The Pacemaker Market The market for cardiacpacemakers has stabilizedin the past clecade due to pricing pressllres causedby diagnosis-related grollps (DRGs) and institutional buyers, intense competition, investigations into the needfor the products,and regulatory probleuls.In the short term,manufacturers canimprovetheirmarketpositionat the expense of cornpetitors. New productdevelopment is a rnajorpriority. An automaticpacemaker (pacer) is an irnplantable devicethatdoesnot require preprogramming and hassensor inputsthat ntaintainthe safest level of patientcare. Semistructured clepthinterviewswith physicians provideclaclequatedatafor an explorattory segrnentation analysisof the ar,rtomatic pzrcer (segment submarket identification was the reseerrch objective). Basedon the qualitative research, six potentialrnzirket segments for automatic pacersemerged. Threeof thesecustomer segltrents-the '.r-were progressives, black-boxclevotees, ancl shovt,,tne likely aclopt-

cs ati onal Psy chographr' Purchasing Behaui or and Org aniz

129

for future marketingactivity).Two segmentsers (worth terrgetin-e neecl-may eventuallyadoptthe andno perceittecl the nonbeliet,er.s product,althoughthey were not good choicesto targetfor short-to marketingactivity. One segment-the techiesinternrecliate-term pacer. were likely neverto adoptthe automatic formation,one in segment factorswereconsidered Althoughmzrny in underwasmostusefr-rl orientation) variable(r-rser major attitr-rclinal asa primary pacermarket.This wasexpressed the autornatic stancling makin decision simplicity,or conservatism in technology, interest physiof the targeted of the characteristics ing. A brief clescription is shownin TabIe7.2. sesments cian-customer

Pacers for Automatic Categories TABLE7.2. Adopter

Segments
Variables profile Segment

Progressives

Black-Box Devotees Earlyadopters

Show-Me's Followers

category lnnovators Adopter

need "Nontinkerers";Likeconcept; Viewpaceras studsupport/case and want simple adtechnological products ies (a largesegwilltry reliable vancement; ment) products unproven Technology Simplicity lmplanting cardiologists Conservative referring Surgeons, intercardiologists, practinal medicine electrotioners, physiologists Nonteaching Average Primarily colleagues

Userorientation

Typeof physician l m p l a n t i n g cardiologists

type Hospital Usagerate of Sources information

Teaching High jourProfessional nals,salesreps/ materials, colleagues Yes

Nonteaching Average-high Salesreps, colleagues

Needfor manual overrides

u;r U n c e r t a ifn therresearch required

Yes

130

HANDBOOK OF MARKETSEGMEIYTATIO]V

SUMI\,TARY and usageare have reahzedthat geodemographics As marketers purchasing to understand seldomadequate today'scomplexrnarkets, psychographics have been employedto factors and organizational segment business markets in recentyears. Businessmarketsdiffer from consumer marketsin four respects: (1) the scopeof the geographic tradeareas(larger, but rnoreconcentrated), (2) product/market factors (larger sales,fewer customers), (3) the natureof the purchase decision(more complex),and (4) the (morepersonal closeness contact). Thesedifferences of the customer and techmust be carefi-rlly when segmenting indr-rstrial considered nology-based markets. model The r-rested approachis a comprehensive segrnentatiott for designed for indr-rstrial The five key segmentation bases markets. purchasing approaches, analysis aredemographics, variables, operating factors, characteristics. Buyer adopter situational andbuyers'personal categories areparticularlyinsightful in high-techmarkets. be considThe useof multiplebusiness segmentation bases shor-rld andtareredto provicle the richestview of potentialmarketsegments getrnarkets. how to turn segmentation research Next,we will discuss resultsinto successful customer-driven marketing strategies.

PARTIII: I OIV I M PLtrMHVTI IVG ST GMEIVTAT STRATEGY

8 Chapter

TargetMarketing Strategic

in twenty minutes,simply yollr strategy If you can't describe yoll haven'tgot a plan . . . everystrategy ancl in plain langr-rage, r-rltimately boils clownto a few sirnplebuilding blocks. Larry Bossidy(2002) Chairman, HoneywellInternational can be informative,insightful, iunovative, Market segmentation but its realvaluelies in its abilityto be irnplicaandeveninteresting, from similar s opportr-rnities profitablebusines tions orientecl-create marketsituations. planning can be likened to analysisand strategy Segmentation cotnpeting A1l players(companies respects. in several playingcarcls abideby the samerules(industryregr"rlation) in a givenmarket)rnr-rst anclare clealtcardsfrom the samedeck (overallmarketconditions). playersmust decidehow they will play their hands(stratInclividual (finances, weaknesses, skills, strengths, their resoltrces egy) giver-r their etc.). Sorneplayersare financiallystrong and can outspend and win on their business while othersare aggressive cornpetitors, whento fold'em).Market knowingwhento hold'etnatnd savvy(i.e., that all hands (marketingopportunities) recognizes segmentation should butrathertheplayers/companies shouldnot be playedequally, for them the bestchetnce on thoseeffortswhich provicle concentrate for yollr goodsor resultsfrom the bestprospects Success sllccess. . ces-yollr targetmarkets servi biologicalcombetween Building on Darwiniantheory,parallels havebeendrawn.Just as no two competition petitionanclbusiness
133

134

E]YTATI O]V DBOOK OF ]IIARKETSEGM HA]Y

speciescan coexist if they rnake their living in the iclenticalway, firms that offer the sameproducts,in the sameterritory,under the equally. cannotcoexist and with the sameclientele sameconditions, the we will examine this chapter, one will clorninate.tln Eventually, findingsinto acresearch i.e.,translating of segmentaticln, execution needsand clesires. tion ancltailoring the marketingmix to segment

TARGET MARKET STRATEGY F ORMU ATIOI{ Market segmentrnappingis useful for finding growth opportr-rniplanuse this strategic companies ties, yet relativelyfew inclustrial lessthan 5 Accordingto BossidyanclCharan, ning tool effectively. insegtnentation usefr-rl contaiued of theplanstheyhaveseen percent plansdevotea majority of rnarketing Most volurninous formation.2 and protnotionalmaterialbut features their pagesto review proch-rct of a customerprofile, benefitssought,and offer limited cliscr-rssion relationships. what is valuedin br-rsiness findingscan be readily turnedinto actionIdeally,segmentation strategy this is not alwaysthe celse; prograrls,br-rt oriented,strategic mostsegmentation process. Althou-eh formationis not an immecliate requiresa sixth atltnost development strategy aredatabased, analyses anclcreative There are intangiblefactors,such as experience sense. of linritations design.Given tl-re insight,that play a role in strategic frameworkfor strategy only a general this book presents one chapter, to yollr and tacticsmust be zrdapted (specificstrategies formr-rlation seglnents). and chosen marketsitr-ration in various differ in importatnce ze thatmarketingelements Recogni For one firtn, productfactorsmay be the pristudies. segmentation can promotionor distribution while in another mary consideration, not be neglectecl sl"ror-rld issues Seconclary be the centralcontrollable. new ffIareither,sincetheir impactmay alsobe crucialto developing keting progratns.

Strategic TargetMarketing

135

THE THREE BASIC STEPS TO STRATEGY F ORMUIATION yollr targetmarketstratprocess canbe usedto develop A three-step of thefollowingcomponents: consists Box 8.1).This process egy (see and(3) positionmarketselection, ( 1) segment identification , (2) target ing.

StrategyBOX8.1.Segmentation Approach The Three-Step

Step 1: Identify Market Segments study. f romyoursegmentation Listthe submarkets A (name): Segment Market B (name): Segment Market C (name): Segment Market D (name): Segment Market X (name): Segment Market Step2: TargetMarket Segments activity. for marketing or segments keysegment Select (name): market Primary profile and needs: market Primary

(name): market Secondary profile and needs: market Secondary

(name): market Tertiary profile and needs: market Tertiary

(continued)

HAN DBOOK OF MAKKETSEGM ETVTATI OI,{

(continued) Step 3: Position the Segments Formulate unique marketing strategies. (name): Primary market Competitive advantages : Positioning strategy:

(name): Secondary market Competitive advantages : Positioning strategy:

(name) Tertiary market : Competitive advantages : Positioning strategy:

SegmentIdentfficatiort The first sevenchaptersof the book developeda framework for planningand conductinga market segmentation analysis. The end prodr-rct of such a str-rdy is the detenninationof a given nurnberof homogeneolrs marketsegments based on selected segmentation variablesand criteria.Now the markethasstructure, andmarketingdecisionschange from analytical to strategic in nature. Turg et M arket Selectiort E,xaminethe airline industry as a case in point. Custorners fly different airlines for a variety of reasons. These include econolny, serviceand amenities, flying to the "right" destination, the airline's reputation,and cateringto the br-rsiness traveler'. Which benefitsegmentsshouldrnanagement pursue'/

gic TargetMarketing Strate

r37

market segmarketers must selectfrom the alternative Br-isiness activity.Eachof the mentsoneor more grollpsto targetfor marketing on its own rneritsand in conmllst be evalr,rated segrnents inclividual surroundsituation junctionwith the capabilities and environmental that the optionsare unique recognizes ing the flrnr. This evaluettion to your firm. of attractiveness anclhavevarying clegrees may seemto be worthwhilefor targetsubmarrkets Althor,rgh several " and of tangible a rnultiplicity balance ancl must analyze ing, companies This includes decisions. intangiblefactorsin their market selection (in parenvironment theinternal objectives, corporate needs, customer andan environment, theexternal financialandotherresollrces), ticular, problems. versLls of opporttrnities overallassessment in determinmarketers helpsbusiness potential segtnent Mearsuring for chooscriteria As Table8.1shows, to pursue. ing which segrnent(s) While MBA-trainedmAnor quantitative. canbe qualitative ing targets on, numberscan be agerstenclto prefer the latter to basedecisior-rs "look goqd,"frequently the spreadsheets While mr-rltipage misleading. quesdata, on incomplete arebased or profit projections forecasts sales As Business methodologies. or flawedresearch tionablearssumptior-rs, and assess mustcarefr-rlly cornpanies Insight8 explains, Segrnentation criteriato finclthe "best" tnarketsegments. weigh key discriminating to with respect criteriacan providepowerful guidance Quarlitative is a good starting preferrecl of business The nerture marketselection. allow the firm to opportunities do the segment point. For example,
Markets Target for Choosing TABLE8.1. Criteria Criteria Qualitative Criteria Quantitative

growth etc., sales preferred Sales by dollars/euros/yen, of business Nature rates share Market synergy Strategic potential andweaknesses Profit Strengths reten(LTV), customer value lifetime Customer trends Market tionindicators (ROl) on investment Return coverage Geographic value (BEA), netpresent analysis Breakeven structure Industry
NP V ) , ck periods

138

HAI{DBOOK OF MARKETSEGM EIVTATI OIV

competeon qllality and high marginor exploit the company's sales skills? General Electric's transformation into thetwenty-first century wlrs based on JackWelch'svisior-r of a bor-rndaryless collpany thatwor-rld dominzrte globalmarkets (benr-rrnber oneor numbertwo in its indr-rstry sector),in high-tech, industrial,service,anclinfonnationbusinesses. Clearly,lightbLrlbs and refrigerator.s were uo longerpart of GE's big-pictllremarltetingstrategy. Otherfirrns lnay be attracted to particular target markets basecl on strategic synergy, suchas the ability to useexisting distribution channels, br-rild on process stlengths, or capitalize on excess factorycapacity.
I}USINESS SIiGN,IEN'TATIO N INSIGI{'I' 8: GUIDIIT,INE S ON N,IA RKIIT S[]GT,{II NT '{TTITAC TI VENI'SS Basedon research ol'the UnitedKingdorlr's fliniesTop 1000cornpanies,SimkinandDibb founcl thatthefhree mostimportant criteria for sele-cting targctmarketswereprofitabilit\',nnrket grotrth,andmurket.riz,e. Likely cus[otr]er satislaction, salesvolume,likelihoodo1'sustainable conrpetitive aclvantage, easeo1'a-ccess of business, oppoltLrnities in the productdilTerentiation, industry, andcompetitive rivitlryrounclecl or,rt fhe top-tencriteria.(IVote:Twenty-l"hree items were tested.)The ar-rthors couciucle that businesses in the United l(ingdorl shouldreplacetheir short-tertn, fiuanciarlly orientecl locuswith a morelong-term, analyfical anclclbjective view of mar:ket segmentation.3 McDotiald anclDunlrar acldtirar segnrenf altriicfiveness factorsbe weightecl hasecl on thepalticular reqLrirenteltts o1'an orgarnizafion, for example,growth rate (210 percent), prolit potential(40 percent), and se_umentsize(20per"cent), llhey alsoplovidea listol'twenty-seven possible, gertei'alized segnrcnt atLlactiveness factorsin flvt: rnajor areastmarket f-ac:tors, competitiott, l'inancialand economicfactors,technology, and sociopolitical lacLors. While thebig three-growth,prolits,andsegment size ol'f-el a reasoltilble pointirr mostmarkets, starting theyadvise that two ot'three aclditional metrics be incorporated into the market selection analysis.4

gic Target Marketing Strate

139

Positiortittg to apIt is next importantto fonnulatea uniquemarketingstrategy a "me-too" or Althor-rgh yolt aretrying to reach. pealto the Cllstotxers a fresh works,in the majorityof cases, sometimes copycatstrertegy to marketingis requiredto standout from the crowd andbe approach is thatthefirm must premise behindpositioning The basic successful. to surviveor thrivein the marketplace. aclvantage havea competitive or lower price) or canbe real (e.g.,a betterprodr-rct Theseaclvantages (e.g.,a proch-rct that is built to last or backedby a comperceivecl pany'sreputation). Positioningis sound rnarketingdecisionmaking basedon the This creativity. findings-pl us busittess stucly tacts-the segrnentation uniqr:emarketingador,rt creativeprocessrnight call for seatrching arenot culthat cornpetitors seekingnew marketsegments vantages, to "old" problems.The goal new approaches tivating,or cleveloping is to carveout a marketnichefor the firm. of the positioningstrategy which has long beenusedas a modeling techrnapping, Perceptual tool in has gainedfavor as a diagnostic nique in consurterrrarkets, gs.'5 i al settin indr-rstr marketers. criticalto high-technology is increasingly Positioning is shown in Figure 8.1. The core positioningn-rodel A three-level product (Level I) is the device that the companyproduces.At this suchas quality, features clifferentiating positioningstage, short-term can be and price are at the forefront.Thesevariables specifications, hence,thereis a needfor intermeby competitors; emulatecl qr-rickly the marproduct(LevelII) develops diatepositioning.The extencled The total product anclstrategicrelationships. keting infrastructure It sellswho the comstrategy. positioning (LevelIII) is a long-term positionin pharmafor. Merck'sleadership panyis andwhatit stands reputationfor quality, and the Xerox ceuticals,Hewlett-Perckarcl's overmanyyearsand havebeenbr-rilt service to cnstomer commitment failures).6 (andoccersional successes prodr-rct inclividual overshadow

HA]V DBOO KO F MARKET SE EIVTATI ]V GM O

L e v e ll l l : Total Product

L e v e ll l : Extended Product

CoreProduct Technical ications Specif Price

Service and Support Systems

Promotional Support

Corporate lmage

FIGURE 8 . 1 .T h e H i g h - T e c P h r o d u cP t o s i t i o n i nM godel

SEGMENTATI ON STRATEGY DEVELOPMENT Marketing strategy was tor-rched Lrpon in Chapter3 (the marketing planning section).Segmentation strategyis the processwhereby a firm maximizes the marketing controllables(the Four Ps) toward satisfyinga targetmarket'sneeds. Marketingstrategy recognizes the dynanricsof markets,and the objectives, resollrces, and "personality" of a company. Personality means thecompany's business characterlculture(its organrzational philosophyandmanagement style)and the importanceof peoplefunctionsin the rnarketing plan. Hence, a mastermarketingprogram mllst mesh with yollr company'sbusiness styleand be appropriate for the firm givenits present sitr,ration. Marketing is not a business function to be undertarken by only the rnarketing researchers, advertisingclepartrnent, or sales force.It is iln ongoingseriesof activitiesthat permeates all levelsof the company,frotn presiclent to part-tirnehelp. Sirnilarly,all levels

gic TargetM arketing Strate

141

or tactics strategies of appropriate of the companymllst be apprised of responsibility. to their areas relevant strategyconsistsof two phases:first, segmentation Successful and pursued(this three-step must be for-rnd marketniches/segments theoverpositionactivates This strategic wasjust clescribect). process all directionthe companywill follow. Next, primaryand secondary rnarketingrnix elementsmust be reviewed,formulated,or revised. usedto win the "ntarketingwar." Theseare the weapons for a targetgrollp, three broad marketingstrategies In clesigning They areinternaland exareasmust be carefullyanalyzed. business ternal marketing factors, and customerneeds.The Environmental for ratingandcomparing (Table8.2) is a usefulworksheet Scorecard andindustry-related of many corporate andweaknesses the strengths mustconneeds Customer segmentation. thatirnpactbr-rsiness issues and on thetypicalfirmographic based areclefir-recl how segrlents sicler productusesand and variables; dimensions segmentation behavioral frequentlyare demeasllres patterns(note:sinceconslrmptive Lrsage present out this base); to separate it is advisable pendentvariables, etc. satisfaction; levelsof prodr-rct is thefunctionof straanalysis Bringing"life" to the segmentation with "what if" No longer are we concerned tegic implementation. "Jllstdo it." Successftrl of implementation questions-asNike sarys, rnarketingstrategyrequiresthe talentsof many profesprescribecl adverstrategists, planners, researchers, analysts, Marketin-e sionals. and team,consultants, the sales personnel, tisingandpublicrelations corponrustall work in concertto accotnplish rnarketingmanagers must interface department the rnarketing In aclctition, rate objectives. thrustsare comthat strategic to ensure l-nanagernent with corporate all systems Assltming policies andvah-res. patiblewith organizational switch"is turnedOn,andplansare arego, a "masterimplernentation actions. readyto become yollr studyis to assist of the segmentation The ultimateobjective in turn yollr revenlles ancl of customers, its nurnber firr1 in increasing in oneof threeways:attracting profits.This canbe accomplished ancl custorlers, of existing theLlsage increasing to your product, nonusers developingnew markets. arnd/or

142

EII TATIO]V SEGM HA]V DBOOK OF MARKET clo r e c a r d T h eE n v i r o n m e nS ta 8.2. TABLE

+ Strength Weakness Factor 0 Neutral
+ Strength Weakness Factor 0 Neutral

lnternal Situation

External Situation

Resources People Financial Facilities Equipment Computers (list) Other performance Past Corporate Division SBU line Product Product Constraints Objectives Commitment (list) Policies marketing Current strategies Product Pricing Promotion Distribution E-business

Yourmarket Size Potential trends Growth Homogeneity Opportunities Problems Competition Number Strength structure Market Threats Environmental Economic Firmographics Legal Natural/physical Political Technological

Probably not. In most meeting expectations? Are actual resr-rlts occlllrences therewill be a numberof unforeseen situations, br-rsiness impacting the product market-some favorable,solrteunfavorable. The goal is to maximize yollr opportunitiesand circllmvent yolll evaluation but often overlooked, This is wherethe essential, threats. be control systemsshor-rld processtakesover.For top effectiveness, 6ui1t prior to implementing marketing strategy. This mechanism sitandaclvantageolls of potentialroaclblocks leadsto quick detection partof er soundoverall andcontrolis p rnajor uations.Implementation marketingprogram.

ategic TargetM arketing Str

143

(Segn-rentation Skillbuilder Worksheet The TargetMarket Strategy and issues for identifyingkey strategic a slllnmarymoclel B) provicles plan is the recomffIended capitaiizingon them.An in-depthstrategic docinformation-backecl a consistent, want to produce next step.Yor-r a Sr-rch among all of its components. crearted urnentwith synergism performance. and monitored'for project can be readily in-rplernented

B USI I{ ESS SEGM E I,{TATI ON AI{D THE MARKETING MIX the core irnpacts Next, we will briefly explorehow segmentation is(theFour Ps).While e-commerce strategy elements of a rnarketing theyshouldbe intein this section, reviewed sllesarenot specifically (A of rnarketingactivity in the organization. gratecl into all farcets chalmix and today'sbttsiness goocloverviewof the e-marketing in a recentarticleby KalyanamandMclntyre.T) is provicleil lenges Product Strategy views towardthe product the cr-rstomers' studies, In segmentation In deproductdecisions. are the driving force in shapingappropriate or sera finn must analyzeall of the goocls veloping thesestrategies, product items/brands, inclividualprodr-rct inclucles vices it offers.Tl-ris stratIn segmentation handles. lines,andthe productn'rixthe business with specificproductunits or egy planning,we are lnore concerned or industry tnarkets, farmliesof productsthan entireproductclasses, include decisions salesvolume.Factorsthat impact prodllctstrategy of the productlife cycle,the classification the natureof the procluct, differentiation. the role of procluct policies,atnd goods,procluct of the of the productrefersto the basiccharacteristics The r"ratr-rre in to askarelistecl productqr-restions Someirnportant goocl or service. the firrn has a good underareresolved, Box 8.2.Oncetheseissues and the its applications, of the procluct, of the intricacies stanclir-rg forrnulation. in-a key towardstrategy marketit is cornpeting Life cycles provicleanotheruseful tool for analyzing products and products Like people,indr-rstries prior to strategydevelopment.

144

OF MARKETSEGME]VTATIOIV HANDBOOK

8: ,SbGMu,utnrroN Sxil,t BuILDER ,,,:

.:.

ntanKsrsr NNTECVWORKSHEET TARGET

Recbmmended ,strategies :. ',. : :;'. .,. . ..

Potential lmpact

Present Tactics Product Promotion Pricing Distribution E'Commerce

Recommended Tactics :

Potential lmpact

Str ategic Targ et M arketing

145

BOX 8.2. The Nature of the Product . . . . . . . . . . . . . . . . . is it? Whattypeof product usedfor? Whatis it primarilY forthe product? Arethereanyotherapplications Who usesthe product? Whydo theyuseit? seeking? arecustomers Whatbenefits do not like customers or potential customers ls there anything WhY? aboutthe product? branded? ls the product patents, (i.e', positions proprietary favorable Doesit haveanyother trademarks)? hts,and/or copyrig manufactured? Howis the product distributed? Howis the product Howis it promoted? HowdoesyourWebsitesellthe product? Howis it priced? strengths, (sales figures, pastperformance Whatis the product's andweaknesses)? products? produce any related Doesthe company like? environment Whatis the competittve

of birth, life cycle consists This five-phase have an aging process. where It is importantto assess and cleath. clecline, growth, matr-rrity, is, and whereit is headeql. yollr inch-rstry is in its life cycle.At the introprocluct whereyoLlr Also, determine will appealto of a market,prodttcts ductory anclearly growth stages and maAs the industrydevelops innovatorsanclthe early adopters. will strategies will intensifyandnew segmentation cornpetition tures, Finally, at the decline to fincl a niche in the marketplace. be neeclecl and the remaindepleted, pool hasbeenseverely the custolrler stage, for effortsto recultivated mustbe nurturedancl ilg marketsegments main profitable. frameworkdividesindustrialproducts of goocls The classiflcation or qualities on theirinherent based proclucts of sirnilar ipto groupings into capitalpurgoodscan be classified Inclr-rstrial characteristics.

146

EI,{TATI O]Y SEGM HAIV DBOOK OF IWARKET

toolsandothereqr"rip(suchasbuildings equipment), or l-reavy chases serandindr,rstrial sr,rpplies, partsandmaterials, ment,raw rnaterials, vices. uission andoperating to thefirm's business policiesrelate Product that governprocluct or gr-ricleposts Theseare constraints philosophy. in a nurnber choices to limit prodr,rct policiesserve Prodr-rct decisions. in to compete is the tnarkets The first consicleration areas. of strategic poliwith. Otherprodr-rct andthe broadproductofferingsto compete testingprograrn(planning cies can relate to the company'sprodr-rct and testmarketing),new product and developnient, efforts,research (inmix decisions proch-rct or imitator), policies(a productinnovator aswell as or deletions), line extensions andprodr-rct cludingbranding and service. waffanties, packaging, The four productfactorswe haveexploredso far providesornediprogram-adapting the productor rectionfor a marketsegmentation It-tsome targetmarkets. serviceto meet the uniqueneedsof selected cases,however,product differentiation-elrphasizing the product (if the needs for a neecls ratherthanthe customer clifferences/featllres product are basicallythe san-re)-is the more intportantrnarketing strategy. Each of the mlrst still be formr-rlated. An overall product strategy Astute marcan play a key role in this process. five areasdiscr-rssed keters realizethat product decisionsare closely linked to the other on).B ased (promotion, pricing, anddistribr-rti controllables rnarketing strategies prodr-rct-oriented ferctors, ol-l an analysisof the prodr-rct or elirnirnodification, theintroduction, rnightinch-rcle These emerge. nationof products. is to reposition, The objective Modificationcanbe minor or rnajor'. to new segto appeal the goodsol services or repackage reformulate, the finn's marketpositionwith exor strengthen mentsof the merrket If the Anotheroption,at timesviable,is no change. isting segments. mix is strong,sttategic analysisindicatesthat the presentprocluct In aclareas. may be calledfor in otherfunctional changes marketing sotnetitnes for overallproductstrettegy, overhauls dition to prescribed may needto be madeto fine-tune prodr-rct decisions of tactical dozens productofferings. a company's

ategic Targ etM arketing Str

147

Promotionul Strutegy by using a their targetmarkets persllade can reachancl Companies sellpersonal (advertising, elements promotional mix of traditional tools promotional anclsalespromotion)ancltargeted ing, pr-rblicity, marketing Integrated lctitibases,direct marketing,and the Internet). and syna consistent (IMC) means commllnicating commllnicertions (one look, one voice)-this conacfossall rneclia ergisticmessage that62 percentof for-rnd Research aucliences. veys valueto targetecl 19 percent IMC progratns, had fglly coordinated B2B companies ancl19 percentwere partly or not coordiwere rnostlycoorclinated, in promotionalpractices Next, we will review the traclitional natecl.8 shouldconsult readers marketsin ftrrthercletail(interested business to get a better handle on the newer promoreferences specialized tionaloptions). corunllnication by face-to-face Personalselling is characterized promotional in-rportant about a good or service.It is a cleceptiveiy more In the United States, rnarkets. in business particr-rlarly strategy, Sellingis wherethe actual is spelt in this areathan for advertising. handsin francs,etc.)change pounds, marrks, (or yen, cler-rtsche clollars Good sellingis matching markets. government ancl service, procluct, a saleis needsto a firm's offerings.If this is accomplished, ir-rstomer and potentiallong-termrelaestablished, ct-rstomer a satisfieci rnade, arebegun. tionships that of parallels sellingis thatits objective of personal The bear-rty desires. to meetcustomers' proclucts marketsegmentation-tailoring is its approach plaguingthis promotional The ope major weakness calls.) sales for business costclata (Table8,3 summarizes high costs. can be techniques the other massprornotional Given this liu-ritertion, to make perinquiries/leads highly qr"ralified to generate employect improvethe closingratio). sonalsellingmote efficielt (hence, of ideas,$oods, communication Advertisingis paid,nonpersonal and interesting, It is a dynamic, sponsor. by an iclentifiecl or services by the public. fielclthat is often misunderstood at times glamoror,rs conlis alsoa very complexareawith manyinterrelatecl Advertising impact (e.g.,media optiot"ts, ponentsaffectingits overall business

I48

O]V E]YTATI DBOOK OF MARKETSEGM HA]Y 1999 Survey, Cost-per-Call 8.3.SM&M's TABLE
Cost per SalesCall (in u.s. dollars) 189 B4 164
t50

sales Approach overprice solution Value-added-stresses emPhasis Transactional-Price to clientneeds customized Products and priceemPhasis Product companies Service rers manufactu Industrial

242 202

Magazine, Management andMarketing Sales Businessj' "TheCostof Doing Source: Professional by]he Canadian fromdataproyiQg! p, 56.Adapted 1999, September <www.cpsa.com/Publication.s/Gu/HtmUWeekofSeptl3-1999.a Association, Saies

the preparation, message media selectionanclschedr-rling, br-rclgets, techniques). and rleasLlrement agency, role of the advertising can focus, advertising Dependingon a company'sprornotional to being a rnajorfacspanthe garnutfrom beingvirtually nonexistent or lack thereof.Generallyspeaktor in determiling a firm's sllccess prolnotion, to selling,sales playsa sllpportfr-rnction ing, advertising perspective, From a segmentation markets. in business andclatabases of reachllleans but not inexpensive, canbe an excellent, advertisipg its targetmarkets' to the firm's most likely prospects, ing or-rt yollr dollarswisely.Adcallsfor investing advertising Successful to those media vehicles shoulclbe allocatecl vertising expenditures of differentmediacan Scores targetmarkets. which can bestcleliver morethan14,000 thatt clairned professional (Oneadvertising be r-rsed. imprarctiareobscure, meclia rnostof these exist!)Obviously, choices For simplicity, media can be divicledinto three cal, or unimportant. rnajorclasses: rnedia film, and otherelectronic television, 1. Broadsn5t-1ndio, periodicals anclmany typeso1'trade 2. Print-newspapers ot-ttdirect tnail, directories, 3. Other meclia-Internet,catalogs, etc' advertising, specialty transitbillboards, cloorancl

g arketirt ategic Targ et X4 Str

149

of methereis an abunclance classifications, to the rneclia In adclition the advertisfrom. The more highly selective cliavehiclesto choose marketsegments-this miniing, the betterfor reachingclesi-enated In ratherthanprospects)' waste(going aftersuspects mizes auclience creativeand copy platformsmust consiclerations, to rneclia aclclition needs. segment in rneeting be cleveloped (PR)is unpaidnewsabouta company, Publicityor publicrelation's which is company Unlike aclvertising, or service. employe.,pro.lr-tct, and is perorganization by an or-rtsicle publicityis pletced rponro.ecl, publiccosts, PR initiation Exclucling asbeing-oi. obJective. ceivecl can providea most favorable ity is free promotion,and its exposllre mediavehiclesusedin a to targeted ,."rponr. to the firm. In aclclition writtenmaengagements, gn, speaking *.il-.^.cutecl publicitycarnpai finanAccountants, terials,and specialeventsare typically featr-rred. of areexamples consultants anclmanetgement cial plann.rr, Iirwyers, the valueof publicity as a new who haverecognized professionals generator. br-rsiness efforts,suchas sellingand advertising Salespromotionall-qments price samples, ons,displays, clemonstrati bits,piocluct tradeshows/exhi The unactivities. promotional otherspecial eincl contests, incentives, all promoto answerprior to the use of any ar-rd clerlyingqr-restion yor"t tacticsis, "Is it right for the marketsegment ancl tional strategies are trying to attritct?" Pricirtg StrategY for yollr prodr-rct? chargeyollr custotners How much shouldyor,r for yolrrgoods prices Setting is oneoi pricingstrategy. This qr-restion and flnancialfacis not a sirnpleissue.Marnyrnarketing or services Financialcosts (e.g.,markups,margins' this clecision. tors arffect othermarketing price,br-rt whensetting etc.)areimportant paybacks, phithe firm's operating Theseinclucle iactorsmust be consiclerect. situation, the competitive it wishesto convey, the in-rage losophyancl cllsis pursuing, the targetmarltetthe company factors, othei external empromotionalstrategies factors, prodr-rct tornerprice expectatiotts, may tracle-offs Price/quality usecl. channels ployecl,anclclistribr-rtion feel thatbeby targetmarkets(somecustomers exist or be perceivecl

150

EIYTATI O]V DBOOK OF MARKETSECN| HAN

product-this rnayor it is a better is moreexpensive, a prodLtct callse may not be true). the For many prodr-rcts, variable. Pricing is not a unidimensional In br-rsiness sitr:aelements. of several composed price is a package terms,shippingexby creclit/lease tions,the price may be affected price incentives, ancl/or servicefees.The penses, trade discor-rnts, to be takenlightly. bottomline is thatprice settingis not something plan,carefulresearch is of the marketing aspects Like otherstrategic vital in this area. pricing strategy must relateto a target As Figure 8.2 illustrates, do not valueall prodSincebr"ryers market's levelof price sensitivity. (and customers) marketsegments equally,identifiable uct attributes at varyingpricepoints.Hotelsand to goodsandservices areattracted at price point segmentatiotr. airlinesare masters a rnajorpart of a segrrlenAlthough we seldorr think of pricing Lls & Johnson's Cordis Johnson tationstudy,this is not alwaysthe case. for the diagnosticcoronary leaderin prodr,rcts division is the marl<et a largepercentage of all corouary and peripheralmarkets,sr-rpplying project,carresearch usedworldwide.In one segmentation catheters diologistsand otherphysicianswere queriedas to their preferences new rnedical deandpricing levelsfor a proposed for variousfeatures vice. analysis of on an in-depth shouldbe based Ideally,pricingstrategl' a firtn will take situatior-r. Specifically, yolrr company'sfftarketing one of four directions: clepends on high volume,since 1. Beat tlteir price: This strategy on low mat'gins. operating low price in-rplies pricing strategy recognizes 2. Meet their price: This cornpetitive marrketforces. In this instance,the firm competeson some itself frorn the nonprice issuesin an atternptto clifferentiate a betterproduct,an imother firms. This can include hetving etc. servicing, offeringpostsale provedimageor reputation, 3. Do rtot cornpeteon price.' If a higher-pricestrategyis being to its custorlters benefits used,the firrn mustprovideaclditional High or convincethem that they are pllrchasing"top qr-rality."

gic Target Marketing Strate

151

high wherethereis limited competition, pricesmay bejr-rstified prodexclusive clevelopntent, with newproclr,rct costsassociated resistance' or limited cottsumer ucts offerecl, the flrm may not to pyice: In somecircumstances, clrte 4. Retrectt to of scaleor other operatingefficiencies the economies heive therecomIn thiscase, in a marketsituation. profitably compete of that and get or-rt rnightbe to cut yotlt'losses strategy menclecl toward other more attracmarket and allocatethoseresollrces tive marketoPPortunities. Distributiort StrategY of distribr"rtion lnix, channels As an integralpart of the rnarketing A examined. to be periodically neecl (anoften n"gi".t.il controllable) pathwaythroughwhich goodsare marketing.honnel is an exchange and flmoved,flowing from the productionpoint to intermediaries, might includea manufacA channel consllmers. nally to the ultirnate althOugh retailers,anClcuStomers, turer, one or more miclcllemen, (e.g',buying situations business in mzrny areeviclent channels shorter via a Web site).Table 8.4 or wholesalers clirectfiom manufacturers in indr-rsanalysis focusfor the segmentation the customer iclentifies trial markets. (it tend to be well entrenched While marketingchannelclecisions shouldbe strategies present variable), is a relativelyfixeclrnarketing alalyzeclto determineif they are the most efficient ones possible. canhavea fasuchasusinga new sr-rpplier minor changes Sotnetitnes

t$

F.

CEILING PRICE

A 1-Segment Point Price 2-SegmentB Point Price 3-segmentC Point Price 4-segmentX Point Price
FLOOR PRICE Marketing T da r g e t 8 . 2 .P r i c e - B a s e FIGURE

152

O]V EIVT-ATI DBOOK OF MARKETSEGM HAN

SomedistribLrprogram. distribution vorableimpacton a company's optionsfor the firm includethe following: tion strategy interseveral A long channelLISeS short charutels: Long versLts promotion, transportation, sorting, to handlestorage, rnediaries anclrelatedfunctions.The other extretneis the short channel, which irnpliesa directrelationship. is to get the product If the objective versts tlcnrow channels: Wicte is ema wide channelstrategy as possible, into as many or-rtlets if is necessary networl< distribution ployecl. Building an extensive the recognize tacticsareused.Narower chernnels mass-lnarketing of this channelstratOne exantple valueof rnarketsegmentation. distributors with exch-rsive relationships egy might be to establish (U.S.regions or countries). that areterritory-based If the productis promotedto other versLLS Putsh ltull strategies: for (manufacturers to retailers, to wholesalers channelrnembers Groceryproductmanufacturis r-rsed. a push strategy example), (end r-rsers) to stirnuiate ers promotetheir goodsto consumers demand-a pull strategy. intermediate are of distribution Traditionalchannels irtnovate: Intitatet)ersl,ts Many times this is approach. the obviolls,safe,and uncreative the way to go. However,if a new or modified channelcan be In our neweconomy, edgeis likely to arise. found,a competitive (theInternet) may be found in rnarlcetspace channels distribution andcreating The needfor partnering aswell asthe rnarketplace. for twentyvalue chain networksis also a desirableapproach companies. fi rst-centr-rry Not everythingin life and in are polar extretnes. Thesestrategies of gray also occur. marketingis black and white. Varying degrees etc. or longer,wider or narrower, may be shorter a channel Therefore, may also innovation ernd pr-rll andirnitertion ancl of pr-rsh Combinations In addition,severalof thesechannelstrategyoptions be requirecl. (e.g.,shott,narrowchannels). sitnultaneously may be happening

g arhetin ategic TargetIl4 Str 8 . 4 .W h o l s Y o u rC u s t o m e r ? TABLE

153

Seller Manufacturer Wholesaler Retailer ftrm Servtce

Manufacturer Wholesaler

Retailer

S e r v i c eF i r m

X X

X X X X

X X X X

chanupward thereis occasional Although customer. a typical denotes Note:X sellingto a in bl'sinessmarkets(for eiample, a large retailer nel movement at the samechannel are directed efforts all marketing virtually smallwholesaler), (suchas manufacor downward to manuficturer) level(suchas manufacturer t u r e rt o w h o l e s a l e r ) .

TARGET MARKET STRATEGY: AI{ APPLICATIOI{ formato strategy approach than taking a bits-and-pieces Rarther to segmentation-based tion, think of the geitatt (holistic)approach to targetrnarkets Use profilesof selectecl clecisiolrnaking. marke.ting Furtherbehavior' pllrchase yollr cllstomers' pfeclictanclunderstancl realisticand responfor developing essential hor., sllchinsightsLtre to maximizemarketingperformance strategies sivesegment-specific in home improve(e.g.,*1., a,iciprofits). A companyspeciahz\ng rn*t, such or Ho-e Depot, can benefit by knowing its cllstomers (contractors) insicleanclout and otfering them a marketingprogram (seeTableB'5)' their needs thatbestsatisfies

SUMMARY
targetmarkets stllclyis complete;prospective The segmentation isWith rnethodological selectecl. ancl beenevaluatecl, havesurfacecl, takescenterstage'By understrategy us, seglrlentation suesbehincl And choosingthe right usel segments' customeibehavior, standing yollr fi1n can carvea profitpositionipgstrategies, clesigniigr-rniqge globalmarketplace' highly cornpetitive ablenichein toclay's

154

OIV EI,ITATI DBOOK OF MARKETSEGM HAIV egment T h eC o n t r a c t S or TABLE 8.5.

of Key Variables Variable Operationalization Se mentation Behavioral project work-fortradesmen, Professional Usersituation hires electrigeneral contractors, Carpenters, Userprofile plumbers, freelance painters, cians, etc. handymen,

level Knowledge Motivations program Marketing

in theirtrades Experts do a goodjob Earna living, valueproduct depth, goods, Quality sepaorders, advance addedservices, areas,easycreditterms, ratecheckout discounts volume professional discounts,

cllsstrategyoriginatesfrotn researching Sound segmentation anclyoLlr intenral (corporate)anclexternal (inclustry) tomer neecls The properrnix of the Four Ps leadsto marmarketingenvironments. its the natureof the procluct, strategyconsiclers Proch-rct ket success. andclifferentiation. productpolicies, life cycle,goodsclassifications, pricing is basedon yollr firm's opelatingphilosophy/image, Targetecl blend The promotional expectations. cost,andcustomer competition, and personalselling, pr-rblicity, advertising, cornbinesdatabases, efficiently and effectively. salespromotion to reachprirneprospects length,width, focus, relateto channel decisions Place(distribution) and innovativeness. market strategyis a segmentation/tzrrget Realize that successful processand that evaluation and synergistic integrative, systernatic, cycle.In Chapter9, we will and control corlpletesthe market-driven explain how to createa long-tenn,internalmarketingenvironment as well as analysis to maximizingthe valueof custolner condr-rcive tnarketers. facedby business challenges sornesegmentation

9 Chapter

s Value Segmentation' Enhancing

whenthetime for actionhasarrived, br-rt Taketime to cleliberate, go in. stopthinkingancl ( 18 15) BonaParte NaPoleon is analyzed;target marketshave been str-rcly The segmentation hasbeendestrategy arebehindr-rs; Methoclologicaiirr,-t"t identifiecl. u.top..t. Thereis stili importantwork to be completed-specificerlly' effla marketing organizationcapableof effectively and builcling -planning findings' This chapter onJ.*eiuting segmentati-on ciently We will examinehow to issLte. this ley implementation adclresses a gameplan for initicttlture, organizittional a cllstomer-clriven create activitiesand projects,the benefitsof a segrnentation ating neecled marfor br"rsiness challenges and segnrentation o,-rdit, ,.gr,:r.ntation keters.

CREATII'{GASEGMENTATIOI'{-DRIVEI'{ ORGANIZATIOIV canbe initiated prograln marketing cr-rstomer-centric A successful andplansegmentation cotntnit, ( 1)understa'rncl, stages: three by r-rsing 4 (Chapters the str-rdy I through3); (2) conduct onutys.i(Chaptels the segmentation-basecl implernent ancl (3) clevelop 7); ancl through in is shown Thisprocess stuclies). 9 andcase B ancl (chapters strategy Box 9.1. or with Some company yor-rr canrewarcl thatsegmentirtion Realize closing andsales methocls prospecting richei improved all of these
155

156

]\ E]YTATI O SEGM K OF MARKET DBOO HAIV

Framework BOX 9.1.A Segmentation

SegmentationPlanning . Understand definition/segmentation market . Commit strategy marketing to a segmentation-based . Usesegmentation guidelines planning and research Segmenting Markets . . . . . . . geographically the market Define variables (business demographics) firmographic Assess patterns product usage Analyze psychographics, as applicable organizational Incorporate techniques segmentation frombenefit Benefit segmentation for business approach Usethe nested the study Conduct

Segmentation Imp Iementation . Develop market strategy target a segmentation-based . Create culture corporate a segmentation-driven . Monitor performance segmentation and evaluate (a segtnent of the marketdebettercustotners ratios,new customers, (productsclosely alignedto cttssired),more satisfiedcustourers increased relationships, long-tenncustourer andwants), tomerneeds anclimprovedmarket opportunities, salesand profits,new business tneAsures. shareand shareof custonter and eftime,resollrces, may takeconsiderable While this process research on well-conceived br-rilds cornpany fort, a segmentation-led in to strivefor marketdontinance strategies anclplans differentiated oftenhave companies andtechnology Business markets. specialized orientationrather than a marketingrnind-set.Successful a prodr-rct segmentationstrategiesrequire a strong custotner colnrtitrnent. chalInsight 9 examineshow the r-rnique Segmentation Br-rsiness impactthe marketsegmenin high-techorgantzations lengespresent tationprocess.

ation's Value ing Segmcnt E nharuc

157

NESS CI{ BUSI 9: I{OW HIGII-TE I ON INSIGT{:[ GN,IE,N'TT{T SE I}USINE,SS CUUIUI{ESIN,IPACTSIIGN,,IENI.ATI0NSTI{AIDGY are primarily lcd and staffedtry colnpanies Most hi-uh-technoiogy t'aining in engiancleclucational mar'gers witrr backgrouncls technical These of the sciences' aticldevelopment, fesearclt procltlctiot'), neeriug, and products' new technologies, tor cleveloping arevalr-rable inclivicluals customers' well to technical-minded relate aucl busilessapplicatiols andflexaremoclltlar products manyhigh-tech As Workmanexplains, of [o meettheneeds applications fbr clifferent canbe configLrrecl ible ancl vahte-aclded is an importarnt Custonrization marketsegmenls. clifferent mustoften meshwith otherfirm's components, activitysincepr-oclucts s o t i w a r ca , t t dP c r i l l h c r a lIs . for inrrogrouncl cultureis a hreeding While the Lecltnology-orientecl typicaIIy fllngtions marketing cclmpanies, iincl vationfor start-up -urowing In the glowth organizations' positionin lr.i-eh-tech a subservient assltme role in findir]gnew opplaysau essenlial ntaLketing andmaturitystages, tew Sincetherezrre markets' target establishecl protecting ancl pot1unities genmanaget'S productandmarketing in the company, "pure" n-ii-Lrketers releexperience trainingor rnarketing acaclenlic erally havehacllirnitecj I se-u,ntcntation lo ntarke vanl. {'or Bayer, Hewlettln corporatetrainilg programsI couciutctccl many particiIn[el, Motorola,Novartis,anclothercompanies, Packarcl, havecomdegrees) ttnclergracluate MBAs with technical (inclLrcling pants session in a gne-day Segmelltation moreaboLtt that they leartrecl meptecl I strongly Theretbre, ec['rcation' of theiruniversity thecollrse rhiincluring funbtionand the marketsegmentzrtion to elevate Llfgetop manlrgemeul orgat-iizatious' in high-tech urentactivitics ntirnilge marketing asprogfesstrides positive to notice In thepastfew years,Iam pleasecl segmentlsttchas market llow creatingpositions atre siveorganizations Cttsopportuuities' oi new businesS manager Inailager, tion or segmeut new iob titles'This impliesthat andrelarecl matllger, toner relalionship that the corporation is gettingout-it is the cL$tontet'nol the nressage in business' for exchlngeandchirnge setsthe trueagepcla

158

OAI EIVTATI DBOOK OF MARKETSEGM HAIV

work closelywith shor,rld managers Ideally,market segmentation This approach on the stucly. and consultants strategists, researchers, It providespractical infonnation to today's hard-hittingqurestions. at a later date. Regtilar possiblemisunderstandings itro prech-rdes (inbetweenmanagement meetingsand two-way commllnication and the project team leads to clucling upper-levellxanagernent) The following eight segmentaresults. segrnentation higher-qr-rality pt ovide overall directionfor maxitnizguiclelines tion management plan: valuein your marketing ing segrnentation's with all other rnarketingmelnagetnent 1. Iltegrate segmentation activities. program. 2.Be activelyinvolvedin the segmentation in aboutthe valueof segrnentation 3. Have realisticexpectations yollr conlpany. 4. Listento the results. 5. Dare to be different. and projections. updates freqr-rent 6. Reqr-rest when necessary. assistance 7. Getprofessional as an investment. analysis 8. Treatsegtnentation

TATI O I'{ STRAT E GI C SE GM E TV AND I MPLEM EIVTATI ON CON SI DERATI OI{ S proof a firm's se-etnentation The currentlevel of sophistication and Businessmarketers shoulclbe assessed. grams anclprocesses importanceof segmentathe strategic to understand neecl managers and frameworksthat are practicaland easy to use, the tion, moclels with target the financialcostsassociated value of urarketresearch, where otganlzaand at'eas rnarketing,how to measureperfortrlance, techresollrces, (e.g.,personnel, arenecessary tional improvements etc.). niques, Accorclingto Jenkins anclMcDonald, the tlarket segmentation cttstomer-driven on two dirnensions: basecl functioncanbe evaluated rn a2 x 2 matt'ixconsistThis resuits integration. and organizational (see Figure9. l). whiie archetypes segrnentation ing of four possible

VaLue E nhancingSegrnentation's High

159

Bolt-on segmentation

Strategic segmentqtion

driven Customer
Sales-based segmentation

Structural segmentation
LoW

Low

on Organizational integrati

High

and Jenkins Mark (source: organizations of segmentation . Types 9.1 FIGURE and Archetypes organizational segmentition' McDonald,,,Maiket Malcolm pp'17-32') of Marketing,3l [1],1997, J6urnal ELtropean Agendas,'" Research of our stateandthe foct-ts is clearlythe clesired segmentatiol strategic other highly on both climensions-three rates book-i.e., n company segmentaarecommonlyfou1d.Sales-based strllctllres segmentation integration farespoorly on both cllstomerfocttsand organizational is lirnited to salesterritory analysis' tion; generallysegmentation clo a good job of integratingsegmentation Structuralseglnenters are not cllstomerdriven; typically' br-rt throughogtthe orgarnization Finally,bolt-on segmentasegmentation. they firacticeproclllct-level effectively clata uses.cllstomer thzrt an organization tion characterizes little else to integratesegmentacloes br-rt for prolrotionll pLllposes the orgelnization'2 tion thinkingthroughout Simkin of theUnitedKingdom Lynclon Sally Dibb ancl Professors for more issues implernentation incluitrialsegmentation havestr_rcliecl researchhas Their .lnpiri.o1, case,and conceptr"ral than a clecade. segprentation regarding problemareas more thal two clozen clarifiecl to new ideas' resistant company (e.g., no MIS in place, inJi'ctstt'ttctttre to undertake (lackof right personnel focns),process lack of customer role of process, of segmentation poor r-rnclerstanding segmentation, (ineffectivecolnetc.),and opercttiorzs plar-rning, strattegic corporate budsystem,inadequerte in the clistribr-rtion munication,infl-exiUitity A genmarketers' etc.)facedby business getingfor irnpletnentiition, is shortcornings thesesegmentation Jrot ir.rcription for remeclying

160

HAIVDB OOKOF MARKETSEGM EIYTATI OiV

slrmmarrzecl in Table9.1. Based work, Se-ernenon Dibb andSirnkin's tationSkillbuilder 9 posesnine key questions on implementation. Dibb andSimkin'sthree-stage now,future,ancl how approach is an insightfuJsegmentation planningtool for bnsiness mzrrketers. Accordingto the authors, the rLovv'is the core analyses thzrt needto be conducted regarding the existingrnarketing sitr-ration, the internaland externalenvironments, generaltrends,cr-rstomer desiresand buying behavior, colrlpetitive strategy, and productmanagement. The.fitture is the strategic thinkingrequiredaboutnew segmentation criteriaancl dimensions, segmentopportunities, and targetmarket positioning. The hovu is the segmentation irnplementation marndatte and assesses the Four Ps, resollrces and scheduling, and ongoing requirements (i.e.,productdevelopment, marketing research, training,erralua[ing performance, and communications).4
TABLE 9 . 1 .O v e r c o m i nS gegmentatio n plementatio lm n B arriers

lnfrastructure Procedural Operational (priorto undertaking (duringthe segmenta- (facilitates segmentasegmentation) tion process) tion implementation)
Review available market- Specify sequential steps ldentify key internal and ing intelligence process external for segmentation audiences people ldentify relevant and skills ldentify skillgaps, find provide consultants, training Prioritize information gaps,collect data,create/update MIS Designate internal champion(s) to communicate segmentation findings to key players

Get top management buy-in Planand facilitaie communication channels Earmark required resources Develop an internal orientationof segmentation objectives

Devisenecessary changes to organizational culture/systems personnel Haveregular debriefings Reallocate and of analyses, ideas resources basedon segment findings/plan Review fit with ongoing corporate strategy Specify schedule and responsibilities to rollout segment solutions Create mechanism for monitoring segment penormance

Source: Adapted fromSallyDibband L y n d o nS i m k i n " , Market Segmentation: Diagnosin ag n dT r e a t i n t g ," h e B a r r i e r slndustrial MarketingManagement,30, pp.609-625. 2001,

rttati on' s Valu e E nhancing Segm'e

161

prilnerin place,it is helpimplementation With this segrnentation activitiesthat needto be the specifictypesof research ful to observe performed,by whom, anclhow long they will take to complete(see can be used ar-rdit Tabieg.2). Next, we examinehow a segmentation conipanies. by progressive THE SEGMET,{TATION AUDIT One placeitselfunderthe microscope. periodically Everyfirm shoulcl is to consitr-ration yollr cunentmarketing of the bestwaysof assessing As audit.This is not an easytask,however. duct a marketsegmentation Hal W. Goetsch,forrner director of marketingfor the American Mar-

Initiatives Research TABLE9,2.Segmentation

Activity segmentation

Responsibility

Timeline (estimated)
1-2weeks

a seg- Topmanagement to developing Commit comPanY mentation-led

2-3 weeks marketsession Topmanagement, a visioning Conduct

training, Segmentation basicconcepts training, Segmentation customized profile Market audit Segmentation research, Seqmentation (e.g., project spdcialized new product)

external inomanaqement, rabl litator fadi [desi e) management,2-4weeks Marketing consultant management,4-6weeks Marketing consultant(s) (internal), researcher, 3-4weeks Marketing (external) 4-6weeks consultant 1 month Consultant management,2-3months Marketing consultant

management,3-4months Marketing research, Seqmentation (e.g., business consultant project mat"or unit) tp 2 years 6 months Topmanagement, research Segmentation management, marketing program organization, marketing consultants

162

rV O EI'{TATI SEGM OKOF MARKET HAIY DBO

NTM-ION SKII, LB UILDER 9: SIi GMENTATION SEG]VIE il\,IPLEMENTATION QUESTIONS

to the process? committed 1. Is manzrgentent the or-{anization? openthroughout 2. A1elinesof commLlnication rn (MIS) in placefor syste informatiort a malta-semeilt 3. Do you harve intelligence? marketing gatheri n*e nsus{'orlo-uconse internal dafaancl nrarketing havesul'ficient 4. I)o yoLr grouping marketsubsets? ic:ally tnissiort fit the ot'ganizatiotr's schetne segrnentation 5. Doesfhechosen irlitiatives? planning andstrategic persounel supportto provideapplopriate 6. Do you have txanagerial initiative'l for the se-rtnentAtion tinances and adequate in place1orinlormingboth internaland strategy 7. Is comrnunication constituencies? external the B. Are the right peoplein placeand cournittedlo opelationaliz,ing scheme? segmentation g. Has management shownlong-termcommitment[o segmentation andmonitoring? rollor-rt of MarAssistitntProl'essor Source;Prepaledby Scott A. ,Anderson, (llote: Questions I StornrLake,lor.'u'a. BuenaVista University, ketirtg, 6 re4 thror"rgh qllesliolls inlr'astruclLtre, 3 relatcto segnrcnttrlion through oll seg9 focLrs 7 thlor-rgh questions ancl processes, fer to segmenfation operations/irlplementation.) mentation

for problems canpresent auciits marketing explained, ketingAssociation He stated. theminternally. to aclminister whenit attempts a company obto seethesitr-ration effort is tnacle Evenwhena conscientions prounqllestionecl jectively,thefocuscanbe blurrecl by tradition, politics, corpol'ate programs, manipulatecl personalities, ceclures, beceruse is faLrlty Too often the pictr-rre or laziness. inclifference, elements or importatnt arenot reliable, guesses factsaremissing, or overlooked.'s havebeenignorecl environmenI of themarketing

Enhanring Segmentation's Value

163

by an To resolvethis problern,the auclitshouldbe administered marketingionsultant to minimize bias and maxrmlzeobjecor-rtside audit will gatherinformationabottt tivity. An effectivesegmentation more important,analyzethemaryolrr currentmarketingefforts ancl, ketinghealthof your firrn-sirnilar to the waysa medicalcheckupas's of the and weaknesses ,.rr"i one physicalwell-being.Strengths on the former, the aim is to capitalize companyarereadilyidentifiecl; while rectifyingthe latter. can benefit most from a marketing/ Wharttypes of organizations Althoughthis planningreviewshouldbe periodauclit? segmentoiion for all firms, it is particularlyhelpful for production icatty concluctecl troubleddivisions,high-percompanies, ancltechnicallyorientecl and nonprofit,organizaunits, yollng companies, forming br,rsiness tions.6 provide for a business questions overallmarketingauclit Goetsch's analysegmentation a cletailed a good startingpoint for unclertaking sis. tfre audit must be modified,however,to meet the informationFor example,an gatheringneedsof zrparticularfirm and indr.rstry. in six issues of thirty-onekey segmentation consisting o.tnpt.,tagctit in Box 9.2. This instruareasis summeuized marketingftrnctionarl at marketingexecutives to several personallyarclministerecl menrwars Division.The outputof this planninganddiagIntel'sOEM Sysrems marketingprobof somesignificant nostictool wasthe identification viableniche and ideasfor pursr"ring solutions, proposed lerns/issues,

Audit BOX9.2'The Segmentation

L SalesHistorY -1 line? the product downwithin . Howdo salesbreak and f rom-segments 2. Do you knowwheresalesare coming ication? classif customer potential? arenotmeeting products/marketsisegments 3. Which

whv?

Commitment ll. Marketing with all marketing ingrained planning marketing 1. ls formal, management? (continued)

ON EI,ITATI HAIYDB OOK OF MARKETSEGM

(continued) measure plan,setobjectives, a marketing 2. Do you implement fordeviation? pedormance, andadjust findplan largely basedon segmentation 3. ls the marketing ings? Environment lll, Marketing or and trendsposeopportunities 1. What majordevelopments to the comPanY? threats to thesedevelophavebeentakenin response 2. Whatactions mentsandtrends? Whatis the in technology? areoccurring changes 3. Whatmajor position in thesetechnologies? company's (strengths positions in the market 4. Whatare the competitors' etc.)? strategies, andweaknesses, profits, and rates, size,growth to market 5. What is happening considerations? market related Segments lV. Market '1 segments? whatarethe majormarket . In yourview, decibuying their make segments customer 2. Howdo different sions? foryourproduct? customers 3. Who are potential and monitored? measured, identified, 4. Are segments overlooked? segments 5. Are anysmallbut profitable the market? segment 6. Howdo you presently effective? approach segmentation 7. ls the present profiles for major customer detailed 8. Haveyou developed segments? market g. Should f romanybusiness or withdraw contract thecompany conseWhat wouldbe the short-and long-run segment? quences of thisdecision? on research? based initions def segment 10. Are market V. Product lineobjectives? 1. Whatarethe product and to gather,generate, 2. ls the companywell organized ideas? newproduct screen reproduct andmarket outadequate carry thecompany 3. Does newproducts? launching before search prodto weedout unprofitable inedprogram 4. ls therea well-def uctsand add newones?

E nhctncin g Segmentati on's Value

t65

withR&Dandotherkeydepart5. ls therea systematic liaison mentsin thecompany? Vl. Marketing Management '1 functional, along . Are marketing structured optimally activities product, lines? enduser, andterritorial to market seg2. Are marketing optimally resources allocated products, ments, andterritories? intelligence/ and timelymarketing 3, ls an adequate, accurate, in place? marketing information system usedby company effectively 4. ls the marketing research being makers? decision of prodanalyze the profitability 5. Doesmanagement regularly issues? and related territories, ucts,markets, "Conduct a CompreSource:Based on ideasfromHalW. Goetsch, Planning," Marketing Marketing Auditto lmprove hensive Marketing MarKotler, 2,p. 14 andfromPhilip News, March'1 8, 1983, Section and Conketing Management: Analysis,Planning,lmplementation, pp. (Englewood 1991), Cliffs, NJ:Prentice-Hall, Edition trol Seventh 726-728.

from this segkey findings sorne Table9.3 highlights opportunities. rnentation ar-rdit. F I RST. TWE NTYCEN TURY 82 B SEGMEI,ITATION :
A LOOK BACK, A LOOK AHEAD book (published editionof my marketsegmentation In the second was asto wheresegmentation my tl-roughts I offeredreaclers in 1994), headedby the year 2000. Thesewere not meantto be major, earthof what an extension relevations sincethey werebasically sharttering Rather,theseinsightswere dein the early 1990s. was developing to marketel s as to what to expectoverthe signedto providegr-ridance next few years. SegmentatiortThert relthatfive of theoriginalsix prognostications A look backshows have gained prominence. market segmentation evant to br-rsiness markets.) These (Note: one predictionfocusedsolely on consllmer

166

SEGMEIYTATIO|V OF N/IARKET TIAIVDBOOK E MS y s t e m s udiF t i n d i n g s - l n t eO l's S e g m e n t a t iA on 9.3. TABLE

MarketingDeficiencies Marketing Recommendations ldentified-

Niche/Segmentation Opportunities

driven Engineering

must input Becomeleading-edge Marketing nominal from to transition leadas wellas marketer segmentation rer. power{ul; manufactu ing-edge guide enshould insights grneenng,

Lackof marketing information busiNeedto redefine and nessmission objectives

segmentation market func- Hire research Marketing and a marketing manager to needs tion/department vrsronary. be established.
Work with SantaClara on division components this.

more enduser Provide lete/intesoIutions-comp grated systems.

i n o n es e g O P Oo n l y the rolesof how Reconcile Needto determine out. to branch need ment; DTO and OPO, are OMSO, or together separate the OSD business. OMSO,OPO,and DTO within (SBUs) presence in and attackniche Strengthen markets/seg- Explore Defining oil government sector, markets. mentswhereto compete low-power-conindustry, products, lowsumption prodcostinput/output clone software, ucts, highmanufacturers, endusers. volume

companywide marketing Develop view Getoutside accepted No widely philosophy, segmentation ltants, input-consu is of whatsegmentation Proprocesses. and professional models, fessors, in theorganization seminars. plants, power Elevators, segment vertical Understand Needto improve etc. machines, ultrasound needs. capabilities market renotalways Products of customer flective needs generic Conservative, plans product less timewriting product-specific Spend Conduct time andmore research proposals seomentation with custominteracting product develoPpri6r to ers. ment. M o t o r o ls ae , ll dif- U n l i k e on sustainable Build andlantools ng advantages.front-end ferentiati guages, ataggressively markets. tackniche Develop customer-centric sales lnternal fo r sales approach. ion-n eed reor ganizat morethanonesales force?

salesforce Unfocused

Segmentation'sValue E nh,ancing

167

increased marketing, the eraof micro/niche wereasfollows:entering Segprivate-sector globalSegmentation, technology, of computer Llse of acceptance and greater to gt; in importance, proviclers mentation bY organizations. segmentation was written by Jeny A classic work on market segmentation (yorarn) Wind abouttwenty-fiveyearsago.In this influentialarticle article segmentation most importantscholarly (arguably the seconcl thatbusiSrnith,seenote3, chapter 1),wind acknowledges uerrintt efsincemost segmentation str-rdy of fr-rrther nessmarketsare in neecl his in-depthtreatiseof the He conclucles forts are consllmerbasecl. with a setof twelve methprocess designandresearch segmentation While needsfor investigation. theoreiical,anclstrategic od-ological, in thefirst two madeprogress hetve andmarketresearchers acaclemics areworth revisitissues theory),Wincl'sstrategic ancl (research areals prioritiesarebriefly ing a quarterof a centurylater.His five strategic slrrlmartzedas follows : problem of the segmentation 1. New conceptualization new variablesas segmentation 2. Discoveringanclirnplementing bases for bases segmentation on successful knowleclge 3. Accumr-rlating markets ancl products,situations, approachesto translate segmentation 4. bxploring etlternative into marketingstrategies fi nclings (or Llnsllccessftrl) that weresuccessful of the companies 5. Str_rcjies strategiesT segmentation in implernenting Tctrgeting Strcttegic for of' Mttrket SegntentcLtiott: In Hctrtclbook Finns, Third Eclition,I havecarefullyconTecltnologl, ctncl Btrcittess planthesecritical points via a frirmeworkof segmentation siclerecl andtargetmarbases, segmentatiou br-rsiness relevant ning, selecting should marketers business Among the "big" questions ket strategy. to conbases be able to ar'swerffIorecompretely(and segmentation these: sult)include (geographics)? . Where cloI frnclmy custofflers (firmoof customers . What arethe organizationatl characteristics graphics)?

168

IV EIVTATIO DBOOK OF MARKETSEGM HAIV

. What aretheYbuYing(r-rsage)? .Whataretheirneeclsandclesires(benefits;? behav(pr-rrchasing cliscriminators . What are the key br-rying s)'? onalpsychographic ior/organizati SegmentatiortNow sincethe last edition of the book was published,'.t In the clecacle greatly number of clrivingmarketingforceshaveoccurredthat have attenthe increased Theseinch-rde segmentation. irnpactedbusiness rnarketing,a foctts on relationshipmarkettion on segment-of-one over price, buyersseekingvalueandbenefits retention, ing/custorner andan into a services the NAICS, a transition the Internetexplosion, partnerand a proliferationof strategic informatio'- bisecleconomy, to varying havebeenaddressed issues These alliances. ships/br_rsiness in this book. degrees initiativesare stratemarket segmentation Realizethat successfr-rl plans gic (not shortterrn);thereareno rnagicformulasor seven-point projectI In one lo'g-term segmentartion that will work in all cases. we develmanufacturer, clevice in with a major meclical was involvecl perioclto assess over a three-year stuclies oped four uniqueresearch fierce objectives' by rnanagement presented the myriaclof challenges ct-tstotner capabilities, personnel technologies, compltidon, changing wAnts,and so forth. marketersfirst objectively evaluate that br-rsiness I recomrnencl B'ild on what is worki'g sophistication. their level of segmentation havebeennethalt ptzzlefor a-rrears pieceslo ttresegurentation and aclcl It is tnuch betterto go slow glectedo. ur. in needof improvetnent. ..getit right" ratherthan atternpt the organito takeon lnore thetn ind auclit a'd/or the nested apzation can hanclle.The segrnentation 7) are superbbuildSkillbr-rilcler proach exercise(seeSegrnentation programs ing blocks for initiatingnew anclirnprovedsegurentation cotnpanies' in high-techand indr-rstriarl un.l pro.esses while creativity in market analysisis also highly encolrraged. acmost marketersanclmanagersfeel comfortablewith so-carlled gelerally these are inclustrysegmentations, cepted or recognized

Value gmentation's g Se Enhancin

169

Seldomdo they provide focused. ratherthancllstoffier proclllct batsecl trainingproIn segmentation advantage. a flrm with a competitive and clipauticipants I encourage engagements, gramsanclconsulting ents to think about throwing out the prevailingthinking and build Innovativesegmentation rnoclels. original, proprietarysegmentatiou modelsthat "breakthe mold'rhelP or multistage frameworks, bases, and nichesthat the competitionhas the firm flncl market segments overlooked. can be in relatedindustries/sectors benchmarking Segmentation to benchmark Nortel was advisecl insightful,too. As an exarnple, activitiesin the Dallas-FortWorth TexasInstrunents'segmentation leaders; were of sirnilarsize;are technology area.Both companies problelns,and opportunities. anclhavecomlrloncllstomers, challenges thatnewsegmentation alsomeans Ogr brief look ahead from marketingexperts, forefront.Basedon research will rise to tl're Staticsegmentaball revealsthis scenario. crystarl oLlrsegmentation by progressive by dynamicsegmentation to be replaced tion will starrt analymeansthat a segmentation The former approach companies.S thatmay be undeveloped anda basicstrategy sishasbeenconclucted beusescustomer for monthsor years.The latter approach changed marketson a to resegment anclpreferences) havior (e.g.,purchatses basis. regular sllperiorsegmenters business, Insteadof a focuson the custorner's to do a better customers their customers' will turn to unclerstanding an in-depthexploraThis requires job of segmenting their markets.e in the valuechainof all of the players behavior tion of the br-rying view A morestrategic andfinal users. interrnecliaries, complrny, focerl adcompetitive one thatencompasses is necessary, of segmentation F'inally,inallocation.l0 and resollrce metrket orientation, vantage, from simple decisions will extendsegmentation marrketers clustrial In this latterenvirelattionships. to complexbuyer-seller transirctions an in-depthunderfocus stressing strategic ronment,an increetsecl currentand future needsand of customercharacteristics, stancling I is advisable.r clesired relationship wants,and type of business

170

OF MARKETSEGIWENTATION HANDBOOK

SUMMARY
will continueto grow in statureas a fundatlental Segmentation orin br-rsiness marketingtool anil foundationfor marketingstrategy movementis large and small. While the customizalton gantzatrons, marketsegmen-learly important,in the nearterm,it will not replace havea limtation as a core marketingstrategy-generallycttstomers for ited nurnberof similar needsand wants.The two critical issr,res are ( 1) the adaptationand effecbusinessmarketing rnanagement and (2) the successful bases of segmentation utili zatron tive/efficient findingswithin the firm. of segmentation implementation realize the value of and MBA graduates Since seniorexecutives soundmarketingstrategy, 1s a precllrsorto developing segmentation Firms in in this area. training,andpublications expectmoreresearch, servicecornpanies) andbusiness (industrial,high-tech, alf industries marketingtool for attractthe power of this strartegic are discovering in globally competitivemarkets.How ing and retaining custorners aboutyou?

PARTIV: TS CAS SEGMEIVTATI OIVSTRATEGY

Case1

: Building CollinsAviationServices Model Segmentation a Cluster-Based

proclucts usedin a variRockwell Collins is a producerof avionics As and corporateaircraft applications. ety of militauy,comfirercial, the firm splln off its serpart of a strategy to build servicerevenlles, calledCollins enterprise business undera separate vice organrzation Aviation Services(CAS). Tl-reprevions service organnationconto eachof the firm's one assigned distinctcostcenters, of for-rr sistecl prirnary businessunits: GoverntnentSysterns(GS), Air Transport (BRS),andPassenger SysSystems Business andRegional Systerns, unit (CAS) reportsditems (PS).The $450 million per year service rectly to the firtn's CEO as'anew enterprise. from services value-added A primary missionof CAS is to br"rild supporttraditionallyprovided at no the technicalanclmaintenance of the firm's avionicsproducts.To additionalchargeto cr-rstorners grow out of this "entitlement"mode, the companyembarkedon a sobusiness in pursuitof broader andbuild alliances missionto invest that would be offeredon a "fee for service"betsis. h"rtions

MARKET DEFIAIITION AND SEGMENTATION High-Level PortfolioM anagement alongthe its markets defined CAS hars in 1999, its inception Since Technical Opgror-rps: Maintenance, prodLrct sr-rpport linesof intemal
Mr'.Buly hisperrnission. in thistextwitl-r BiirryandinclLrded by James Caseprepared worked He has planning and tnarketing. years in strategic of experience hasnventy-five ot'ganizations. andstart-Llp BF Cooclrich, Elcctric, Collins, General for Rockrvell

173

174

HA|V DBOOKOF MARKETSEGMEIVTATI OIV

erations, Materials,zrncl (seeExhibit 1.1). Afterrnarket Eqr-ripment Furthersegmentation is providedalong the lines of geography and portfoliosas a lneans business of aligningCAS with the otherenterprises(GS,BRS, PS). The selected segmentation provides scheme a consistent planning tool for annualresourceallocationplanningand business performancereviews. Shownin Exhibit 1.2arethe forecasted segments the company recorded aspartof its strategic financial plan.Sales aresegtnented (intemational by broadterritories verslls domestic), business unit affiliation,and CAS core competence portfolio. This is a rather internal view of the world and will likely impair futule business growth unlessa rnorecustomer-centric form of segmentation is applied.
Collins A vi a ti o n Services:

Product S

rt Gro

Rockwell Collins
ServiceParts . In-Flight Entertainment . Global Distribution -NorthAmerica

Maintenance Ooerations . Component Maintenance -CollinsProducts - N o n - C o l l i nS su p p l i e r s . IFE Onboard Maintenance

Customer Services . e-Business (WWW) Access . 2 4 x 7 x C u s t o m eR r esoonse Center . Supply Chain Management . AssetManagement . On-Site Technical Support

Technical Ooerations . Training Services -Maintenance Training -PiloVCrew Training . Information Manaoement

Aftermarket Equipment . Collins a n dN o n - C o l l i n Ss ourcing Avionics and Communications Equipment -Accessories and Airframe Components ' UsedEquipment Sales/Purchase LRU/SRU Exchange/Lease I

EXHIBIT 1. 1. M a r k eS t e g m e n t a t ib oy nP r o d u c t uppor S t roups G

ColLiru AuiationSeruices: BuiLdinsa Cluster-Based Sesmcntation Model 175

FYOl (MHO) Maintenance FY02 $37.7

FY03
$35 8 $55 0
sz.1.o
$,'tl :)

FY04
sJ5.aJ
sJ / _fJ

FYOS

FY06 s3B 7
$637

AirTransport Svstems
Business andRenional

$48.8 $49,9

ss7 2
s60 7
D ' Jt . Z

$50.0

Government Svstems Passenoer Svstems

Domestic MRO lnternational Total Maintenance

$ 1 7 ,4
$53 5 $169 6

s20.5
$500

s27,1
$250

$35.9
$27.5

$25.0

s 1 24 3 s293 0

s 1 52 8 9 $ 1 5,1 $145.7 $ 1 5 4 . 1 s t o o . t 1 s1170 $1 17.0 $128.7 $141 s t55 fl 6 8275.2 $268.9 $274.4 $295.7 $321 6

Service Parts AirTransoort Svstems Business and Reoional

Government Svstems

$72.5
$19.8
DIJ.U

DC/.1

s24.4
$253 $24.4 $131 2

s54 2 s24.4 s291

$542 $256

$564

$58.7

$33.5

s26 I $38,5

$28.2 $44 3

Passenqer Svstems
Total Service Parts

$27.4

s145 3

$18 3 $1 5 . 6 $126.0 $128 9

$'16.4 $18.9 $1 3 8 . 2 $ 1 5 0 1

Technical 0oerations
AirTransoort Svstems Business andReoional $05

s02
$20

Government Svstems Passenqer Svstems

Total Technical Ons

s 17 $r2 s02
s14 7

$02 $4 1

s02
$84

s1
s00
$13 3

$22.8 $0.0
$27.1

$45.5
$00
Q^/ 1

$02 s l 26 $59.5 $0.0

$72.3

$02 $17.0
$647 $0.0 $81 9

Aftermarket Snares AirTransoort Svstems

Business andFeoional

$2.8 $286

$24.7 $38.0

$270 $402
az.l

$295 $426

$323
q,{q I

$35.4
$47.8 $2.9

Government Svstems

$00

$20

$2.4

$2.6

EXHIBIT 1 . 2 .S a l e sP r o j e c t i o n (s i nM i l l i o n s )

An aclclitional fonn of segmentation is providedat the CAS execlltive level to dernonstrate how mllch business can be achieved from (newinstalled cllrrentclientsverslrs new accollnts base) andnew service initiatives. This form of segrnentation is usefr-rl to executives critical of thernarket growthrationale. share Finally,thecompany hasatten-rpted solxe segmentation grollpings (Exhibit 1.3)as by cr-rstomer furtherinput to the execLltive reviewprocess. The cofflpany cllrrently services about3,000cLlstomers. Up to this point, the describecl segmentation includes information usefulprintarilyto seniormanAgement andstrategic planningstaffin planningexercises. their elnnltzll Suchinformation, however, has little, if any,valLle to sales and marketing organizations seeking direction on targetprospects.

176

O]V EI{TATI OOK OF MARKETSEGM HA]VDB

Commercial Defense . D*padrnell grl' D'.i'cnse *DePots e Air Fore Navv Guard Coast AnnY *l)e lenseLogisries Ageue'v ' F*reignh{inistrl'of L}efense " PlaiiorrntlEiv'llirirttes

. r\irlines ' Air Freight Canjcrs . ReEii*tial t.)P*rat*rs ' Fractiotrai J*t OP*rat*rs JetOn'iisrs * C*rtrrilrat,l and Eusinens " TrainingSuPPliers ' Simulatcr h4aliufacturers ' Dealer*

. Third-ParfYSuPPliers . Original EquipmentManufacturers . UsedEquiPment Dealers

r roups b y C u s t o m eG n 1'3'Segmentatio EXHIBIT

enthe prodllct-oriented I' a move to becomemore salesoriented, servicerevenllegoalsaSa meansof incentiwere assigned terprises bids. in their prodLrct services to br-rncile yrzingthesales organrzations however'as rt beenwell acloPted, to tarreqlrired y characterizations is known of the corporateculture' of dstics,or overall firmographics targetkey serthat wottld help salespersonnel top serviceprospects vice accoLlnts. ()sageSegmentatiott that will process a segmentation The companyis now Llnclergoing basei on cha'nels to market' For exarnple' help it qualify prospects o1 of chanuel the 2001clistribution itive type. From this information' to be in the operator nessappears servicwhile airli'e repairshops channel, operator $80 million clollar potentially of sarles ing other airlinesaicount for nearly $35 'iillio'

Model 177 Segmentation Buildiruga Cluster-Based CollinsAuiationSeruices:

to CAS. Thereis little marketshareleft to be gainedin the available of the OEM and In contrast, CAS hasabouta quarter brokersegment. an approximate$15 million mocl center channel-this represents in total. segrnent, eachproductsalesperson As a marketingtool for sellingservices, sortedby thesechanneltypesof prospects is provideda database then refer etc. Salespersonnel OE,M,moclcenters, broker,operator, strategies of successful to their marketingtool kits for a description appliedto eachsegrnent. Geogruphic Segmentutiort usedby CAS relates climension classification the weakest Perhaps Despiteits worldwidemarketpresence, segmentation. to geographic territory.The global by geographic little is doneto qualify prospects the greatdisparityin culturalcharacterissalesforce acknowledges This has led the selling strategies. tics that would indeedinflr-rence suchas thatofferedin Hofstede's authorto believethat segmentation as by geography customers countryscoringwould bettercharacterize for buildinglong-termloyalty. well ashelp identify distinctstrategies . RECOMMENDED SEGMENTATION BY LOYALTY-BAS ED CHARACTERI STICS

countryculturecan help the besides variables Other segmentation retention. aimedat long-terrt customer plan sarles strategies company from the literatureand industryinto consider Among.thevariables terviewsarethe followine: 1. Degreeof country collectivism(relationalversllsindividualistic) 2. Degree of corporatestability and longevity (entrepreneurial institutionirl versLls ) and servicecritical ver3. Degreeof reliance(marketconstrained suslow risk frorn switchover) versllsautono4. Degreeof fraternalconnection(alliancebor,rnd mous )

178

SEGMEI'|TATIOIY HAMBOOK0F MARKET

these dialon-e canbeclustered prospects of hol sales An example profilefor oneparticr"ris shownin Exhibit 1.4. A segment mensions is shownin E,xhibit1.5. Harmonizers," the "Relational lar segment, Note the clepthof the marketinginforrnationavailablethrough this As its name irnplies,Relational firmographicclusteringapproach. andseekvendors/service want to be in the relationship rz,ers Harmon value,andare cleliver to a "partnership," providersthatarecomrnittecl trustworthv. SEGMENTATIOIV APPLIED TO DATE organizain Exhibit 1.6,the new service Overall,asdemonstratecl frettlework. a practicalsegmentation to haveclevelopecl tion appears alusefulin resource alongdimensions its business CAS segmented location planning, annllal performancereviews, and cotnpetency

.z , o
I i
F I !) I _{l) j
h

.9.

-c

,o )
J

C)

{)
. a -c ,=

rs ,o r
c ('r :E

'lf

':

= .9.
E

{u:
c

; _z E J

Small,Mature Operation

Clusters CAS's 1.4. EXHIBIT

ColLins Auiatiort Seruices: Bttilding a Cluster-Bctsed Segmentation Modet 179

Segment Characteristics Collectivist

Behaviors

Needs

Governed by relational Socialbenefits norms(solidarity, mutual goals, etc.) Highemphasis on conflictresolution (nonopportunistic)

50-100 aircraft

High trust in supplier (benevolence) Information exchange Shared values

Buyer/Supplier Power Balanced Strateqy

years 10(+) in business Highsenseof loyalty Trends Incumbent pedormanceModerate orowth and/or relational issues Customers Competitors Braathens Regional brethren (other airlines) Lanchile parties Third
Switching Opportunities

AirJamaica China Eastern Air2000

oEMs

Build social (high bonds facecontact, social events) Demonstrate benevolence, solidarity, and functional confiict resolution select frontline emproyeesin linewithcustomer traits andvalues Indoctrinate relational norms pledges Signal (trust) withrelational investments

EXHIBIT 1 . 5 .E x a m p l e Profile of theRelationa larmonizers H

growth planning.From the availabledata,it woulclappearthe company hasmore of a product/competency orientation andlessof a customer-centricperspective. A recent classification of customersby channeltypesappears to be a good startin marrying cr-rstolner channel profiles to serviceofferings.For future plannin-e, a programthat relatesfinnographic clustersto expected segrnent benefitsand predictedrelationalbehaviors would be most usefulin salestargeting strategies as well as business forecasting.

IB0

TATIOIU EIY K O!- MARKETSEGM DBOO HAIV

ffi
m

Segmentation Portfolio Enterprise

Segmentation Selling Long-Term

S nt r u c t u r e 1 . 6 .C A S ' sS e g m e n t a t i o EXHIBIT

E QUE STl0lfs D -OF - CAS Etv initiatives. theplos andconsof thecAS segmentatior"r r. Discuss clusthe firmographic ancl chanuels on clistribution Comment teringaPProach. etndtacticsfor the marketingstrategies 2. Developopfropriate Addressthe Five Ps in your reHartnonizers." "Relational people' place'ancl promotion' price, sponse-product, marketing? cttstomer-centric cAS evolvetowerrcl 3. How shoulcl

READI|VGS S(]GGESTED
M,gttAt'iortics "Avionics Afternarket Services:A Buyers MalkeL"' C. Aclarris, 2002, PP'4l -45' iine, APr-tl

lBI Segm,en'tation'Model Build,inga Cluster-Based Auiation Seruices: Col1irc the Culture:Disentangling "Attitucles, Values anclOrganizational Ceert Hofstecle" 9( 3) ,1998'pp' 411- 492' s, Org cL tti :(tti oS tttttcl i e 1 Concepts," AtticttionWeek Frank Jackman,"Afietmalket Networks Shapilg MRO Industry"' 2 0 01, pp' 61- 10' 1 5 4 (3 ), c t n cS l p a c eT e ch n o l o g r', ,.Determinants of Bttsiness-to-Br'LsiPatronage ," Jolffrrctl of Venclor Banwari Mittal, 1) 9 . p' l-32' ,9 9 p t t e sM s cLt'keting,6(4

Case2

Dev-SoftS.A.: Segmentatton in EuroPe andDistribution

of industrialsoftwarewith central Dev-Soft,a Spanishcleveloper in spain' The sllcce.ss increasing in Sevilla,enjoyecl officeslocatecl enterof Dev-Soft'sbusinett *ot srnail and medium-sized in focr-rs industries' andchemical prises(SMEs),mainly in the agr-icultural th9 1990s'the comDr-rring of tailor-madesoftwares]olutions' neecl steadily'reachinga1 18 ) companyirnprovecl n the "IndusffialComputerSoftwareand Sernesticmarket. were not conmarketprojections by 2002,previotts Nevertheless, prepackfoi Dev-soft'ssecond-product,lil", firmecl,andthe clemancl showedthat the sales Market analyses f,o.tdecreasecl. agedsoftware, softwaredevelopdeclinewas clueto growtng competitionby large wasnot signifisolutions' cttstotn corebusiness, ers.The company's The clevglolmlntof collaboby the new-comp.iition. cantlyaffected in need of rative ancl tong-t.rto r..tutionshipsyit! ct-tstomers provided aclvisoryservices or continuousr,-tpporr^and aclclitional that a shift in agreed Dev-Softrelativemarket,tnUiiity.Management of the firm was needed' th. .o,opetitivestrategy COM PAI'IYB AC KGRO U l'lD

of theincipiin thefratnework i n 1983 S.A.wasfounded Dev-Soft of the future President ent Spanishsoftwarelnarket' Felipe Garcfa, on thedevelopment a companyfocr-rsed thoughtof creating company,
oi ar'".ria,spainl onol'ji,iri t5-r.rri,i '.;;;;i;J ^ r . 6@ r r rnirl.es>, l r . q - > respecrcsng(lor <nvroman uar.es> @ .i' .i,"ni,.ga ;# ;;,ffr",.',.i't,.
t iv e i y .

ere:^,1"1Y.1111,,y,:'i::1,?,'l'1:'1.':"iiliSi; byi"# N4"'*"1^orte-a prepared Case pernilsslon' ti'reir i'tl-ristextwitl'r rnd-includecl

183

184

SEGME]VTATION OF MARKET HAI{DBOOK

to the clistir-rctive aclaptecl services arncl proclucts software of inch,rstrial therewasanopportuHe believed of SME,s. characteristics ancl needs the pfoperknow-how,to develop havingaccrllecl nity for companies, the needsof anclsttpply inclustrialsoftwaresolutionsto best meet SMEs. a loyal custotner During the 1990s,Dev-Soft had consolidated but also softwaresoh-rtions, base,clemandi'gnot only precresig'ecr carriedout in 2002showed A tnarketstr,rdy integralsoftwaresupport. to indr-re clropped,mainly hacl softwzrre of prepackaged that the sales market' in the Spanish by foreign enterprises cornpetition creasecl and reliability of the softthe qr-rality According to nanagentent, it possibleto by Dev-Softmacle cllfrently clevelopecl ware solr-rtions or worlclwide'New possibilities competein other marketsin E,r-rrope the attractiveness increased technologies via luternet-relatecl enablecl of a marketexPansion. software of inclustrial its potentialcustomers Dev-Soft classifiecl into two categories: by greater arecharacterized Thesecompanies erfierltrises: 1. Lar-ge andareableto investmorelnoneyin reliable flnancialresources its purchases this segment To a largeextent, solr-rtions. software softwarefrom global leaders' soluMost of thesoftwelre enterprises: 2. Sntallanclmeclitmt-sized of demancls tions availableon the market do not match the defrsolutions, of lack of flexibility of software SMEs because or a poof afterthepurchase, services andadvisory cientsupport confounders Dev-Soft's Therefore, relationship. price/qrioiity shouldbe ernphasized strategies that threebusiness clucled to the cuswidely adapted of flexiblesoh-rtions a. development tomer'sneeds, relationship-no trade-offbetweenprice b. gooclprice/quality and providecl' and services anclthl quafity of the prodr-rcts by the geogr-arphic enhatncecl c. close contactwith c1tstomers' proximity of potentialcustotners'

in Europe andDistribution Segmentation S.A.: Deu-\ofi,

185

I I{DU STRIAL SOFTWARE SECTOR Sectorincludescompanies Softwareand Services The Inch-rstrial and supportof inntat'keting, clevelopment, involveclin the clesign, serthatprovidecomputer andcompanies soltttions software clustrial The services anclsystemsintegration. vices such as maintenance designanalysis designautomation, inch-rcle provicle thesecolrlpiuties (CAD), computer-aided clesigr-r and optinizatron, compllter-aicled softwarre' (CAE), andengineering engineering (Unitecl Nations,2002),approxiAccordingto marketestimations softoffer tailor-made rnately80 percentof the softwarecompanies software and 42petcent packages, software percent wareservices,55 ina knowledge-based is essentially sector sotlware consultilg.Tl-re It is alsocharacterized requiringhighly skilledprofessionals. dr_rstry of the high costsinvolvedin the inbecause Uy high switchingCotm, Thns,i.tangible in a compllny. of suchsoftwaresolutions tegratio,r ancl relationships, know-how,cttstomer such as employees' assets when defor softwarecompanies highly relevant becorne technology marketstrategy. velopinga successful

DEV.SOFT'S PRODUCT LII{ES AI/D PRELIMIT{ARY ELS D I STRI B UTI OI,{ CHAI,{IV
offeredby the companycan be classtThe productsand services fieclinto the followirlgcategories: solt-ttions . Development software of taiior-made . Prepackaged soflware incluclingemployeetr-aining, . Support anclaclvisory services, services andotherrelatecl sllpport, cnstomer softwarer-rpgracles, These procluct lines require clifferentcapabilitiesand resollrces. reqlriredto sell prepackand rnaiketingefforts Lrre Strongi-inanciirl softwaresolutions lines (adapted ioftwlre. The other prodr-rct agecl of employees' ze the relevance must ernphasi anclsgpportservices)

186

I'{ EAITATIO DBOOK OF MARKETSEGM HA]Y

relationships-two factors that influence klow-how and ct-tstomer loyalty' anclcttstomer serviceqr-rality usually operations bt-tsiness The size and scopeof the companies' in this industry'Large determi'e the distributionchann.tr ernployed percentmarketsharetn2002) softwareo"u.tofers (approximately67 and providi their own supportservices' have their own distribr-rtors smaller softchannels. and Intlrnet-basecl both through traclitional (33 percentmarket share)havetheir own distribuware clevelopers These distributors. software with indr-rstrial andcontracts tion centers the Internetinto their distriintegrating increasingly are companies bution strategY. principal product lines The distributionchannelsfor Dev-soft's are very different: of the custotner-SLlpThe characteristics . Prepaclcctgecl softw'are: for this product line are lessercooperation' plier relelt'ionships a1d lessproductadaptaweakerbonds,lower switchingcosts, tion. relationsoltttiotts:The ct-tstomer-supplier . Aclaptecl so.ftware by closercooperaline are charactertzed shipsfor this prodr-rct tion,,*ong.,bonds,higherswitchingcosts,arrdhighproduct adaPtation. facili tatedmaral softw areclistributors coll aboration w ith inch-rstri ;' Dev-Soft's managers ket entry into new tal agreecltoprogressivel;tributioncentersinma:tion of Internet-related jor citiesin Spain.Du enterprises' Spanish amongDev-Soft'sct-tstomers-and technologies was relaB2B exchanges in general-the proportion of electronic tively small for the company'

SEGMEI'ITII'{GTHESOFTWAREMARKET Twodrivingforcesindr'rcedDev-Softtochangeitsbr-rsinessstrat( 1) the needto market segmentation: a thoror,rgh egy and uncleitake by foreign softwaredecompetitivepressllres respondto increased

e n in Europ -Sofi S, ationandD istributio A.: Segm,ent Deu

187

of cllrrent velopersanci(2) the desireto proviclebetter satisfaction andreqllirements. needs customers' canying out formal segTire companylackedpreviollsexperience only imIn the past,theyhad takeninto account mentationanalysis. aSSeg"Srzeof the companies" location" zlncl plicitly "geogrAphic hzrdto make a Now the marketingclepartment mentationcriteriar. criteria,e.g., careftrlchoiceamong a wide varietyof segmentation geo(SIC/NACEcodes); classification sizeof the company;inclustry needs,and preferences; attitudes, graphiclocationof the companY; etc. by customers; sor-rght benefits thatthe segmentation stated of the parketing clepartrnent The heacl ideally, on the sound identificationof cttstomer should be basecl, that an analysisof customerneeds, It was agreecl anclwernts. neecls would providethe bestsegmentaratherthan getleralmarkettrencls, given the wider targetmarketsthe comtion results.Nevertheless, to servein the near future, other criteria were taken pany inter"rded resollrces haveadeqr-rate into accountto ensllrethat Dev-soft wor,rld services. to provideqr-ralitY Process Developntentof the Segtnentatiort dimensions,the To optimize the Llseof clifferentsegmentation The potential process. as a rnultistage miirketinalysis was organized The following variby firmographics. were first analyzecl marrkets work: ( 1) cusin the segmentation ssivelyincluded ableswere succe in terms (3) colnpanysize, clarssification; tomerlocation;(2) inclustry volume"; and (4) cttstomer of "nurnberof employees"and "SAleS ou. segtlentati needs-basecl Loccttiott Geographic by locationof potentialcustonThe marketswerefirst segmented to enableeasieraccess technologies Internet-basecl ers. Althor-rgh not to serve chose management low costs, at relatively globalmarkets of international too far from Spainin the early stages locatecl markets the on flnancialanclrisk considerations, Basecl marketdeveloprnent.

lBB

OIV E]YTATI SEGM DBOOK OF MARKET HAIU

Europeancountries,theUniteclKirrgdorrr,Ireland,and Continental were initial targets. Rr"rssia

IndustrY processwas in the segtnentation introducecl The next climension The information about potential custolners industry classiflcation. purfrom a database wasobtainecl stage for this segmentation neecled The SIC/NACE code company' research marketing a frorn chased the setof potenwas specifiiaily usedto fuither reduce classification on .o*patibility with Dev-Soft'sexperience' Basecl tial custorrers. of potential and dlvelopmentreqr-rirements know-how, technology, were seindustries/sectors following the from colllpanies customers, Manufacturing' ancl Drugs,FoodsandBeverages, Chemicals, lected: Sizeof the ContPanY The third "firmographic"criteri' tech.nologic pany. ^Sofi Due to capacity, to continuewith its sl clecidecl sectt bursiness identified previously and salles of ernployees number customers: potential of size the sure with fewerthan500 employees 2.1).Companies volume(seen,xfriUit for subsequent volumeof lessthan$ 10 nrillionwereselected or sales analysis. -BaseclSegnrc ntatiott r N ee cls torne Ct,ts using firmographiccriteria The analysisof the potentialtnarket acrossdifferent Er-rropean resultedin a set of colnpaniesscattered werethengivena marcompanies these within Managers countries. llreasLlres, segmentation ket surveyconsiiing of f'urteen behavioral international with an experiencecl ir-rclose collaboration carried or-rt e firm' SPecial marketingresearch cttsto relatedto supportservices, and attitr currentimplementation bution channel

Deu-Sofi andDistributionin Europe S.A.: Segmentation S I Z EO F P O T E N T I AC LU S T O M E R S

Nu m b e r of employees
100-249 250-499

volume Sales < $ t Om i l l i o n > o r e q u at lo$10 million

o f E m p l o y e ea sn d S a l e sV o l u m e E x h i b i2 t . 1 ,D i s t r i b u t i o B na s e do n N u m b e r

TARGET MARKET SELECTI OI{

Dev-SoftemployedthreecriIn adclition to development capacity, teria in choosinsthe final setof tarsetcllstorners: The cornpanywas, by that time, in a 7. Financial cottstrctirtts: for the the strategies healthy financial situation.Nevertheless, targetmarketswere iiniited by the sizeof the company. plansraisedsome 2. Workforce: The company's marketexpansion in foreignInarquestions regarding the needecl skills to succeed technical problems with foreigncustorners, kets,e.g.,linguistic of foreign markets. preparation, and properunderstanding in each The degree of softwareadaptation ctclctptcttion: 3. Softvvctre of therelThe underestimation marketwas zlkey consideration. localevance of this tactorandthe costsinvolvedwith prodr-rct ization cor-rlcl be ii risk to avoid. results, Dev-Softidenof the marketresearch After a final analysis with the following cherracteristics: tified targetcompanies (inclr"rding the Europeancompanies and continental. Speinish United Kingdom,Ireland,andRussia) cornpanies Small and medium-sized

190

OF MAKKETSECME]YTATION HA]YDBOOK

. Special to related activities with econotnic focr*rs on enterprises the ChernicalanclAgricultural Sectors . Companies channel willing to usethe Internetas a distribution . High ratingson the relevance and of "quality supportservices" "loyalty in the relationship with suppliers" . "Price" an irnportantconcernin the buying decision . Potentialcr,rstomers to their needsof "product groupedaccording linguisticcriteria takinginto account especially adaptation,"

BUTIOIl SruA TEGY REVI SD{GTHE DI STRI

had to make management One of the most importantdecisions suit bestthe purposes that wor-rld the distributionchannels concerned the companyhave its of Dev-Soft in the selectedmerkets.Shor-rld of the sr-rpin order to keepcontrol over the qr,rality owlt distribr-rtors of strong business port servicesdelivered,and the establishment be differentfor the various the distributionchannels bonds?Shor,rld lines and differentfrom the onescurrentlyusedin Spain? prodr-rct shouldbe importhe Internet executives, Accordingto Dev-Soft's productsand services tant not only for the marketingof Dev-Soft's softwarein foreign marbut alsofor the distributionof prepackaged by the companyshowedthat a high canied or-rt kets.Market research towardthe had positiveattitudes of potentialcustomers percentage alreadyinteand othersherd use of the Web for softwarepurcherses, into their daily businesses. technologies Intemet-related gratecl optednot to rely solelyon the Internet management Nevertheless, to contract They decided in foreignmarkets. channel asa distribr,rtion in the key rnarketareas of industrialsoftwaredistributors the services marketentry. a sllccessful to assure of the the relativeirnportance Dev-Soft'sintentionis to increase Internetin the distributionand rnarketingstrategyof the company, confirm explosive over time. Various forecastsof B2B excha-nge growth in the next few years. According to solne of thern, B2R growth between2000 and 2005 in westernEuropeand North AmerOther respectively. 90 percentand 70 perceut, ica could be arouncl

in Europe andDistribution Segmentaiion S.A.: Deu-Sofi

191

show that worldwide BzB marketswill handle nrarketestirnations it wouldreach$12.5bilmarket $8.5rrillionby 2005.In the spanish lion by 2043. provides distribr-rtion feel thatI nternet-based Dev- Soft' s manager-s with high deAreas geographic to serveextensive greatopportunities showedthat the The marketanalyses gr.., of marketfragmentation. would be fasterin northern BzR exchange gro*th of Internet-tasecl by enabled marketaccess with easier together This sitr-ration, F,.rrop.. the attractiveconsiderably increased technologies, Internet-relatecl cottntries. nessof thesetargeted from an Internetbenefits threeaclclitional perceives Management for Dev-Soft: strategy B28 distribution basecl easier and faster market access,and tlet,eloprnent: l. SoJnvare requirements to infolnation on customer fasteraccess satisfaction, ivery ti tnes,hi ghercustomer clel t ing : shorter 2. M ctrke ancl valunUt. market information about cttstomerneedsprovicledbY the Internet highersatislower costsof supportservices, 3. Srqtltortsen,ices.' faction and customerloYaltY

R/SKS AAID CHALLEI'{ GE S in developers shouldbe facedby software A numberof challenges suchasgrowingcompetitiol in their effortsto serveforeign markets, to supporttheir and lack of an existingstructure the global rnarkets clientsin the exPorttnarket. of the competitivesituation,the marketing Given the fierceness monitormust place strongemphasitol the continuous clepartment with Dev-Soft'ssoftwareproductsand szrtisfaction ing of custorner of quality stlpportservices' the clelivery too. A sound must be carefullyassessed Financialconsiderations is criticalfor its sllclimited resources of the company's allocation highly skilled Dev-Softernploys In adclitiou, cessin new marrkets. A majorconcern preparation' technicarl with very goocl professionals

192

I O]'I IAI IU]V EIVTAT SEGM MAKKETSLGIVIf'IY HAN DBOOK Uf' OF MARKL''I' HANDBUUK

Lingr,ristic with foreigncustotners. is their ability to conductbr-rsiness managethart betweenthe marketsereissues differences and cr-rltr-rral Althor-rgh the ment anclstaff will haveto deal with in the nearTuture. and imageof the companyis strongin Spain,stronginbrandstatus Dev-Softin to establish marketingeffortswill be needed ternational the global marketplace. E N D - OF - CASE QUE STIOI{S Was this a to expandoverseas. l. Critique Dev-Soft'sclecision ? strategy wise marketing/cornpetitive 2. How will the wider market scopeimpact Dev-Soft'sproduct What problemsarelikely asDevallocation? lines andresollrce Soft entersnew foreign markets? a the segmentaconectly organize department J . Did the marketing apdirnensions of segmenteltion Was the selection tion process? have been used in the propriate?What other attributescor,rld analyses? segmentation channelsthe 4. Do you agreewith the selectionof distribr-rtion Given the analysis? companymadebasedon the segmentation fastergrowth of electronicmarketsin northernEurope,should Dev-Soft have relied solely on the Internet as a distribution channelfor thosernarkets?

SUGGESTEDREADINGS
CotiBases: "Busiuess Segnletltation MarkosH. Tsogas. ancl P, Kalatatis Stavros itt Morl;etittg gttertcttiott o.fSe JotLntcLl Eftectirreness," gruence anclPerceivecl p p .3 5 - 6 3 . 2(l),1998, Busirtess "SaleSoft. Inc. (A)." HcLrt'ortl P. Shapiro. anclBenson Das Narayanclas g-596-1./2 May 28. PLrblisliing. School (Boston: Business Harvalcl Case School

r996).

3 Case

Dow Corning: Value andCustomer Seqmentation

of a new In 1930,CorningGlassWorks beganthe development that combinedsomeof the bestproperties materialmadefrorn sancl worked Corningscientists Overthenextdecade, plastics. of glassancl to in Pittsbr-rrgh at the Mellon Instituteof Research with the scientists Dow Corningwasformed in 1'943 innovation. developthe prornising CorningGlassandthe Dow 50/50joint venturebetween asa start-,.rp, potential the commercial clevelop ChemicalCompanyto exploreancl Dow Corninggrew Over the comingdecades, of the new technology. joint ventures of all time, br-rsiness to be one of the most successfr-rl worldwicle' irnd7,500employees with $2.5 billion in sales the development Throughoutits history,Dow Corning pioneered asdiverse to be usedin applications innovatiorrs of silicontechnology textilesand waterrepeland polishes, anclgasket-waxes as sealants andskin careandantiperpaperprocessing, pulp ancl lent treatrnents, globalproducerof siliCorningis the largest Today,-Dow spirants. offeringfflorethan7,000differentsilicon-based materials, con-basecl competsometremendous against It cornpetes services. etncl prodr-rcts itors,includingGE andBayer. and new cllson innovattion was focr-rsed its strategy Historically, to Dominatethe Segtomer applicitions.It focusedancl organrzed innovation.Dow Corning grew through ment lniSl for custorner
The case s J. Nicholir DeBonis. Allen,ancl , E p r e p a re cl b yri cW. B a l i rrskiPhilip Case (New Success Bottont-Lirte X'[ctrketin,q for was cxtrictjd frorr'theirbook Vctltte-Bct.seti and pp. t,2003) , 147- 152, y o rk : M c G r a w-H i l a Mar ketin-Associatior s th eA rn e ri ca n l n cl conbe tnay Balinski Mr. of the McGraw-HillCou-rpanies. with perlrission is reprinted @syn e cti o tt.tl e t>. a t < e b a l i n ski tacted

193

194

]Y O EIYTATI GM SE K OT-MARKET DBOO HAIV

technologyfor deand deliveringthe most advanced discovering world4,800activepatents achieving applications, customer mancling it wasfashbefore focused wascustomer wide.As such,the company ionableto be so. CHANGE II{ THE MARKET SITUATIOI{ FOR DOW CORI,{IIVG inevitablymature.For a tnarketinnovator All rnarketinnovations within onebusiin two businesses like Dow Corning,growthresulted innothror-rgh growth it achieved to br-rsiness nessmodel. In acldition that were vation,Dow Corning alsogrew from maturinginnovations to beThe lattermatured becomingwidely usedin the marketplace. that loadedits salesstatements come Dow Corning'score business competitionthat ultiand manufacturingfacilities.It also attracted on its pricing and costposition. pressllre matelyexerted a gap between forcesthat created More ilsicliouswere the rnarrket what its maturing innovationscollld cornmandin the malketplace belief in the Dow Corning cr,rland what haclbecomea wiclespreacl should andbeing "ittttovative" to cr,rstorners tr-rre-theircornmitment business alwayscommanda higherprice.Over time, Dow Corning's and remanagement and organizational prQcesses, model,systems, its innovationfocus with its cuswardsfurtherevolvedto strengthen tomersand DTS. newproducts to grow andinnovate While Dow Corningcontinued the reality was that it was creating with cnstorners, and applications its own Paralleling an ever larger collectionof rnaturebusinesses. andgrowingtheirbusiwho wereinnovating werecustomers sllccess Both Dow Corning and its using Dow Corning materials. nesses but over tirne asthe together, prospered worlclwide 25,000customers the customers' tnatured, grew and their markets business custorners' changedwith Dow Corning.Many cllsvalueratio or relationship notjust to inDow Corning, needed maturingrnarkets in these tomers but to help them createnew value technology, novatenew prodr-rct lines to staycornpetitive proch-rct lower costsin their rnature thror,rgh the Cycle(DTC) of valuewas The needto Dominate in theirmarkets. emerging.

Value and Custom'er Segmentation Dou Corn,ing:

195

this throughinnovation, For a colnpanywith a historyof success mesa contreldictory represented needs ancl valLle in customer change model.It hadbuilt a Form Follows business sagefor Dow Corning's but innovation, to effectivelyservecustotner rnoclel Value'*business the model dicl not serve the changingcustomervalues that were that everclearer it wasbecorning in the market.In acldition, emerging ,on1. .ompetitors who dicl not investin innovatingwith cttstomers with a lower price. the customers'business werewilling to br-ry

HOW DID DOW CORI{IIIG TACKLE THIS CHALLET,{GE? InElectronics In the springof 2000,Dow CorningCorporation's to Unit began Business Materials Engineering on.taOuancecl clustry a more its marketwith the intentof developing exploreresegmenting sedstrategY. totner-focu cr-rs ,,Wejr-rst and from direct cllsknew from our customerresearch recalls that we were missingthe point somewhere," tomer feeclback "We were doing the right manager. the unit's general Ian Thackwray, andwe had a mollnfeedback thingsin termsof gettingthe customer bttt we were struggling to tain of knowleclg. in the organization, know what to clowith it." strategy team went through an extensive leaclership The business which it realizeda needto involve lnore peoplewho review,clr-rring "OLtrattitudehad beenthat we didn't interface. had clirectcr-rstomer How a strategy' iu orderto develop segmentation needs-basecl require "That strattegy reviewmeetingwas Thackwray. wrong we were,"SayS that cttstomer in changingolu thinking to the realtzalton a rnilestone of customerneedsis ancla trlle, futt, ind deepunclerstanding neecls and profltable business funcl.mentalto clevelopingLl rneaningfr-rl strategy." 2000with thirty-six in September meetingwasconvenecl A seconcl team, technical,marketing,sales,sr-rpply peoplefrom the br-rsiness
,i,Form of Eric w. BalinskiandSYNECTION' is a triidemark FollowsValLre

196

OIV EIVTATI DBOOK OF MARKETSEGM HA]Y

ri

imwas to reevaluate grollps. The objective chain,and new business as a basisfor reviewing value segmentation plicationsof customer strategY. the business's idea "The reallyexcitingthingwasthatno onehada preconceived of what the outcolllewould be and everyonewent in with an open for Marketing thenresponsible Pettersen, Babette mind," remembers Sector. Indr-rstry in the Electronics Development ald New Business of ollr cllsreappraisal "The idea was to stimr-rlate an open-minded knowlformulatingour intimatecustomer tomervaluesegmentation, from both approaches frameworksanclsegmentation edgealongsicle setof cllsThe resulting examples." practical modelsancl theoretical E,lectronwas simple,but Dow Cornirtg's tomer valuecommitments its strategyfrom this cttstonter had never cleveloped ics Br.rsiness -based before. perspective needs custotner andwe elssigned "We definecl profilecleachsegment ancl and evaluate to qr-rantify enablingr-rs into eachsegment, applications as andour ability to compete in termsof attractiveness eachsegment Thackwrayexplains' a basisfor targeting," prinmarketing of applyingthe value-basecl Basedon the sLlccess were sirnilar sessions Br-rsiness, Inch-rstry ciples in the Electronics units. "This is where the by each of the global br-rsiness conclucted Director real insight came,"relatesScott Fuson,Global Execr,rtive segneeds-based "After applyingthe customer Marketing and Sales. we beganto realizethattherewas a signifimentationmethodology, who buy for very different reacant amount of existing custorners look at our customers, an enterprise-wicle T6is lecltrsto develop sons. andbusiness valuepropositions compelling ancl clistinct thencreating we identified. segurents neecls-based modelsfor eachof the custorner how this also bettertook ad"We were particr-rlarly exciteclabor-rt continues structureand operatiotts," vantageof our market-based resultedfrom convertingthe moclels Fuson. "These new business value that better into cr-rstomer-focusecl segmentation leecls-based moclelperand structureto irlprove business aligneclollr resoLuces that there Dow Corningrecognized formancewith our customers." sought. was other real valuethat its cttstotners

19
r! t! lf +1

ri

la; l.

Value and Custom'er Dow Corning:Segmentation

197

is that it forcedLlsto reap"A critical outconte of the reevah-ration Fllson exbrandpresence," positioningzrnd praiseour entirentarrket and hierarchyfor the attributes, the essence, ptninr. This ilch-rclecl of an entirelynewbusiness itself andthe creation brarncl bo* Cornin-e supply.This new a price-reliable that requirecl moclelfor customers XIAMETER brernd' the company's became positioning brzincl VALUE.BASED MARKETII{G AT DOW CORT'{ING: G DI SCOVE RI N G AN D UI{ D E RSTANDI T'{ THE CUSTOMER innovation,Dow custotner on cleveloping As a companybr-rilt from nuinformation amountof customer Corninghacli substantial regularcllsbase, of its customer str-rclies purchasecl merollssolrrces: firm, and research by an or-rtsicle concluctecl str-rclies tomer satisfaction Manits CustomerRelationship thror-rgh regularcustomerfeeclback (CRM) process. agement of its cllsto a full and deepunderstanding A1l of this contributecl Yet it waswhetrDow Corning vllue expectations. arncl tomers'neecls and a cllsto look at its informationfrom both a segmentation started that the informationstartedto tell the comtomer value perspective valuesegments threebroadcustomer pany new things.For exarnple, (2) ( 1) cnstomers who innovateinto new markets,, were iclentifiecl: who were in fast-growingmarkets,and (3) cttstomers cr-rstomers in large, highly looking to reclucecosts and implove prodr-rctivity competitivemarkets. to are definedas thosecotnrnitted ctrstotners Innot,cttion-J'octtsed and state-of-the-zrrt being flrst to the marketwith new technologies innovationand creationof r-rnique anclwho seekadvancecl proclucts, valuecomDow Corning'scttstomer or marketpositions. technical is both innovativesolutions mitrlent for this grollp of cnstoffrers in asandexpertise services ancl technologies on cutting-eclge basecl to market faster with better to get their proclr-rcts sisting customers cttstomers. for the customers' valueclifferentiators reformuIndustries Reliance For exarrple,Dow Coming helpecl the lining's innerlining to irnprove late its fiber-opticcableconclr-rit

198

N SEGMEIVTATI) HAt lDB)O K OF I\4ARKET

fiber opticsto go into allowed slipperiness The superior slipperiness. RelianceIndr-rsconduit fasterand at longer lengths.This enabled fasterand to install fiber-opticcablessi-qnificantly tries' custorners Dow Corning for 30 to 50 percentlower cost.In anotherinstance, cleaner companyget the new household a consluler proclucts helpecl of the cleanerin its to market fasterby taking on the manufactr-rring own facilities. nmrketsare definedas thoselooking in fast-grow,irtg Cutstorners for easy,drop-in solutionsthat give them speed,efficiency,conveTheir valuedrivers nience,and reliabilityto meet growth clemands. and demonstrated are lower cost offeringswith provenperformance use. For them, Dow Corning'scustomervalue commitmentoffers chzrin and sr"rpply manufercturing, in technology, provenperformance management. and adhesives global sealants a customer's Dow Corninghelpecl to bullt deto convert by working with its targercustorners business to a new 8,000-ga1drutns from 55-gallon The change livery systems. and labor costs,droppedwaste hanclling facility rech-rced lon storage 7 percent,and freedup 10,000sqllarefeet of spacein the cttstotner's operation. typically with mcLt'kets, in large, highlt, cornpetitit'e Cttstonters productsin the rnaturestageof the productlife cycle,fortn the thircl expectimproved processefficiency alnd iegment. These customers maximumprofit to help them achieve in manufactr-rring effectiveness frornsupThey arelookingfor suchthingsasideas costs. by redr-rcing inventorycontroland supply chain capabilities, pliers,or-rtsourcing solucost-effective Dow Corning's assistance. disposal ancl services, valuecomtlitment clownis the customer tionsthatdriveoverallcosts value segment. for this cltstotner was softfor thesecustomers One tool Dow Corning developecl for critical plant ware that coulclmore preciselypinpoint h-rbrication plantoperenabled Oil Analysissoftwzrre The Integrated equipment. ationsto perform a completeoil ancliubricationanalysison vitarl thanfollow rourather programs maintenance to optirnize equipment maintenance. tine schedulecl

om'er Value D ow Cornirtg : Segmentation'and Cust

199

profileeachsegclear,"we coulddefineancl As Thackwraymakes enablingLls in eachsegment' ment anclwe coulcliclentifyct-tstomers and in termsof attractiveness eachsegtnent to quantify anclevaluate Building vallreto thesecustomers." superior our ability to cleliver,a br"rsiness Llponthe three broad segmentgroupings,the electronics and on the needs based valuesegments new cllstomer seven iclentifecl valuesof its cttstomers. trom about cttstomers The key was to take all the variousinpr-rts and creative multiple sollrcesand to integratethem in an interactive outputthathelpedthe business aninsightfr-rl to cleliver thinkingprocess Dow Success' to its ct-tstomers' what reallymatterecl betterunclerstancl of customervaluefor its busia summarymertrix Corning cleveloped frameworkthat can a genericsegmentation Exhibit 3.1 presents ness. valuesegments' cttstomer to assess by otherbusinesses be aclapted

Er{D - OF - CASE QUE STIOI{S andthe process planning segmentation Dow corning's I . Critique groupings' valuesegment customer ttueebroacl resulting andwhy? Dow Corlingpurslle should rnarket(s) 2. Whichtarget with the targets Dow Cornilg's tnarket andcontrast 3. Compare in Exhibit3' 1' proflles segrnent vatlue four customer in Exhibit3.1(innosegments value 4. Whichof thefourcustomer most economizers) and/or operationalizers, optirnizers, vators, is trying to atthatyour company markets thetarget resembles
tractor retain? thinking to tmapply cllstomervarlue 5. How can yollr compelny and strategies? analyses prove yollr marketsegtnentation

SUGGESTEDREADII'IGS
Mrtrketirtgfor philipAller-r, value-Based ancl Ericw. Balinski, Debonis, J.Nicliolas (NewYork:McGrawCLtstonlerVctltte to Crecftittg 5 Steps LilrcSttcca.rs: Botrottt 2003)' MartetingAssociation, Tlie Amer-ican Hill ancl web site.<rrttp://www.crowco'ring.com/content/an'ournce/xiameter Dow cor.'ir-rg ' asP> -back-srouuder.

E]VTATI O]V DBOOKOF MARKETSEGM HAIV

4: Segment 3: Segment 2: Segment S e g me1 n:t Economizers 0perationalizers 0ptimizers lnnovators onbest Focused atoptimizing followers; let Best risk Fast First tomarket, of Behavior pricing; trade-offs to and acquisition total else for someone in takers;reputation Customers +h^ l^+^^+;^l^^^ out cost drive prove, costs exploit use then Utu rdtuJt ruuaJ Segments market drive optimi-Continually chain Supply responsive Fast and in Seg-I o a d i n n i d o e q n r Value Need -^+i^^ ^,,^^^"+ of busiout costs tomake 4 d u u r| ) u p p u t r support tocreate technology ment NESS transitions edoe logistics Production; produc- Supply chain;pr oMarketing; marketing;enTypical CustomerR&D; purchasinq duction oineerino tion; Drivers Cost asmuch generated ofopera- Selling by Efficiency generated Profit Profit Profit Customer's ^ + , , U^ ^ ^ h ^ ^ ^ l ' , ^ ^ profit d J ur rudvry dJ 5 r . u i l drives quickly tions capitalizing of a stream through Model possible profit drives onooportunities innovation protection;Purchasing costs; share andits Share tomarket; Market DoThese Time What operpurchasing market share; price/cost costs; growth; resp0nse; market Customers ation costs chain costs supplv costs variances develooment Measure? declining but ismature; Market sees op- Market ideas are Customer Market Unique Customer's customers race these win the portunity need to battles and in market; valued DriversiSituation on growth efficiently hang inmar- torun fewcompetitors can over ket match areexitof offer- Suppliers offerings Unbundling wants to Variable Leading Competi-Competitor will ing, some but a la carte ings and play differentiawithhigh one-upmanship tive0ffering/ operastreamline cus- purchasing toattract -qituation tion tosurvive tions tomers Centered ondriving on Centered onhelping ondriving Centered Your Strategic Centered possible cost supplyevery streamlining capture inideas,customers innovation Value Commitment out ofdoing chain, ease opportunities products, and solu- growth business tions

t atrix C u s t o m eV r a l u eS e g m e n M 3 . 1 .G e n e r i c EXHIBIT

4 Case

: LexmarkInternational New MarketSPace Creating

that forwarcl-thinking is an approach market spctce neyv CrecLtittg companiescan use to achievetl competitivemarketingadvantage. (substiof new marketspace the six components This caseadclresses grollpswithin an industry,redefiningbr-ryer strategic inclustries, tr-rte functionaland emoservices, atrcl prodr-rcts grolllls,complementary ancltime), individuallyand collectively. iional ilclustryorientation, utilized (andmight have We will explainhow Lexmark International as it went head-todifferentiators utilized) severalof thesestrategic in the globalprinter industry. headwith the leadingmanufacturers

II]TRODUCTION andimprovinga for understanding is essential strattegy A cohesive This strategyshould include a performance. company'sbusiness rivals.Many andotttvalue to or-rtthink tliat is clesigned clearapproach Somecompanies by fiercecompetition. areoverwhelmed compalries Othersareunableto andadjustto trends. lack the ability to recognize Oththat is readily available. exploit marketintelligence acquireancl to stayin the market,let alone erssimply clonot havethe wherewithal leapfrogthe cotnpetitior-r.
is a PhD. Dr. Edwards Art Weinstein, DIBA, ancl Edwards. by JLrde Caseplepared ProAdjr"rnct and-an Mana-eenren_t, Martin, Aircraft Traffic Anaiysrat Lockheed Mar.ket An Laurel,Marylirnd. CapitolCollegeof Engir-reering, School, lessori1 the Cracluate (ed.), the of Proceeclirtgs Ponsford in Brenda oi thiscasewas publishecl earlierversiou Asso(Hilton_Heac], SC: rt'[eetirtg AnrtLtcil Prcrctice cLntl Tlteotit' oJ'fu[ttrketittg A5s6citrtion pp'2.3: 5-9' 21-29,2003), Marcl-t Practice, Tirlory ancl of lylirketin-e ciritiort

201

202

OIV HAl\ DBOOK OF MARKETSEGMETVTATI

Rather than focusing on building market share,market-driving and SAP haverevoCNN, Dell, FedE,x, firms suchas Atnazon.conl, havecreated companies Theseinnovative their industries. lr-rtionizecl infeto makecoinpetitors new marketsor redefinedtheir br-rsinesses rior or obsolete. as NMS) is a abbreviated Creatingnew market space(hereafter growth in marnodelfor extencling anclstrategic marketingresponse frorn theperThis lnay be bestunderstoocl or maturedmarkets. tr-rring with productsand that specificmarketsarealreadysaturated spective can redesignthe contpanies yet creativeentreprener-rrial sr-rppliers, opto find newbusiness markets by redefining landscape cornpetitive portr-rnities. with NMS as associated the components studyexamines This case strategy.The a fresh approachto market definition/segmentation how NMS ideascan be etncasedemonstrates LexmarkInternational ployed to gain a competitive advantagein the printer indr-rstry. for marketingproby offeringguidelines Finally,this caseconcludes arenals. on how to competein new tnzrrket and managers fessionals

MARIrcT SPACE? WHATIS IVEW

is the only way (1999)statethat innovatiort Kim anclMar-rborgne can break free frour the pack when faced with cutthat cornpanies out a fr-rndastake thatorganizations It is essential throatcornpetition. or servicesfor mentally new market spaceby creatingproclucts that the best This suggests which there are no clirectcompetitors. for "cornering and/orstrategies processes havedeveloped companies marketniches. the rnarket"or "nailing down" particr,rlar fineit reqr-rires Defining marketsis not a one-shoteffort; rzrther, for clefiningrnarketspaces and periodic reviews.Gr-ridelines tr-rning (2000): were providedby Vandermerwe view of the customer. 1. Take an integrated thanthe sumof the coreitems. thataregreater 2. Look for arenas over time. can be expanded thzrt 3. Find marketspaces

space creatingNewllilarket IexmnrkInternational:

203

productiines.' 4. Brictge industryboundaries. 5. Cut across over a lifetime. activities 6. Spancustomer of NMS consists creating (1999)explain, As Kim andMauborgne to evaluatein opportunity for managers six areasof cornparative (seeExhibit 4.1).This approach making effectivemarketclecisions in the marketand latecomers can work well for both early entrzrnts place. Note that Lexmark Internationalwas a late entrantinto the The next sectiondetailshow Lexmark emgtotrotprinter inclustry. in its marketplanning' ployedNMS initiatives

SUBSTITUTE INDUSTRIES

STRATEGIC AN WITHIN GROUPS INDUSTRY

NewMarket Space

AND FUNCTIONAL INDUSTRY EMOTIONAL ORIENTATION

rom A rs (source : d a p t efd t pace f N e wM a r k eS T h es i x p a r a m e t e o E X H I B I4 T. 1 . Harvard space," "creating NewMarket Mauborgne, chan w. Kimand Renee 1]9 , p .12 9 ' 1 4 2 ' ) R , 9 9p Busines se v i e w , 7 7 [ 1

204

I OAI TAT EIV DBOOK OF MARKETSEGM HA]Y

AL : AT I O l'{ LE XM ARK I l{ TE Rl'{ NMS AS A COMPETITIVE MARKETII]G TOOL

as thatbegan cornpany LexmarkIlternationalis a twelve-year-old techand owns innovative an IBM spin-off,The companyclevelops from technologyand nologiesthat have won ffrorethan 800 awarcls Lexrnark has grown to becolrlea publicationsworlclwicle. business and services). (printers, supplies, globalleaderin printingsolr-rtiols tnorethan $3.8 billion in in the year 2000,the companygeneratecl 56 perin profit,andobtained a billion clollars a harlf earnecl revenlre, markets. from international centof its business fortnula was its Clearly,a key ingredientin the Lexurarksuccess in the domain of NMS. Were these ability to apply ideasthat resicle in a, deliberateway, i.e', as part of I{MS principles executecl to know the answerto this It is di{ficr,rlt Lexmark's global strategy? to exatnitte anclworthwhile,however, qllery,for sure.It is interesting part of Lexmark'sglobalmarbecame of theseelements how several keting strategy. of NMS is the concept with creating The flrst elementassociated As an extrelrleexalnple,one industries." "looking acrosssubstitr-rte telee-rnailservice'long-distance stamps, rnightargllethat postage anclairlineticketsare all cornpetivideo conferencing, phoneca1ls, in global iive offerings.To achieveanclsustainan effectivepresence strategy an integrated to designand execute it is necessaly markets, a varietyof inof urarketentriesacross that coversthe fr-rllspectrum dr-rstries. by usilg its typethis strategy Lexmark ernployed Updor-rbtedly, to pavethe way for its dot-rnaanclindustrycontacts writer procl-rcts for With the marketwell establishecl trix ancllow-endlaserprinters. of its overall Lexmarkthenrloveclon to the nextstage proclucts, these laserprintfor its top-of-the-line strategy-tappingmarketsegments useda subthatLexmarkintentionally it appears ers.From theoutset, a viablemarketfor its emergto clevelop (typewriters) stituteindr,rstry Lexmarkproducts Early generation laserprintersector. ing high-encl printersprovidedbrandrecognianclclot-rnatrix suchas typewriters

MarketSpace CreatinglYeus Inxnwrk International:

205

this to the marketplace; signaling qLlality ancl tion, pfice leaclership, massandniche tu.i lesscliversified aclvantag. a cornpetitive yielclecl industry' marketplayersin the globalprinting NMS by targeting"strategic groups Lexmauk createcl Seconcl, within an inare companies gror-rps within eachindustry."Strategic and perforA si*ular ,,iotJgy, oft"n basedon price that pr.rrslre clr-rstry of users marketincluded Jo.npuny's the Initially, manceclimensions. comprinters,and typewriters.Lexmark laser printers,clot-rnatrix userswho did not havean encl targeted that groLlp strategic a petedin printing (the firrn createda new laser high-end for need imrneclierte in were locatecl cllstomers These inclr-rstry). the in segment market areas from variousgeographical came ancl inclustries differe't many aroundthe world. regtonsln the internationalmarket into three Lextnark clividecl (2) canuniteclStates: the global markethorizon:(1) the scanning the Midclle attclAsia Pacific; and (3) Europe' Latin Ari'rerica, aclar, often lacked the prospects East, anclAfrica. In emergingmarkets, purchasingpowertobuyexpensiveequiprnentandthenecessary technologies' printing power of aclvanced training to maximize tl-re infrastructure lackedthetechnological countr-ies Sincemanycleveloping formulateda stratits laserandcolor inkjet printers'Lexmark to absorb egytoCapturethetypewriternno.tot-,.,"'atrixbusiness;later,itintrodr-rced of eachcountryallowed' printersas the economies more sophisticated (lifelong)stratebuyersaslong-term these Hence,Lexmarktargetecl gic custolners. Third,Lexmarkachieveclacompetitiveaclvantageby..redefining marketintelliby collecting information exploited It grollps." buyer (1986) valuechain theory sllgPorter's As users. encl erbottt gence powerof thebuyeris a fundamental gests,the bargaining/purchasing of the importance recognized clto'ty LextnarL consicleratiot-t. market low-end, but highprovicled company the exatlple, an As buyers. were not met whoseneeds printersto specificcnstomers lzrser qr-rality printerswere often priced belaser HP (1/o te: Hewlett-Pirckarcl. by Sinceits ilcepconsLlmers') powerof average yonclthe pr-rrchasing to introducea Lexmark'sstrategy tion into the printer market,it was

206

ON EIVTATI DBOOK OT-MARKETSEGM HA\V

variety cf laserprintersto meet market needsthat were previor-rsly untappedby the competition.As a result, Lexmark or-rtperformecl of the laser other rivals in many key segrnents erncl Hewlett-Parckard printer market. ada competitive it can be shownthat Lexmark obtair-red For-1th, by offering"cotttlaserproclucts, for it high-encl peuticr-rlarly vantage, and services"to its typewriter and dot-matrix plementaryproclucts by providing channelrelatiot-tships Lexmark developecl customers. Straneeds. customer thatmet immediate and services quality goocls in host countries with loceildistributors tegic allianceswere createcl to designtheir own effective the freedorn the clistribr-rtors that allowecl anclprograms.Lexmark also providedtraining marketingstrategies its products. to betterr-rtilize and custolners to enableintermediaries for the productsand services upgraded Laler,thecompanyrolleclor-rt Thus, Lextlark createdNMS by internationalmarkets,as neeclecl. anclservicewhere the cotnpetiprodr-rcts providing complementary ada global cornpetitive tion failed to closo, and Lexmark achieved vantagein the process. Lexmark's overall marketingstrategyand perforIn considering a competithe companyachieved be stated: mance,a fifth point cern objectiveis to develop over "time." The cornpany'S tive advantage new business for life. Initially, Lexrnarkacqr-rired keepcustomers ancl using dot-matrixprintbasicprinting needs, by meetingcr-rstomers' custotners Matryof these printertypes,or services. ers,otherlow-encl regionsof the world with linritedftrnds were locatedin developing Over time, as these laserproducts. or capacityto absorbhigh-encl and their cerpacity expancled etndcustomers countries,companies, Lexntark introducedstateeconorlic ancltechnicalinfrastructures, of-the-artlaser printers into thosemarkets.A variety of other cLlsandprodllctswere alsoprovided.This strateservices tomer-specific of each with the introdr-rction gic planningprocesswas flne-tunecl uratketsegments. into designated new version/prodr-rct new marketspacewere effecfor creatting In sum,five approaches a late tnarketentrant,to tively utilized by Lexrnark International, in the global printer indr'rsforge a competitivernarketingadvantage

Market Space I-nxmnrk Intentational: Creating [Veut

207

informationto commenton the wedicl not fi1clsr-rfficient try.(I,,/ote: When existing of the industry.) andemotionalorientation functionarl and with competitors marketsaresaturated or international clomestic may providethe needed NMS techniqLles proclucts, their associatecl Lexmark's marketshare. anclbr"rild eclgetowin customers cornpetitive is discussed relativeto the five NMS elements perforrnance br_rsiness in Exhibit 4.2. slrmmartzed LEXMARK AI,{D I{EW MARKET SPACE: SOME LESSONSLEARAIED tool by business How can NMS conceptsbe useclas a strategic to gain a competitiveadvanand marketingprofessionals managers stratpoint,the rnarketing As a starting markets? tagein internzrtional ConsiderLexmark's performance. the business sfrouldenhance eg-y into new regions.For example,Lexmark recently gfoUofexpansion of Incliathrougha joint venturewith a local the subcontinent entered Indian partner.It will be noteworthyto observeLexmatk's perforlargestcountryover the next few years' mancein the worlcl'ssecond andothersnot (someNMS based strategies Hence,rnultiplebusiness parts of the world to in clifferent NMS based)neeclto be executed marketingadvantages. achieve
N M SD i m e n s i o n s industries Substitute grouPS Strategic
Lexmark'sPerformance StrategY Lexmark's 4-Successful Typewriters 4-Successful corPorate Matched countrYto line printer needs specific qualitY laser 3-somewhatsuccessful Low-end, grouPS Buyer printers laser High-end Printers; 5-Very successful ComplementarY Products andservtces training andservices cus- 5-Very successful andkeeP Develop Time forlife tomers

Space NewMarket captured 4.2.HowLexmark EXHIBIT

208

OF MARKETSEGMEIYTATION HAIYDBOOK

are usefulas a compleNMS concepts In addition,the proposed that are currently being used mentarycompetitivetool to strategies that all six in any market.While it is not necessary by companies may the right cornbination NMS be r-rtilized, of creating components and expandinga market prove sufficientlyeffectivein penetrating NMS are sllggested: of creating implications Five additional base. reachby its competitive extend thata company 1. NMS advocates In contrast,niche marketindr-rstries. looking acrosssr-rbstitr-rte by focusingon a singlesegscope ing narrowsan ofganrzation's ment of a market. or marketscan be cultivated groupswithin indr-rstries 2, Strategic alliances. to build new cornpetitive the tradeand effectively martages 3. CreatingNMS fecognrzes and end users. power of br-ryers offs betweenthe bargaining culture is nltrtured.This competitive developtnent 4. A prodr-rct life cycles and fostersrelevantnew strategyextendsprodr-rct productand serviceofferings. relation5. The conceptof tirne is basedon building lon-e-term for life. The different ways in ships anclcreating cr-rstomers which variousculturesdeal with the idea of time must be carefully assessed.

FUTURE PROSPECTS
wherebyLexrnarkwill alliance, Finally,the recentDell-Lexmerrl< inkjet andlaserprintersand sLlpDell-brandecl low-encl, manufacture is wormarketleadership, Hewlett-Packard's plies,which threatens As of 2002,HP had abouta 43 percentshare thy of carefulanalysis. ntarket,followed by Epson (22 percent)and of the world's prir"rter The Dell-Lexmarkteatl, led by Dell's PC Lexmark (14 percent). cottsidermuscle,may alter this competitivelandscape rnarketing in this contextmayNMS concepts studyof relevant ably.An in-depth be enlightening.

Market Space LexmnrkInternational: Creating l'{ew

E l'lD - OF -CASE QUE STIOI{S NMS? How can yollr companyapply the ideasof creating the sizeof the companyhaveon using these Whzrtirnpactcloes guidelines? 3. CompareanclcontrastNMS conceptsto niche marketingand marketsegmentation? apwoulclbe calledfor if LexmarkInternational 4. What changes plied NMS thinktng to the EuropeanUnion, Japan,or Latin Arnerica? joint venturefrom a segmentation 5. Critique the Dell-Lexmark and marketsPace Perspecttve.

READII{GS SUGGESTED
Space,"Hctn'cLrtl chan w. Kir-rtrinclRepee Magborgne,"creating New Market p p .8 3 - 9 3 ' 1 et'iev; ,1 ( l ) . 1 9 9 9 , B L t s i n eR ss anclPhilip Kotler, "From Market Driven to Market Nirnialya Krtntar,Lisa Scheer, IB( 2) ,2000,pp. I29- 142' Jottr nctl, Mtu t rt tctg e me n D r i v i n g . " EL tro p e cL Annttal Report (Lexington,KY: Lexmark, 2001)' Lexnurk Internaticlnal Frcutcisco g. Fir',-r.,-,tel,"Dell Cotlpitter Signs Prilter Deal with Lexmark," ScLt'L 25. 2002,online edition' Chronicle,Septettlber (Boston: Harvard Business irt Gtobat IncltLstries Miclrael E. Porter, Contpetiticttt S c h o o lP r e s s.1 9 8 6 ). (San Francisco: for InterncftionctlMcrrkets Franklin R, Root, Erttn' StrcLtegies L e x i n g t o nB o o ks, 19 9 4 )' Improves Business Sandravlndermefwe. "Hor,vIlcreasing value tO cuStOmers Fall 2000. pp.21-37 Reviert,, Mctttctgenrcnt Resnlts,"slocLtt for Technology anclGuiclelines Stra[egies Art Weinstein, "Market Recletlnition: ' 6( 3) , 1995,pp.52- 57 Ret' ievt" Ittte l l i g e nce s , " co tn p e ti ti t,e Executive for High-Tech,IncltLsArt Weinsteir],Defirting Your Mct,lket;winning strcLtegies (Binghamtou, NY: The Haworth Press'1998)' Fit'nr's rritLl,ctttclServi"ce

5 Case

: Pharmaci a Corporation Segmentation Pharmaceutical

OVERVIEW IT,{DUSTRY companiesin the Pharmaciais one of. the top pharmaceutical its leaderPftzer increased worlcl. The recentrnergerwith indr-rstry (GlaxoSmithKline, the secfrom 4 to 12percent. globalmarketshare ond rnajor player in the industry,has slightly more than 7 percent will bring 11 one-billion-dollar PfizeranclPharmacia global share.) fifteennew (in revenltes) to the pipelineand approximately proclucts products within the nextfive years. BRIEF HISTOR' tracesits roots back to 1853 when a leading Italian Pharmacia In 193I the companymerged startedhis own company. pharrnacist mergedwith Upjohn, an esIn 1995Pharmacia with Kabi Pharmacia. and Pharmacia, In 2000, Monsanto, tablishedMichigan company. a merger,creatinga dynamicnew competitorin Upjohn cornpleted Corporatiot"t. the industry,Phartnacia making it the largCorporation, Pharmacia In2002,Pfizer acquired alone companyin the world. Salesfor Pharmacia est pharmaceutical prodexceedecl $ l3 billion in 2001. Therearesix key pharmaceutical (artluitis and dysmenor(arthr Bextret iti s/inflamrnation), ucts: Celebrex
Input Corporation. for Pl-rarmacia cor-tsultant a saies Saenz, preparecl by Carolyn Case andother Region, for theSoutl-reast CareDirector VIr.TaehoOh, Mana-eecl provicledby <carolyn@ at contacted may lre Ms. Saenz teiun melnbers/[tana-qernent. Pharntacia ollt>. carolynsaeltz.c

211

212

OIV EIYTATI DBOOK OF MARKETSEGM HA]V

bladder), Detrol (overactive glaucoma), rhea), Xalatan (open-angle infections)' Zy vox (gram-positive .u,t."rj, ancl (colorectal Camptoserr Argentina' Japan, major marketsarethe United States, The company's andMexico' France , UniteclKingdom,Gettnany, Italy, Rrazrl,Canacla,

GES DUSTRY CHALLET,] I I,{ D MARKET SEGM EI] TATIOT{ AT,{

within the worlcl'srnostimportantregr-rlatory A new conservatisrn (F'DA),is slowing the U.S. FooclanclDrug Adrninistration agency, many uncertailties' iutroclucing ancl pioOutt flow within the indr-rstry that to thosecompanies stress Delaysin new productflow areadcling reduced In addition' erosion' to generic arelosing-urk.ted products for tighter healthcare pressllre reven.,"i are increasing government One of the greatprice controlson cl.-rgs. and more stringent Ludgets providingpatie'ts is to builclnew a'cl betterrnedicines, estchallenges In with a choiceof the bestand newesttreatments' a1d physicians segmust implementstrategic this, companies orclerto accomplish careorganizaandnlanaged patients, plansfor physicians, mentation segpractices 5.3 show how Pharmacia tions.Exhibits 5.1 ihr;r-rgh rep levels' division,and sales at the corporate, mentation
Nonprescription PrimaryCare

Animal Health Phamacia Corporation Products

HospitalCare

and Active Ingredients Contract Manufacturing

Oncology

Prescriptions

OphthaimologY

Diagnostics

EndocrinologY

S t egmentation ' sr o d u c EXHIBI5 T. 1 .C o m p a n y P

ation al s egment eutic oration: Pharmac Pharmaciac orp

213

care segmentation-Primary Division 5.2.Sales EXHIBIT

Tools segmentation 5.3.salesRepresentative EXHIBIT

214

]Y I'{TATIO SEGME DBOOKOF MARKET HAN

BA SES PHARMACEUTI CAL SEGME|,{TATI o |,{

tools of moresegmentation industryis in neecl The pharmaceutical relationships close anclsustainabre in an ongoing effort to establish is the methoclof choice for Market segnrentation with customers. approach A predominant iclentifyingand influencingtargetgroups' suchas into categories dividephysicians in this industryis to crr-rclely segSome companies or aggressive' rational,intuitive,traclitional, ,,dynamic innovators"or "old conservatives." tnent cllstomersas indr-rstry in the pharmacer-rtical r-rsecl approaches Other segmentation these: inclr"rde T.HeavvversusliglttL[SerS:Priorto1gg6,Pharmacizroperatedon volume to segment or prescription the basisof key heavyLlsers volumewasthe predictor the market;forexample,a physician's into are segmented for the productpotential.Today,physicians or loyal versllsnonloyalcustomers' heavyversllslight Llsers Therearefour basicbuyingstyles: segrnentation; 2. Bttying stylss aredriversandtendto physicians a, control anclchoice:These They are categobe directive,to the point, anclfast moving' focusedon the bottom ancltask orientecl, rtzedas outgoing "pf,yJi.iunslike a challenge,so appealto their line. ff,"r. accomplishment' of individr-ral sense Thesephysicialt ?lt spontaneous b. Attentionand approt)ai: who exhibitthis stylewantto onop"opt. oti"nted.Physician They tenclto be more expressive connectwith their patients. Thesephysicians and want to inspire and influenceothers' the crowd and their buy becallsethey will stand out frotn and positionwill be fr'rlfi1led' of popr-rlutity sense have a needfor Thesephysicians. c. Quality artcl correctness: a1d perceived to determineprodttctqr-rality facts ald figr-rres to be They or. logical and analyticaland tend correctness. as a reslllt of the representabr-ry Thesecustomeis cautious. and accountability' tives'accuracy andsupportaresteady physicians sectrity:These nncl d. saJett, the who exhibit ihis style want thingsto be ive. phvsicians

Pharmnci a Corp or ati on: P h armaceutical Segmentat i on

215

shor-rld salle anclthey knoi.vwhat they like. Representatives ze thesafetyandetficacyinformationof the drugs' emphasi to will continue changes clemographic cs; Constant 3. Dentogrctpl'ti for growth we]l into the providethe industrywith opportllnities Peopleareliving longerandenjoyingactivelifestylesat iutLrre. to new and bettermedicines an olclerage;they are demancling theirqualityof lite. Evenwith the dramatic help rhemlnaintain thereis a wiclerangeof unyears, in recent in science advances areasaScancer,inflammation, in clisease neecls met ureclical CorpoPharmacia andasthma. depression, Alzheimer'S, stroke, of this opportunityandhaslaunched rationhastakenadvantage the launch For example, medicinesto covertheseareas. clifferent a drug Activella in 1998openecl of the hormonereplacement of symptomsfor winclow for bettei health and management patients.Detrol, introducedin 1998,allows parlenopausal qualityof life. increased controlancl tientsto havelnorebiaclcler physiManagedcare influences cctresegmentation: 4. Managecl by manaresegmented Physicians behavior. cians'prescription within eachplan. agedCnr. pleinactivity anclpatientvol1tme to advise are implemented campzrigns promotional Short-term is if a medication especially physiciantof formularychanges, plan. the first choicein a pauticr-rlar is responsirepresentative on region;Eachsales basecl 5. Segtnent suchas Sotneregions, or regions. ble for a grollp of zrp cocles New York City, Chicago,or Miami, havea largevolumeof preto Ohio or Tennessee regionin contrast within a srnall scriptions where physician offices tenclto be distant from one another. volumefor eachzip into business ,=giont aresegmented These to prethe territoryaccording manages The representative cocle. business andincliviclual caretrends, uolnrn.,managed scription potential.

AI,{RX FOR PHARMACEUTICAL SEGMET]TATIOI]

or segindividualizecl We are enteringan age of increasingly haveto startclealing companies heirlthcare.Pha-rrmaceutical mentecl This casedealswith differentaspects grollps. customer with srnaller

2t6

O]Y EIVTATI SEGM DBOOKOF MAKKET HAIV

there is not a universal however, segmentation; of thepharmaceutical cusurustanalyze This indr-rstry customers. for segmenting direction and suchasdemographics by factors (physicians andpatients) tomers Thereis a needfor microand iclentifyprecisetargets. specialties business. to cloing approach alized a far rnoreindividr-r segmentation, these steps: includes approach The suggested
not physician groupson the basisof healthbehavior, 1. Segment specialty.

inin termsof content, 2. Developthe bestofferingfor segments for conand information messages, tools,marketing teractive andphysicians. sumers andlanglrages. populations patient by diverse 3. Segrnent indications. into narrowtherapeutic + . Segment premodel to predictphysicians' 5. Developa comprehensive scribing behaviorbasedon multiple, relevantsegmentation variables.
A

E QUE STIOIIS E ND - OF - CAS markets. to segmenting approach 1. CritiquePharmacia's plan? segmentation improveits physiciarn 2. How canPharmacia Considerprescriptionsalespotential,regionaltnarkets,acandbehavproductclifferentiation, information, count-specific in yollr analysis. ioral approaches phannaceutical be part of an integrated shoulcl 3. What variables model? segmentation

SUGGESTEDREADINGS
ROI Analy"Prornotional WithouttheGuesswork: Planning C. Anderson, Richarcl Febluary2002. Executit'e, sesLeaclthe Way," PhcrntttLceuticctl Phartnaceutical Tar-ueting Summary: Reports LLC. "Benchmarking BestPrcLctices, SM- 128. ThroughMarketSeglnentatioll," Customers g." Jotu'of BrandPositionin Case Hurrellet al.,"solpaclol-A Surccessl'ul Gralranr 1991,p.463' JulY S o ci e tt' , n a l o f ' Ma t'keR t e se a rch

al Segm'entation P harmncia Corporation: Plt'armnceutic

217

ExecuMarketing:Part2," PfutnnctceuticcLl Kuenne,"segment-Basecl Clrristopl-rer tive, october 2000. Marketing:From Dream Choi,"segment-Based KuenneandLawrence Christopher October2000,pp. 54-68. E-reuffive, to Reality," Phcu't1'tctcetfticctl Efficacy "Iclentifying Prospects: New Patient Dan SarenandHowarclMarrnorstein, 1996. Spring of HectlthCure Mctrketing, Jortntctl on UsageSegntentation,"

lii; tri
l,l

6 Case

MarketDefinition Sportmed: andBenefit Segmentation

and sellsrnedicalinstruments a $ 100million company, Sportmecl, suppliesto physicials who practicesportsmedicine-the treatment how the companyapThis caseillustrates injr-rries. of-sports-relatecl to maximize cuspliei creativemarket clefinitionand segmentation marketreinventitself in a changing valueancl tomer anclshareholcler place.

SPORTMED'SCUSTOMERS of its sportsmedicineinstruments set the bounclaries Sportrned its ct-tstomer in orderto encompass to be globalin scope area business medicine for sports The custotners its .o-p-litive threats. baseancl features, of advanced seekto satisfythe productneeds instruments injury or discantestfor several (theinstruments functions rnr-rltiple alsoseekto of use.Customers andease accttracy, ionclitions), ease reaSSLlrservice, education, of ongoing needs the nonprocluct satisfy andinformation reputation, imageancl the cornpany's anceihroLrgh selling. consultative through providecl
by Alan Tl-tltcasewas originallyprepared is a reaibut dis-slliseclcornpanv Sportmeci from theirbookThehlarket \/alueProIt wasextracted Albert V. BrLrno. ar-rd S. Clelarrci Pr-rbJossey-Bass (Sirn Flancisco: VcLlue ottd SlrcLreholder Britlgittg CLtstotrter cess; part ot is in the case clescribecl to marketdefir-rition approacl-r lislters,l 996). The scorin,e contactMr. Clelandat Clelandand Fb}tirrtherinformatiolt, Processl the MirrketVaiLre and palo Alto, California.Tl-riscasehas been replintedwith permission Associates, Dr' in appeared vetsion of this case PhD. An abbreviated by Art Weinsrein, adaptecl High-Teclt,Irulustrial, Nlctrket:WinrtittgStrcttegiesfor YotLr Weinsrein'sbook De.fittittg 1998)' Press, (Bin-shlimtor1, NY:Tl-reHawortl-r Firttrs ctrttlSery,ic'e

219

220

OIV E]VTATI HAAI DBOOK OF MARKETSEGM

had the samebroadset of four felt that all customers Sportmed the importance however, needs; andfour nonproduct productneeds to those needsareascliffers.For exampie,al young tn.y attribr-rte andsetschool out of meclical may bejr,rst physician meclicine sports shehaslimbecause Shemay be pricesensitive ting up herpractice. training,shemay place Due to her meclical to invest. ited resollrces and may valueinfoflnation features on advanced greatimportance median older sports selling.In contrast, via consr-rltative providecl he is well estabbecause may be lesspricesensitive lin" practitioner offerprodr"rct with the cument lishedin his field.He may be content Since his in the latesttechnology. ings and see little aclvantage through r-rpdates he rnayvalueinformation is lesscurrent, edgcation \ programs. educational callsor ongoing sales SPORTMED' S MARI{ET DE F IN ITI OI] price, grollps(whose on customer Marketscan be defiled based (what needs arebeingmet),ct-tstotner needs nonprocluct ancl procluct, arebeingtnet),andtechnoloneecls anclnonproduct price.product, arebeingmet).Cusneeds andnonproduct gieslfrowprice,product, and ut. .l"finedby age(youngandolderpractitioners) tomergrolrps practitiospeciaiists (sportsrnedicine ISMS] and general specialty and (progressives by benefits aredefined needs nlrs [GP]).bustomer (rnuscle and tendonand other). and patientcliagnosis traditionals) results for clelivering in termsof technologies is definecl Technology ernployed technologies andthetesting or printor-rt) Cisplay (computei based). microprocessor versus basecl (nonmicroprocessor in each hasbeenliniitedto two approaches While this cliscussion an organiof approaches thereis no setlirnit to thenumber category, its marketmost effectively' using to clefine shouldconsicler zatron (cttstomer ultimatelyfelt thatthe specialty management Sportmed's (technoltechnology testing ancl needs), (cr-istomer giot ps),benefits for thethreeidenchoices werethe mostpromising ogy)^opproaches As Exhibit 6.1 shows,each tified market clefinitionclimensions. to oneof canbe assigned customer potential ancl customer Sportmecl marketsegments. eightpotential

Segm'entation MarketDefinitionand Benefi't Sportmed:

221

1. 2. 3. 4. 5. 6. 7. B.

Practitioners/Progressives/Nonmicroprocessors Medicine Sports Practitioners/Progressives/Microprocessors Medicine Sports microprocessors rs/Traditionals/Non ne Practitione SportsMedici Practitioners/Tradltionals/Microprocessors Medicine Sports Practrtioners/Progressives/Nonmicroprocessors General Practitioners/Progressives/Microprocessors General Practitioners/Traditionals/Nonmicroprocessors General Practitioners/Traditionals/Microprocessors General

Segments l i g h tS p o r t m e d 6 . 1 .T h e I n i t i aE EXHIBIT

E XT E I{ D I I,{G TH E M ARKET D E F I I,II TI ON AI] ALY il S (its own and the comall potentialcustomers assigned Sportmecl Sportsmedipetitors') into medical specialtyand benefitsegrnents. more importanceto qllality (product and attachecl cine specialists than to price. nonproclllct) Promore price sensitive. wereconsiderably however, Generalists, of new technologyand willing to "pay were early aclopters gressives gavethem in their mediLlp"for the competitiveedgethis equiptnent who waited cllstomers were more cautiotts Traclitionals cal practice. in the new technologyuntil it had been broadly accepted to erclopt market;they were wiiling to forego possiblecompetitiveadvantage practiceand believein "playing it safe." in their rneclical weights by market segmentand cttsA summary of the varior-rs in Exhibit 6.2. While both firctorsis providecl clecision tomer br-rying of purchaselikelispecialtyanclbenefitsare usetul cliscriminators hoocl,the benefits approachis somewhatbetter basedon total D(60 versus 40). scores it asthe approach chosebenefits Sportmed on this analysis, Basecl woulcl focus on in its initial rnarketdefinition. (Note: management progressives Fr"rrthermore, plans on repeatingthis processannually.) reflectingthe reality a line of high-endinstruments would be offerecl for nearlytwo-thirdsof the buying dethat quality factorsaccollntecl with a line of lowwoulclbe targeted cision.In contriist,traclitionals

222

OI,I E]VTTITI HA]V DB OOK OF MARKETSEGM

SMS
^ r-)
LfT

D-Score P R O G 20
4 16
?tr

TRAD
65

D-Score
JU

Price Product Nonproduct D-Score Total

40 30 30 N/A

60 26
14

32.5 32.5 N/A

21
14

11 . 5
18.5

N/A

40

N/A

60

= sports medicine (SMS Assessments Decision Buying 6.2.Customer EXHIBIT DTRAD= traditionals; PROG progressives; GP = generalists; specialists; or benefits) by specialty Score= differences

(accountmotivator priceis thecriticalbr,rying since endinstrurrrents, thatwhatever realized Sportmed of the clecision). ing for 65 percent emshould it gaveto qualityin thelow-endmarket attention modest Exhibit 6.3 reneeds. ratherthannonproduct productneecls phasize segments' two benefit of Sportmecl's viewsthe characteristics E GI C MARI{ETI |,{G Co I,{SI) ERATI o |vS STRAT for each strategy first cnt at a precision This simplebut powerfr,rl in creative hadinvested theeffortSportmed marketarnplyrewarded thirty-perSportmed's by winningnewcttstolrers. marketclefinition divideditself the president, group,inclr-rding son top management in vaiuestrategies customer into planningtearlsto build integrated it defined. eachof the markets "Leading-edge Sportmeddevisedthe message As an example, for its media asthefoundartion precision" diagnostic boosts software edaccuracy, featttres, nicelycolnmllnicates Thistnessage carnpaign. to motivators selling-irnportantbr-rying ucation,anclconsultative journals,clirect Ads in sportsrnedicine practitioners. progressive anda tradeshowboothat a physicians, mail to prescription-writing theheartof theprorepresented convention rneclicine sports national campaign. motional

Segm'entation MarketDefinitionand Benefi't Sportmed:

223

Traditionals (primary) Benefit Buyingmotive Goodprice "Play it safe"

Progressives (Prod-. andvalue Quality and Price) services, ucts, technol"Leading-edge ogy" market-high Emerging of new value perceived technologies instruments High-end

opportunities Coremarket, Market international Price/product Productlifecycle Usertype instruments Low-end

stage-earlY in United Growth markets Mature growth abroad adopters S.tates, GBSMS SMS

t egments d e n e f iS ' sr o p o s eB E X H I B I6 T. 3 .S p o r t m e dP

E QUESTIO|{S END -OF -CAS

by approachLrsed l. Critique the market clefinition/segrnentation to managewould yoLlsllggest What irnprovements Sportmecl.

nrent? on the its marketing to concentrate Sportmecl 2. Wouldyou advise WhYor whYnot? progressives? ^sirout,t for be evaluated priceandqr-rality besicles otherfactors 3.
the rnarketsegments? vallte, 4. What irnpactwoulclcost factors,competition'perceived mauketanalysis and market sharelikely have on Sportstnecl's strategY? and marketing

SUGGESTEDREADINGS
Bridging CusProcess: ValtLe The McLrket anclAlbert V. Brr-rno, Alan S. Clelancl 1996)' Publishers, Jossey-Bass (SanFt'ancisco: VctlLte Sltutvholcler tortlercrtttl IrtclusStt'cLtegies for High-Tech, DefittittgYottrMttrket; Wittttittg Art Weinstetn, 1998)' NY: The HaworthPress, (Binghamton, Sel,iceFirnt.s cutcl tt'ictl,

Notes
Prefuce
Contpetencies:An Emergent B -to -BMo rke tMctncLgentent 1 . A l l e n C . S ti n e s, or cl <allen.stines@b2bcolllpetencies.com> Motl e l , 2 0 0 3 Al . l cn ca nb e co n ta cteat (800 )8 0 4 - 7 s 0 3. Marketing Sentices "What'son Marketers'Minds'?" Lehrnantl, 2. DonalclR. 2003' p p . v i - i x ) . Association, Marketing Aurericatl rectont(Chicago:

ChapterI
"TubaSellerTootsHis own Hom As one of a L KateMurrphy, 2 r3 ,2 0 0 1 , He r c t l dD , e c e u rb e P .8 E ' ly>' c anacla.calacfarni ait w. I lww 2. <http: As AlterMarketSegmentation ancl Diff'erentiation R. Smith,"Proclurct 3, Wenclell pp' 3-8' Jttly 1956, of McLrketilg, JoLtttrctl MartefingStrategies." native trofir Insights Industry: in Technology-Basecl "Malket Selection 4. Art Weinstein. Marketing Antericcut Jaworski(ecls.), anclBemarcl in RajanVaraclara.iau Execr.rtives," CA' FebrLrary NewpoftBeach' ProceecliLrgs, WirterEdttc'cttors'ionfe,v,tce As.socicttictrt p,P.l -2 . 20-23,1993 Models and Practical P. Kalafatisanclvicki cheston,"Norntative 5. Stavros MarketingMcutcLgeInclustrictL Markets," in Business ol Segr-neutation Applicafiops 519-530. . P. n t e n t , 2 61 , 9 9 1P Bases: "Bttsiness Segmentation MarkosH. Tsogas, ancl P. Kalatatis 6. Stavr.os in McLrketing, JoLtnctlof SegntentcLtion ess," Eflectiven anclperceivecl Congrr-rence p P .3 5 - 6 3 ' 2(l),1998, customer:F'xploiting Kaynak,"Marketsol'a Sir-rgle 7. Ali Kara anclErclener JountaLof Mttrron,"ErLropecm i1 Market Segn'rentat Developntents Conceptnal p p .8 7 3 -8 9 5 . k e r i t t g3 , 1 (I I I 1 2).1 9 9 1 , 5, Summer Mcutttgentent, Mctrketing w. Hlrt. "Macleto Orcler," 8. Clrristctpher 1 9 9 6p , p .l l - 2 2 . on Its Pastand Its FttHiiley."Benetit Segnientation-Thoughts 9. RLrssell p. 10. 3(1), 1999, in Mctrketirrg, of segmentcftiort JoLtt.nctl [Lffe," 'A Portfolio-Based to the Approach Elliott anclWilliam J. Glynn, 10.Gre-e6ry IsanclOperationerl Conceptual Services: Marketsfol Fir-rancial Segrrientirtlt1-of 1998'p' 81' in Mctrketing,2(l), ,r,Jr,"Jo,rncilof Segntent(ftiott

225

226

HA]V DBOOKOF MARKETSEGM E]YTATI OI{

" N i ch e Ma r ketin- {Pr inciples:Guer illasver sllsGor illas," I l . T e v l i k D a l -u i c, Jo u n t u l o JS e g n te rtctti oi rt ttMttrke r ittg,2( 1)1998, . pp. 5- 18. 12.Pltilip Kotler'. McLrketirtg Mtutctgemertt; TheMillenniLtm Editiort(UpperSacld l e R i v e r ,NJ: P re n L i ce -H a l2 l, 0 0 0 ),p.257.

"Fir-rally. 13.Alex Salkever, a Chance fbr Appleto FloLrrislt." Busine.s.r lVeek rte,Jarnary18,2002. l,i "ExpectCompetition. 14.Reid Kanaley, Consolidation Wireless Ilrclustry." MicLmi Herald,June2, 2002,p. 6E.

Chapter2
L JackWelch.Jack:Straigltt (New York: Waruer fhe Gr.rr Books.2001). .ft^ont 2, Sandra Vanclennerwe, "How Lrcreasin-e ValLre to Custotriers Inrproves Bnsi-37 nessResuhs," Sloctrt MuncLgemett Reyiew, Fall 2000 pp. 27 . . "seeing 3. GaryHantel andC.K. Prahalad, theFutru'e First," Fortune, Septernber , p .6 4 - 6 7 , 7 0 . 5, 1994p 4. SallyDibb,"Developing a Decision Toollor Identifying Operational ancl AttlactiveSegments," Jountolof strcrtegic Mctrkerirtg, 3,1995.pp. 189-203. 5. Charles A. RarickandJohnVitton."Missior-r Statements MakeCents." JourncLl of Bttsines's Strateg\,, 16,January-Febnrary pp. 1995, ll-12. 6. DarrellRigby, 2000:Mcutctgentert Tools-AnnucLlSru'l,el of Senior Exeuftit:e.E (Boston : B ainandCompany, June2001), <http:/ftrain. cont/bainweb/about/i ghts/ nsi overview.asp>. 7. Joseph "Vision:How Leaders V. Quigley, Develop It. Sliare It. andSustain It." Brtsiness Horizotts, 37, September'-October pp. 37-41. 1994. 8. WilliartrA. Sherdan, Mctrket Ow,ttersltip: TheArt cntd Science of Bec:otrtittg #1 (NervYork: Amacorn,1994). 9. Philip Kotler,Marketing Mcutctgement; Artctlr'sis, Plctnrtittg, Intplenterttcttiott, crnd (Englewoocl Control, EighthEclition CIiffs.NJ: Prentice-Hall, 1994). 10. Art Weinstein, "Redefining Technology Markets:Strategic Insi-uhts fbr Conrpetitive Intelli-qence Prolessionals," Socr qf eI' Conrytetitit,e Intelligertce ProAtmucLl lttenrcttiortctl Cotferetr(-e Proceecling.r, Arlingtou. VA. Marclt .fes,siortal.s 2 l - 3 0 ,1 9 9 6p , p .5 8 0 - 5 8.1 I l. SaraQ. Duffy,"Do Competitive Hospitals ReallyAclopt Techr-rology Faster'/ An Analysisof theInflLrence of Alternative Relevant MarketDei'initior's." Ecrstent Economic Jountal,18,Spring1992, pp. 181-208. 12.FredWiersema, Ctrstomer Intirnctct'; Pick Yout'Pcrrtrters, Shcrpe Yotu'Cttlture, (Santa lVin Togetlter Monica,CA: Knowledge Exchan.re. 1996). "Strategy: 13.DanThomas, What's YourBusiness." Srtccess, July/AugLrst 1994. p. 13. 14.I thankGaryKorenjel fbr provicling thisexanrple; personiil connrunication. April 24, 1991.

227

Chupter3
//erus,SepMctrketing Plaguethe Itrdr,rstry," l. William D. Neiil, "shortcontings t em b e r 1 6 , 2 0 0 2 ,p . 3 1 . ''strategic Segmentation: A Planning Approach for Mar2. Art Weinstein, iort in Mrtrketing,| (2)' pp. 1-16. o.fSeEnenttLf keters,"JoLtntcLl Analysis," 3. Art Weinstein, "Ten-Point Proglam CustomizesSegmentation Mctrk e t ir t N g e r l s ,M a y 2 3 , 1 9 8 6 ,p .2 2 . Marketing "MarketingProblems: From Analysisto Decision," 4. PatrickBr,rtler, c u r cP l l a trti rtg ,1 2 (2 ).p p .4 -1 2 . Int ellig e n c e The Definition in Marketing Reseat'ch," 5. RanciallG. Chapnttn, "Problen-rs Mcrrke ti n gS , p ri n g 1 9 89,pp. 51- 59. r olf C o n s L t t ne J ot t rnc L Bases: Segnlentation 6. StavrosP. KalatatisanclMarkos H. Tsogas,"BLlsittess in McLrketittg, Jolu'nctlof Segmentcrtiort Efl'ectiveness," CongruerrceanclPerceivecl pp.35-63. 2(l). 1998, 7. <www. marlietresealch.com>. Marketing. center fol Database 8. Skip Andrew, The Natior"ral <www.findmarketresearch. ConrycLnics, 9. CorpTech Directorl. of Technolog): col n> .J u n e 1 , 2 0 0 0 . and Seg10. Art Weinsreiu."EclitorialForum: ConsumerBehavior,Research, pp. l-3' in Mctyketirry,2(2). JoILnItiloJ SegntetttcLtion rnentatiott." in Execu"The Need for Market Research 15.JoelRaphaeland I. RobertParket, WinMctrketittg, Indtt.EtricLl cmcl tive Decision Makin g." The Jotrrncilof Business p P . l 5 - 2 1. 1991, ter/Spring Markets,"IttcJusInclustrial Millier, "lntuition Can Help in Segmeuting 16.PaLrl 29, 2000, pp. 147-155. McLttcLgentent, Mctrketing tricLl

Chapter4
In"Inclustlial Market Segmentation," l. Yoranr Wilcl anclRicharclCarcloza, -133 . 3. l9l4, pp' 121 Mctnctgenterfi, Mctrketittg cltrstricLl of Nortlt AmericcL(Boston: Hor"rghtou [r,lcnion.s 2. Joel Caneiru. The lr,litte Mifflin. 1981). A/3. Paige Bowers, "New Soutli Finds Its Niclie As a Midsize Contractor," May 5, 2000' Cht'ortic'le, lcuttttBLrsiness Poprrla"LargestCensus-to-Census SpatialNews Release, 4. Geocommr,rnity BttreauReports,"April tion llcrease in US History As Every StateGaius,Censtts I 0, 200 l, <www.geocollllll.colll>. 2002, Septeniber Dentogrctpiiics, Antericcut Yin, "New ol Me Too'1" 5. Saridra

pp.28-29. AmeriStage," "Computer Center Takes Mapping Riche, Farnsworth 6.Martha

Jttn e1 9 8 6 ,p p .2 6 -3 1 . cctn De n t o g r c t p h i cs,

I I

228

O]V EIVTATI HAIV DBOOK OF MARKETSEGM

Marketers ." I tlof lndustrial Prac[ices l Abratt,"MarketSegrlentirtiori 7. Russel 22, 1993,pp' 19-84' Mctnctgentent, Mctrketing clttstt'irtl Marketing Database BuildsSales." "How SIC Analysis 8. ArthurM, Hughes, 21,2002,<http://www.clbnrarketing.conr/articles/Art158.htn>. October Institute, SIC'''l/A1C-tAssoNAICSancl Between 9."4.WhatAre theMainDifferences 4, 2002,pp' 2-3. February l'levvsletter; cicttiort in Franklin M. tlteSIC Approaclt." i0. JanesW. McKie, "MarketDefini[ionar-rd in Memort'of JohrtJ. McGotrntt Es,srzt'.t Regulcttictrt; ctncl Fisher(ecl.),AntitrLLst pp. 85-100. 1985), (Cambriclge, MA: MIT Press. / Jttrte 23, Netvsletter, 71."4. FreeNAICS CodeSearches," ICSAssocicttiort 2002,p. 6. IrtHiglt'Tech, Strcrtegies.for Market; Wiruting DefiningYoLtr 12. ArLWeinstein, pp.67-69. 1998)' Press, NY:TheHarvorth (Bingharnton, Firms cuulSen,ice cltt,str"icLl, 'Operatiort200l'," Classification: Inclusl-rial 13."Revisiolof the UK Stapdarcl uk/SIC>. org. <www.com-nret2005.

Chupter5
MarAs a Focused A. Narus,"Partneriug and James C. Anderson 1. James I l3' pp. 9-5" Cctl.ifornict Spring1991, Review', Mctnagement ketingStrategy, pp' 57-66' 1998' Illc',Decernber "Choose or Lose," 2. S. Greco, andHigh-Tech Industrial alcl B.C. Ames."segmentin-s D. Hlavacek 3. James pp' 39-50' Fall 1986, Strctteg.t', o.f'Bttsiness Jot'nncLl Ma1kets," the on CD-ROMcontact Register abouttheTltontcts 4. For furtherinformation Conipaly,New York,at (212)695-0500. Publishing Tlromas Drit'irtgCusN. Lemotr. andKatherine A.Zeinhaml, T. Rust.Valarie 5. Rolancl (New lbr"k: Strcrtcgr' Corporcfie Is ReshcLlting Wtlue Hotv'Cttstorner tornerEclttitt,: 2000), TheFreePress, P. l9l . C/NetNews'cotr. Crossloads." "Why CRM Is at a Fatel'r-rl 6. Dr:orPockarcl, M a r c h1 3 ,2 0 0 3 . of Measut'ettlettt artd "The Couceptttalization Jung, Hyung-Shik ancl 7. S. Rartr WinterI990.pp.67Sciertce, procluct Marketittg o.f tlteAcctclenn, o.f JoLp"nctl Usage." 15. More x'itltLess Ar:ltievirtg o.f Koch,The80/20Principle;TheSecret B.Richard pp. 65-68. 1998), (Neu,Yorl<: CurrencylDoubleday, genterir (O xf orcl. M artcr AccoLtttt Ke-t' 9. MalcohnMcDonaldandBethRogers, I 998). Bt ttterwortl-r-Heinemann, Englancl: lor I conductecl pl'ograttl training fronra segulentation emerged 10.Thisexarr-rple ' May 29,2001 regiorl. Latin Anlericatr clivisiou, Generics theNovartis andCttstotuer Segmentation A Usage "Customer Retention: I l. Art Weinstein, McLrkerirtg, Attctlt'si.s.for ctrtcl Mecrsril'etneti of Tctrgeting, Vafue Apploach ," Journctl by Robert in this articlewas contributed usecl l0(3), 2002.The caseapplication of FastIndustries. Vice President Fast,

Notes

229

Pro"Inclex NunlberCalculation W. GlascofT, Davicl ancl J. Anclerson 12.Steven to Market Approaches Segrnentation Volrtme Usageaucl LtvolvingProdr-rct ceclures (MisThor'tglif in McLrketing Capelli et al. (ecls. ). P togres's in t-.Hrt. Segmentation," 1990) pp. , 5- 10. Association, , S: S o g th e l rMa rke ti n g s is iip p iSt a t eM HonleO.ffice "BLrlls-Eye Marketing-The Key to Protitability," 13,GerryFoster, April 199l. pp. 24-25. Contpttting, Puttingthe Systemto "The Sales InformationSystem: W. Stryker, 14.Charles pp' 80, 82, 84' Ju ti n g , ly 1985, ss Work , " B t t s ' i n eMcrrke

Chcqtter 6
Markets:A PreSegrnenting a1d Rick Kates,"Defining ar-rcl l. Art Weinstein May l3' Declhatn,MA' Managers," Marketing to Bayer'sPOC Worlclwicle Sentation 1999 . Transin a Fr:eight Gray,"Benefit segments Richarcl Matearancl 2. Sheelagh pp' 43-58' 1995, of Mctrketing,29(12), Jotffttctl ELtropecut por.t MarkeL," in In"BenefitSegmentation T. Monarty anclDaviclJ. Reibstein, 3. Rowlancl 1986,pp' 463-486' December Resettrcfi, of Bttsiness Jotg'nctl Markets," clustrial SegtnentaAlternative p. Rao ancl Wang,"Evaluating Zhengyuan 4. Chatrathi Jottrncilof Marketittg, Markets," Er'ttopecLn Inclustrial ip Stanclarcl tiorr Strate-sies , p .5 8 - 7 5 . 2 9 ( 2 ) ,1 9 9 5 p "BuildingSer vice M ar ket camer ou, Ross a n cl B e n tl e y, Rohan 5 . B i l l M e n il e e s, SerMaintenance BLrilcling Mechanical Tlie Cirseof ElectricalancJ Segrlentation: pp' l5l- l6l' l4( 2) , 1999, McLr Ll keting, tlIrrcl u str ir s.s J o u n t t Lof l B L rsi n ettn v iJ e s , " Markets," "How tclCarveNichesfor Growthin Industrial 6. RobertA. Garcla. 1 9 8 l , p . 1 9' et'i e wA ',ttg t-tst Mc u t c t g e n ' tR e nt HettlthSerMctrketing "Questions of Valuein HealthCal'e," 7. S. MacStr.lvic, v ic e s W , i n t e r 1 99 1 , P P .-5 0 -5 3 . study of Fortune100 comDaly, "2002 online customerRespect 8. Dor-ral r 25, 2002' Octobe pect'com>, Res <www.Cttstonret palries," Strategic 9. W. Chan Kirn anciRenee Mauborgne,"Vallle Innovation:The 1991'pp' 102January/February Review, Bttsiness Logic of High Crowth."Hctrt'tLrcl | 12. MarHigh-Tech White, "segmenting D. Steven 10.Dan Dunn. Jon Hulak. ancl Approach,"Marketing IntelligencecutclPlcmning,11(4)' kets: A ValLre-Aclclecl 1 9 9 9p , p. 186-191. of MarketsBasedon "segmentation M. Lanlbert, Dou-UlaS 11.ArLtl Sl1rma ancl Logistics of Pht'sictilDistribrtiortcmcl JotLrnttl Ctrstor'erService,"Intentctibrtcil pp' 50-58. 24(4), 1994. McLttcLgentent, Research A Decision-Oriented I. Haley, "Benellt Segr-nen[ation: 12. RLrssell July 1968,pp' 30-35' o.fMcLrketirlg, Jottrnctl Too1," and Forwafds,"Jountul of Backwar cls . H a l e y," B e n e fi tS e g ments: 1 3 .R L r s s eIll 1984,pp' 19-25' February/March Resectrc/i, Atlt'erti.sirt.q

230

I OI'{ TAT E]V GN/I SE HAl\DBOOK OF MARKET

A Berte.fit Strcttegt: EffectiveConunLuriccttiorts L Haley,Det,eloping 14. Rr-rssell Appro.-,i/r Segnxerficrtion 1N.* York: JohnWiley andSons,hlc.. 19851' Jountcilof Segttterttcrin Practice," 15. Gary M. Mullet, "Benefit Segnientation 1999p , p . l3- 36' t i o t ti n M a rke ti n g ,3 (1 ), anclcustonlizedcotnmunicasegrnentation 16. Teni c. Albert, "Need-BaSecl IrtcltLschain Stncly," A sLrpply Inclustry: i1 a corriplex-comniodity tion Strategies 32.200?, pp' 28 1-290' trictl MctrkitirtgMctttctgentent, "Seg17. V. Kasturi Rangan,RowlanclT. Moriafty. ancl GorclotiS' Swartz' of Mctrketittg'56' OctoMarkets,"Jotrmcil in Mature Inclustrial rnentingCusl-omers b e r 1 9 9 2 ,pP .7 2 -8 2 .

Chapter 7
and DanielF. Muzyka' "segL VictoriaL. crittenden,william F. crittenden. andtheDeciAttlibLrtes by Product Marketplace mentingtheBusiness-to-Business 10.2002.pp' 3-20. Mctrkethtg, of strategic JoLtnlal sion Process," Leso.fExcellettce-' petersanclRobertH. Waterman Jr..In Sectrch 2. Tho'ras .T. (New York: WaruetBooks, 1982)'pp' CornltcLtrle5 Americcr'sBest-RtLn sons ft.ortt 156-199. by the strengthol the ]Vlarkets Entrenched 3. David T. Dacasto,"segmenting Jourcost AnalysisFramework." Using a Transaction RelaLionship Supplier-Br"ryer | ( I )' 1991, pp' 95-107' in Mcn'keting' ,rni oYSngntintation ,A 1rlMarketSegnrentatiou." plank, cr-iticalReview of Industrial 4. RicharclE. 14,May 1985'pp' 19-91' Mcrnctgentent, Mctrketing clu.stricil MurthelrtdtLstrial , Segntentittg BensonP.Shapiro V. Bonomaancl 5. Thontas MA: LexingtonBooks, 1983)' ket (Lexington, Indr"rstrial 6. Benson p. Shapiro anclThonias V. Bonortta."How to Segitrent pp. 104-110. 1984, May-Jur-re BisinessRet,ievr,, Hctrt,arcl Markets,,' JourA Multi-LevelApproach," Markets: Reseller "segmenting 7. PaulClrrist, ' pp' 15-94' I ( 1), I 9L)1 in McLrketing, Segntentcttiort nctloJ' to Travelers' Diffbrent g. Dap Wascoe Jr., "Fi111 RecomniendsCaterin-u July 2l' 1989,p' lD' StctrTribrure, Minnecrpolis Needs," The Birth of a Technique." Revisitecl: FI.Demby,"P.sychographics 9. Enianuel p' 21' 2 , 1 9 8 9, Ja n u a ry M a r k e t i t tgN e w 's, Hall, Cliffs. NJ: Prentice(Englewoocl Psycho-Geontetrics 10.Susal Dellinger, I 989). Purchase in Ind_ustrial H. Fine, "Buyer anclSellerPsychographics 11. Seyniour winter-Spring1991'pp' Marketing, IndtLstirtl cutcl of Business JottrttcLl Decisior-rs," 49-58. Marketing:From Dreanrto Real"segltlent-Basecl B, Kttenne, 12.Christopher 2000,pp' 54-68' Octobel' E-rectttit'e, PltcLrmcLcetiicctl iLy," A Strategyto Enter En13. Agnes P. Olszewskiet al., "CotporateCult1rre: 5-15' Inc]LtstrictlMctrketing,2(3),1981,pp' ancl of Btrsines,s Jotuttctl Marke[s," trenclred

[,{otes

231

"SlrategyPrabhlt, anclJaideep RuuclT. Frambach, 14.Theo M.M. Verhallen. McutcLgentent,2J , Mctrketing IncltLstricLl Markets," of Inclustrial Basecl Segmentation 13. 1 9 9 8p , p .3 0 5 - 3 of Segnientation Alan Prince,'A Psychographic 15.KarenMlru File alcl Rr-rss 25, 1996,pp' Mctttctgent4t, McLrketing InclltstritLl Faqtily B1rsinesses," Inclustlial 223-234. Plactices: Development on New Procluct 16.Abbie Grift}], "PDMA Research Innovtttiort of ProclLLct JoumcLl BestPractices," TrelclsanclBenchmarking Upclating p p . 4 2 9 -4 5 8 . 4 ,1 9 9 J, Mtutcryente ft , r1 VALS ProgramMaterials,<http,ll Intelligence, Bgsiness 17. SRI Consr-rlting 3 I, 2002' December shtnrl>. w ww,sri c-bi.coni/VALS/types. March 25, The Austrcilicur, 18. SteveCreedy."Beware the Teclino-Schizits," 1 9 9 1p , . 35. Third Edition(New York: The of Innov,atiort.e, 19.EverettM. Rogers,DiffLt.sion , 9 8 3). F re ePr e s s 1 (New York: Oxford University oJ-lrtrtottcttiori Hippel, The Sources 20. Eric vo11 P r e s s1 . 9881. "MaLketing Higli Technology: anclAnthony Koustelos, Easingwoocl 21. Clrr-is HoriZorts,May/June Targeting.Positioning,Execution," Bttsiness Preparatiorr, 2 0 0 0 ,p p . 2 1 - 3 4.

Chupter 8
NoReVieH'', BtLsine,ss HcLt't,ctrcl l. Bluce D. Henclelsol, "The Origin of Strategy,"

, p.139-143. r 9 8 9p v e m b e rD - e c e m b e1 of GettittgThittgs TheDi.scipline E.rectfiort: alcl RanrCharan, 2.Larry Bossicly Done (New York: Crowu Business,2002). InMcLrketirtg Mat'kets," Target SinrkinanclSally Dibb, "Prioritising 3. Lynclcrn p p' 401- 411' , 6 (l ), 1 9 9 8 , l ttn n i n g 1 t elli g e t r cc et n tPl Hovvto Do It, SegntertcLtion: anclIan Dunbar,McLrket 4. Malcolm McDorralcl 1998)' (Lonclon: Macrrillan Business, Eclition r 1r,Seconcl to pt.o.fit.fton Hoyv, "Perceptual Mapping:A Tool for C. Stalling. Eclwarcl A. Sincliririrncl 5. Steven MctrInclLLstriaL cmcl of Business TheJoLtntctL Marketing:A CaseStucly," IndLrstr.ial p p . 5 5 -6 6 . 1990, k e t i n gW , i n t e r / Sp ri n g in the High-TechProdttct," "Positioning 6. Marviu Nesbit anclArt Weinstein, (Bostor-r: Warren, Strcttegt'Yecrrbook oJ'Btr,siness Handboolc Harold E. Glass(ecJ.), pp. 1 9 8 9 1 1 9 9 0) , 30- 1- 30- B' l amo n t,It'tc.. Co r h a n ra , n cL Mix: A ContribuShelbyMclntyre,"The E-Marketing 7. Kirtlii Kaltyalarl ancl 30(4), Science, Mcrrketing oJ' of the Actrclent1' tio' of the E-Tailing Wars,"Jourtrcil 2002,pp. 487-499. 'A View of InB.David N. McArthur anclTorlGr-rttitr, MarketingManagement SeptemofAtlt'ertisingResearcft, JourncLl MarkeringConrntuuications," tegratecl l9 ber' / O c t o b e r 9 J, p p . 1 9 -2 6 .

232

]V O SEGIWEIVTATI DBO HA]V OKOF MARKET

Chapter 9
Role in Lin-rited to Marketing's Contributing Jr.,"Factors l. JohnP. Worknian. MartFocu.secl in Many High-TechFirms,"Jottnnl of McLrket ProductDevelopment 2, 1998,pp. 257-279. tgenl.ent, "Malket Segllentatiotr: Olganiza2, Mark Jenkils alcl Malcolm McDoualcl, 3l( I ). of Mar'ketirig, Jourttcil Europectrt A-eenclas," and Research tionalArchetypes -32. l99l , pp.17 and Dia-quosing 3. Sally Dibb and Lyndori Sirnkin. "Market Segtnentatiorr: 30, 2001, pp. 609-625' Treatirigthe Barriefs," Indlts[rialMarketing Mcurctgemett, 'A Program MarketSeglor Implementin-e Sirnkin, Lynclon 4. Sally Dibb ancl pp.5l- 65. 12( 1) .1997, Mur ketir tg, Inclustr icLl cmcl o fl B u si n e ss Jo L tn l cL m e n t a t i o n ," "Concluct MarketingAtrdit to Iniprove a Comprehensive 5. Hal W. Goetsch, 2,p. 14. March 18, 1983,Section Neu,s, Mctrlceting MarketingPlanning," III, "The Mar6. Philip Kotler,William T. Gregor,and William H. Rod-eers, Winter 1989,pp.49-62. Re\)iev; Mcutttgenrent ketingAuclitComesof Age," Slocut o.f JountcLl Research," in Segnrentation 7. YorarnWi1cl,"IssllesanclAclvances XV, Atrgust1978,pp.8-28. MarketingResearch, Netvs, Marketirtg "BehaviorChan-ees: Do Yout'segtttents'/" 8. Don E. Schultz, July22,2002,pp. 5-6. 20.2003 February conversatiou. telephone 9. Allen C. Stines, 'A New Research StavrosKalafatis. 10. SusanneGoller, Annik Hogg, ar-rd of Marketittg,3(:(l12), Jorrntcrl Eurctpecm Agenda tor BusinessSegrr-rentation," 2 0 0 2 ,p p . 2 5 2 - 2 7 1 . Market to Bttsirtess and Ann HoibiergClarke."Busiuess I l. Per VagnFreyta_e pp.473- 486. Mcutctgentett,30,2001. Ma In l rke ti ng S e g r n e n t a ti o n ,"cl u s'tri a

Index
followedby theletter those pagenuntber-s figr-rres; by theletter"l'' inclicate tollowecl " t " in d i c a t e t a b le s

8 4 ,8 7 , 8 9 ,9 0 s, A BC / A B C D c t tsto trl e L 53, 161-169 concertrs/issues. Acacfer-nic s i z e ,B1.S e en /soE mp l o ye e Ac co t t n t size;Sales, CorriPanY voluure, volt"ttne Acloptercategol'ies , 6, 127-129 g, 141-149 Advertisint 72 stage, Age ancl eqr"riprnent ltural/coustructiot-t Agri cLr market,22 and (activitres. itlterests, AIOs 120 o p i n i on s), Alb e r t ,T e n ' i ,1 0 8 ,1I l t A m a z o n . c o m ,2 0 2 g Murketitt Dentogrttphics Americttrt 0 69-1 rcebook, ToolsSou 121, n, Associatio Marketing Anrerican t6l-t62 1 3 -l 4 App l e C o m p l t r e r, . Air C a n a d a4 l 4 Alltel, A priori versLls Posthoc,40 (ADIs;, 26 Aleas of DoutinarltIrtflLrence tit-oI -otie ttle Atonrizrtiolt/scg n a r k e t i n gJ , , l0-lI, l)t',44, 168.Seealso Custornization

AT&T, 7 38 example, services Automotive

2'l Biiin & CornpanY. ,1 pg l a n te ra tn p l e4 a s s e n r b l i rl Battery 9 J -9 8 ,l 5 '/ , Baye r / Ba y eD r i a g n o sti cs. 193

Behavior al 40, 43, l54t attlibutes/vadables, 18, 105,169 r esear ch, 12]- 122 tnentation, seg Belief-based BellSoLr th,25 169 Benchmarking. Benefits 97-| 12, 136,219-223 applications, 98-105 concepts, clir tr ensiont , 6,' 7 ,9, ( t2,91- 112 106- 107 methoclologY, pr osandcons,103- 105 9J- l12 segmental,r on, 99 measures, sLlrrogate 87 85, Bestcustom el' s, ll4 Boeing, 113,I16, 120 Thom as, Bor ioma. Larry, 133,134 Bossicly, 102 Software. Br oderbund 49, 5I,52 coustraints, BLrdgetary l5 I Bus fleetexamPle, i 13-116 marketdifferences, Br-rsiness BLryer -206,207,208 groups,205 18,I 19 I 16-1 cltaracteristics, personal I 16, I l8f, 121 siniilar ity, seller 214-21'5 styles, 99, 123, 169, behavior/motives, BLryirig 22t-222 123 (Dutchn-rarket)' Cal phones 129 ts, 128ac pacemake Carcli Ricliard,61 Cardoza,

233

2,34

HA]V DBOO K OF MAKKET E^ITATI SE GX/I OIV

r nar ket Contr ollecl cover age, l6 Contr olsystenr s. 142 CordisCorporation. 6. I 50.SeecLl,yo Johnson & Johnson Cor ningGlass W or ks,193 (business) Corporate c u l t u r e3 . 4 . 1 2 2 .1 4 0 .1 5 6 comnr iLnr ent. 17-I 8 per for nr ance exar nples. 2 |. 23t. 24. 6 3 ,1 4 . 8 1 ,9 1 , 1 0 2 ,l 2 l - r 2 2 ,

CareerTrack, 103 C a u s a l i t5 y1 , ,105 Cement/concrete market, 9, 108,I I lt Census Btrreau, 64,68-'/ 0, I 1,I 4-l 5 classifications, 63-6 4, I 4-l 5 products. 68-10, 1 1,74, J6 CEOmotivations, 123 Change, 13,l5J, 194-195 Charan R . a r r r1 ,34 Chernicals market, 9 Vicki, 8 Cheston, 23t Cisco, Claritas, 69,10,l2l Close to thecustorner, 34, 11,5-116 Cluster-based segmentation. 125121, -180 111 CNN,202
(C A S ), C o l l i n sA vi a ti o nS e rvi ce s

204 CorpTech Directory. 45 Costlactors. 9, 1(r, 3zl-35, 36,45, 1ll . 124, 1 4 8 t1 . 58 CPA flrm example. 32t Creativity 1.5 8 . 1 6 81 - 69 Custonrer business r nar kets, 151, I 5 3 t
c a p a b i l i t i e1 s1 . 6 .I 1 8 f centr ic m ar keting. I 55, d e p e n d e n c lyl , 4 driven. I 5 8 -1 5 9

1 7 3r-8 l
Cornmon buyinglactors, 100 Cornpany size, 99, I 16,I l8f Competition, l5-16,92, 133-134 Cornpetitive aclvantage, 139,168202.205-206 Computer clata tel'minal example. 99 distributo r..1 2 .9 9 9 mapping. 10-11 personal computing, 5, 9, 13-14 printers, 201-209 proclucts, 28t,91 professional users study,108, 109-110 software rnarket, 9,28f, 102, 183-192 sllperconrpu[ers, II g, Concentrat ion/concenl"rated niarketin g, g-10, J, 12t Confi rmati i sco on-d nfi rmatr on paradignr. 100 l tan Consu ts/consul ting beneflts, 35,52, 163 roleirrsegmelttation, 1J , 35, 49, 141,158 , 1t l6 s e r v i c e2 s6 , , 8 1 ,1 6 1 t targeL marke[, ]2,85

n4

(t, groups, 30. 11 4-11 6, 215-21 219-223 intirnacy strategy, 29 location 1.1 6 . 11,3f needs 1 . 3 .1 5 , 22.147,746,169, r 8 8 .2 1 9 - 2 2 3 ownership, 25 ranking. 87 (CRM), relati onship mana_eenten[ 8 5 - 8 61 . 97 r e t e n t i o8 n1 . .8 5 .9 0 .9 1 ,1 6 8 22 sectot's, service. 104 tiers, 86 v a l u e1 . 0 01 - 0 31 , 93-200 S.e e also Value CustomerRespect.corn. 102 Customizatio l0 n-.l l . 4 4 .1 5 1 Custoni Resc'arch, Inc.(CRI), 81

Dal-eic. Tevfik,12.14 D a r w i n i atn h e o r y1 . 3 31 - 34

Index

235

F c n ' rJ no u n t u l , 3 , 1 Dat a 87, 89, 90- 91 FastInclLr stdes, a n a l y s i s4 . 6 - 4 9 ,1 2 4 64 states, Fastest-grorving 1,2 4 collection,4I-15 5, 69, 85, 102,202 FeclEx, ,I Dirt a b a s e3 s , I l , 1 5 ,4 3 -4 5 J Fightingfires,34 u n i ts(D MU s),3 8 De c i s i o n - m a k in g Financial 2Jf, 29, 32t, 39 Definedmarhet, 12-73 factors, Dell, 5, J , 25, 102,202, 208,209 s e r v i c e s.122 l, 0 Demb y .E, m a n u e I2 1 l- 79,, 40, 43,61- 62, Fir nr ogr aphics, Demographics 1 2 3 ,r 8 7 - 1 8 9 3,3 ,5 J , 6 l , l I - 1 9 , 9 9 - 1 0 0 , b r , r s i n e6 s,s 93 Formerusers, l9 I 16127 Research, Forlester 1 2 t,2 1 5 consume .r Ps. 140,160.Seea/soMarketing, For,rr 69,'/0, J I privatesector, vendors, n-rix . 14 Deri v e cd l e m a n d1 Four Rs, 9 192 D e v - S o fS t . A . ,1 8 3 .62 D i b b ,S a l l y .1 3 8 ,1 5 9 - 1 6 01 Ditt'erentiatiotr 7, 8, 9, 10, marketclifl'erentiation, Gapsin the market,97 1 5 6 ( G E ) , l l , 2 l , 1 0 1 '1 3 8 ' 1 2 t ,1 6 ,3 0 , 8 3 ,8 5 . G e n e r aE l lectric 9. I z16 clitf'elentiation, procluct 193 OpportLrnities Busiuess 21 -28,32t Distinctive tnarket, Generic ( D B O s),2 5 Geographic I l9 63-65 I 5 1 -1 5 3 ,1 9 0 sn t r ate g y. marketmeasures, Dis tr i b L r t i o 6 6 , 4 , 1 6 ,I l l a r r a l y s i s , 6 81 sales Don n e l l e y 1 , 27 6, 22, 26, 32t, bases, ,93 segmentation l o mP a n Y1 Dow C h e m i c aC 3 3 ,3 8 , 6 l - 1 1 Dow C o m i n g .19 3 -2 0 0 a r e a s6 , 5 , I 1 3 - l1 4 ,1 8 7 - i 8 8 , trade t & B ), 4 3 ,I l , J4 Dirn & Br a d s t l ee(D 215 Dur n b a I ra ' .n .3 8 153 (holistic) aPProach, Gestalt 23t DLrPont, 211 ClaxoSmithKline, 188,205- 2Ol 62- 63,187Globalscope, Glynn,William, 11 - 65 H Goetsch , a l , I 6 l - 1 6 2 ,1 6 3 1 e - B a y .1 0 2 1.4 3 Government e -c o n l m e r c e 8 0 / 2 0m ) l e , 8 1 ,8 7 , 8 9 , 11 mar kets, E i g h t y - t w e n t(y 70 agencies, planr-ring 90 ns,42t, J 7, I 6, 82 pLrblicatio exatnPles ntarket Electrical Graphicssuppliestnarket,6 components.21 90 .0 gorillas,l2 verslls se rvi ce s. Guerillas ttl in te u a tl ce r n e c h l t n i c lttl 100 E llio t t ,G r e g o r YI, I 30 ruarket. vehicleli,eliting Emergency 7 3 , 1 8 8 ,1 8 9 volume. E rn p l o y e e E n c lu s e ,B , 9 , 8 2 -8 3 s co re ca tdI4 . l, l42t E riv i r o n m e n t al

H&R Block, I 14 I 07 ll, 1l , 97, 105,106Haley,Rttsse Ham el,Gar y,22

236

HA]VDBOOK OFMARKET SEGMEI{TATION

s,,2 5 .5 4 ,1 2 5 J a p a n ec so e r l p a n i e5 Jenkins. Mark.158159 (J&J). Johnson & Johnson 6. 12.150 Judgment call.53-54 Just-in-tinre procluction. 5

Kabi Pharrnacia. 2l I Kalafatis. Stavros. 8. 9. 40t Key account nrana-eernent, 88 Key accor - r nts. 84. 81.93 Kim, Chan. 202.203 K i n k o ' s ,1 1 4 Know how the infbrntation will be u s e d4 .9 Krrowiri_e custonters . 4. l9l - 199 Knowlecl_se tlanst'er.52 IBM, 5, 12,23t, 102,204 . h i l i p .l - 1 . 2 6 Irnplernentati o n , 4 1 ,1 4 2 1 8 8 ,1 , 5 5 - 1 6 5 .K o t l e r P

Flealthcale insurance exarnple, 34 market,9l-98 H e a v yu se rs, 8 4 . 8 1 , 9 7 , 9 2 , 9 3 . 214 H e w l e tt-P a cka rd , 3 t, 1 0 2 ,1 39,l5J, 5 ,2 205-206,209 H i g h - t ech ma rke ts, 8 , 4 5 , 6 3 ,l 2- i3.14, J6 , 9 2 , 1 0 3 1 - 04,l2g-129, l3g-140, t51 Hit list approach. 53 Home Depot, 153 H o m e i mp ro ve me n t rke t, ma I5 3,l54t Homog'eneity andheterogeneity, 39 Hospitalservices industryexanrple, 28 Hotel exarnnle. 84

See alsoSegmentation, i rlplementation/contro I Iniproving segmentation, 35 Industrial conlponent exarlple, 83 (types), products 82, 11 4, 145-146 Industrial plrmps distributor example, 65,114 Indr"rstry classification/type, l3-79,8 1.99-I 00, 11 6 ,I 1 g f , 1 6 9 - 1 6l9 .g B profile,35 structure, l2t,13 Infbrrnation sector, 14,l5t, 168 Iufrastructure (segrnentation), 159I 60, 162 Input-output analysis. 82 Insi_el-rt/in Luition. 53-54 Inte,eratecl marketing cotxmuni cations (rMC), 141 I n t e l ,1 3 ,1 5 7 , l66t Internet cornmunication. 102.141 conductin bg u s i n e s1 s. 14, 152. 168. 190-191 segmentation, 16, 54-58

Lar _ee conr panies, 8. 9, l2- 13,85, 184 Leaduser s. 128 Leeuw,Maartin. l4 Lemon,Kather ine. 85-86 Lexmark Irrtern aticl ntrl,20 1-209 Lil' estyles. 120.215 L i g h t L r s e r8 s7 , .9 l ^ 2 1 4 (LOV). 127 List of ValLres Local scope. 63 -178. Loyalty. 8 4 .8 5 .9 2 . 9 3 , 1 1 7 214 Lutron Electronics. II

Macro e n v i r o n m e nIt . 1 4 .1 6 0 s e g n t e n t6 s1 , -62 var iables, 8- 9 Maplnfb, 70 Mana_ee cd are.212,215 Mana-eenrent involventeltt. 35. I 60. l6lr, t65 Marinentarket exarnple. BI

Index
Malket MLrlti (corttirtuecl)

q27
LJI

definition 2 ,l - 3 2 ,3 8 .6 5 - 6 6I,6 , 219-223 grorvth, 138 2.l , 3 0 nryopia

22 oppofiLlnittes. orientatio4 n, . 1 3 ,1 1 , 3 3 25 ownership, 62-63 scopefactors. 1,3 4 s e g m e nrt- na p p i n g segments 3,, 4 , 6 , 7 . 9 . ) 9 , 1 6 4 , 1 1 8 . Iso Segmentatiot't, Se e cL Targetmarket, examplesl e x a mp l e s selection 8,-9 . I 2 t, l 3 J - 1 3 8 ,I 8 9 -I 9 0 208 s h a r e8 , 5 .8 7 , 1 5 6 , s i z e .I 3 . 2 l , 3 0 ,3 9 ,l 2 - 1 3 , 1 3 8 , )2, 752,201-209 spArre, Marketin-u c o n c e p t9 , 8 , 11 5 94 intolmationsysteni. niix, l4l plar-r, 34. 50. 88, 120,134 M a l r i o t l H o t e l.4 Mass 1n 0,, I I c r "r s t o m i za ti o 3,, l 2 t , 1 6 ,2 J , 3 2 tnarketing Renee.202, 203 Marrborgne, M c D o n a l cM l , a l c o l m ,l 3 8 , 1 5 9 examples, devices/instruntents Meclical 3 4 - 3 5 ,1 6 8 ,2 1 9 - 2 2 3 84, 87, 9l Lrsers, Meclir;m M e r : c k2 ,5,139 6 | - (t2 Micro se-snents,' M i c r o s o f t , 2 5J ,0 . M il l i e r ,P a L r l54 Missionaud vision . 24-25 urarket. I03- I04, Mobile plofessior-ral 123 Mo n s a n t o2 , 1I 2 3 t, Mo t o r o l a / M o to ro lU a n i ve rsi ty, 1 5 7 ,l 6 6 t M u l l e t ,G a r y .1 0 5 .1 0 8 ,1 0 9 - 1 1 0 MLrlti b r a r i dr r r o d el.-l stepapproach.116,119

5 I, 104, variate 46-48, analysis, 108,124 105, 122 influrences, MLrltiple buying

Community NACE (European of Economic Classilication J 8- ' /9t, i 88 Activities) ,' 7J, NAF'TA (North Anierican Free Tracle Agreement),32t (North Arlerican Industrial I{AICS System)40, , Classification 73- 17,168 scope, 63 National/regional 113,116- 120 Nestecl appr oir ch, maturecompanies, New, glowing,rtncl 12 14, 168 New economy, Co., 63 Constluction New Sor"rth 3, l2- I4, J4, m ar keting, Niclr es/niche 102,139,202,208 Nike, 141 85,92 Nonr r ser s. Nor tel,169 87, 89, 90, Generics, NovartisiNovartis 151 Novell,23t 160 how approach, Now, lirture,ancl Nypro, 29

s, 36- 37 Ob.iective ,38, 49, 50, 141 6-7 machines, Office copying 6 exaniple, Oil conipany 51 studies, Ongoing I l6- 118 valiables, Oper ating ( segm entation) , 162 159Oper ations I 58-159 integr Atiott, Or ganizational Otl-rer gror-rp, 19 91-98 valiables, 74 Plastics, Outwater 34 markets, Ovelanalyzing 2t, I I 3, 99 factols, Ownelslrip

238

HA]V DBOOK OF MARKET E]VTATI GX'T O]Y SE

( se- enr enr ation) , I 65 2s 9,, 5 2 . Paltnership 168, 8 8 ,1 0 8 . 1 7 8 , Plocess I 59201 Procluct Perretrated market, 2Jf, 29, 32t 46. I 43. 145-1 clraracteristics, PerceptLral rnapping, I 39 164-165 Pelsonal selling, 147 203, 206.201 conrplernen[ary, Personality cor e.extencled andtotal,139,1401 of a business. 140 lifecycle. 1 2 . 1 4 3 .1 4 5 .1 5 1 t r a i t s1 , 2 0 ,1 2 1 . 2 1 4 lines/niix 5.. 2 2 , 1 4 3 .1 4 6 ,1 6 4 ,1 8 6 , Peters, Thomas, 115 2t | -212 Pfizer,2l I 2.( t . 2 1 t , 2 8 3 . 0 . 1 1 4 ,1 4 6 niarkets Phalrnacia Corpora[i on, 2 | 1-21J r nodification. 146 Pharmaceutical segmentation, 8, 66-68, policies. 146.164- 165 8 9 ,9 0 ,l 2 I - 1 2 2 2 , l r-211 r esponsiveness. [5, l6 Philips, l2 2 1 segmentatio n ,2 Physical attribntes, 39-40 strate,qy, 143-146,164-1 65 Physicians, 6, 67-68, 89,90. 121-122, r ate.124 success 128-129,212-223 P r o f i l e sI.8 . 9 8 f . l 2 l . 1 6 1 t ,I 1 8 - 1 1 9 . Przza Hut, 1l3 SeecilsoTar-eet marketprofile Plank. Richard, 1i6 Pr ofitability. 85. l3B (segmen[ation), Plannir"rg 33, 35,36-40, 1.5 ,6 9 , 8 4 .8 7 .9 3 , I 1 5 , Prornotion 5 0 , 8 8 ,1 3 3 , 155-l6l 14l -149 martet, Plastics 9, J4,89,90-91 (organizational Psychoglaphics ) (POC) Point-of-care market, 97-98 120 defined. Pcrpulation density andclirnate-related 120- 127 examples. , lll - 180,211 factors, 65 i t e n r s1 . 21.122 Porter, Michael, 205 prosancl colls,105, 123-124 Positioning, 136,139,1401 synclicated ser vices, 124- 121 Practicality, 34,35, 39, 49. 133. 134 Publicity/public r elations. 149 Practitioner concents, 53, 155165, Purchase 161-110 8 behavior ,l - 8 2 ,1 0 0 Prahalad, C.K.,22 9. 1 . 1 1 4 .I 1 5 , 1 1 6 ,1 2 2 decisions Presegnrented markets, 2 1,22,29 v o l r - r r n9 e..1 2 Price Purchasin_u ceiling andfloor,l5lf a- pent/nr anagels. 82. 99-100.l2l asa diff'erentiator. 139.l40f appr oaches. 7. 9. 40t, 62, 72, pojntsegmentation, 150.l51f -222 lt6-llB quality tradeoffs. 149-150,221 s e n s i t i v i t9 y, 2 9 ,9 9 , 1 0 0 ,1 5 02 , 21 149strategy, 15I Primary data, 4l, 43 Quality p r o d r . r c1 ts 0.0 , 102, 103. 139. 150, Prinrary 221.222 benetit, 99 service. 9 market segment, B ve qLralitative usage, 99 QLrantitatiancl fbr choosin-q criteria tal-qet nrarkets, Problen-r 137-138 a r e a s1 , 5 9 -6 l 0,162 defluition research. 54, 104,105 , 36-31

Index

239

(cortti nuecl Real purrpose of the stucly, 49 Segrnenta Ltr.,n ) Reclefirring markets examples, 3, 4, 6- J, 8- 9,22, 30, 84, . 21, ?9. 205-206 Relationshi ps/relati onshipmarketir-rg, 9 0 t ,9 l - 1 0 0 ,1 0 3 - 1 0 41 ,08, 9 7 . 1 0 0 .1 0 8 .1 1 5 - 1 1 61 ,1 8 f , 1 9 ,1 2 1 , I l 0 r , I I l t , 11 6 - 1 1 2 3 , 1 3 91 , 5 6 .1 6 1 ,1 6 8 ,1 6 9 , 12 2 , 1 2 81 - 2 9 ,I 5 4 t ,l l 3 - 2 2 3 2 0 6,2 0 8 gr icl/matr ix, I0l , 1291, 54.89, 106R e l e v a nc t l e fi n i ti o n s. 3 8 -3 9 118.200,223 Relevant malket,26-28.30,32t inr per at.ive, 4- 5 Report o n t h ee xe cu ti ve 's sh e l f,3 4 im plementationicontr ol, I 58-I65 35, Research lim itations of, l6- I B -50 36t, 4 I nreaning 3., 4 , 5 , J -ur-riclelines, clirestions, 38 gy, 34,4 I - 58, i61t methoclolo s e g n r e n ta ti oIn , . I 6 . l J , 3 3 , 3 4 , 35, 3 m o d e l9 , l-98,1l6-119, 1 5 8 ,1 6 9 , 4 1 - 5 8 ,I 1 9 ,1 2 4 ,1 6 0 - 1 6 1 178,216 s y s t e m9 ,4 misunclerstandinss resolvecl. I 8-19 R e s e l l em r a r k e t sI. l 7 - I 1 8 n o w ,1 6 8 - 1 6 9 RFM (recency, fi'eqLrency. ancl options, T- 12 monetary value)analysis. 85 roaclblocks, 34-35 R i s k , 9 ,1 8 .l l 6 , l l B i 1 2 3 , I24.l9l-192 tocns,10t,19,33, 35, str ategic Ro c k w e l lC o l l i n s,l l 3 , 1 1 4 133-154 Ro - u e r s B,e t h ,8 7 -8 8 s t L r d i c3 s4 , , 105 I {u s t .R o l a n d , 8 5 -8 6 t h e n ,1 6 5 ,1 6 7 - 1 6 8 1l 0 traclitiona , ,I I , 1 1 5 UnitedKingdom( UK) , 8- 9, l38, 159 Sales Lrsage and satisfaction rates,24 i n d u stry, 28 autorration viability, 39 2 l3 clivision seglnentation, mar ket, 2JI, 29, 32t, 135, Segnr ented i r - r c l u s t r iI a1 l .5 , l 4 8 t 136 p e o p l e l,2 l . 1 4 1 74, 168 Services sector, promotion1 , 49 P., 113,116, Il9, 120 Benson r e p r e s e n ta ti ve 's g l tl e n ta ti o to se no l s, Shapir o, Shareof customer, 84-85 2t3 Williani, 25 Sherdan, t r a i n i n g9 , 8-9 9 exam ple, 99 Shipping v o l u n r el , 2 - 1 3 , 8 1 . 9 9 ,1 8 8 .1 8 9 Industrial Classilication) SIC (Standarcl S a m p l i n g4 , 5-46,61 c o d e s3 , 3 .4 0 , 6 1 .l 3 - 1 4 , 1 6 , SAP,202 1 1 . 9 9r .8 8 cy l a ta /so u rce 4 s, l ,4 2 t, 4 3 , 4L) , Se c o r r d a r I08 Corporatiorr, Signode 6 1 ,8 2 162 138,159- 160, fbrmation criteria, I38 Sim kin,Lynclon, Segurent 39, 137S i m m o n s1 , 27 SegmenLation 8, 6L- 62 appr oach, Singlestage 158a r c h e t y p e s, 159 1l6- i 18. 1l9 factor s. SitLr ational a u c l i t1 , 6 1 - 1 6 51 ,66t I 1 4 ,I 1 6 ,I l 8 f order, 6-1, 29,35, 39-40, S i z eo 1 ' t h e bases/dirnensions, -7 3 , ( SBA) , Business Administr ation Snr all 4 3 . 6 2 -6 5 , 7| 8I I 30 13 beneflts o f , l 5 - 16

240

HA]VDBOOK OF MARKET SEGMEIVTATION

profile. 9Bi.154r, fl9 strategy, 133I 54 strafegy worksheet. 143.114 Target population measLu ement units, 38 Techni caIrec1u i rerrients/speciti cati ons. 9, 139. l40f Techno-eraphics. 127 T e c h n o l o gIy1 . 6 .I 1 8 f .I 2 3 .t 2 j - 1 2 9 . 220-221 Telecomrriunications nrarket, 103104.
I L-1
1^1

TIGER(Topolo_eically Integrared r69 Ge o-urap hic Encodin-p ancl Statistical software, 49 Referencin_e). 68-69 Steel tnarket examples, 32t, 108, I I 1t, T i m e , 203.206,201.208 114 Trends ,2 0 . 1 165. l6l-169 Strategic Trial anderror. 52 203,205 Toshiba, -qroups. : 201,208 5 marketing 1,2 3 1 , 33-154 , l 5 g -1 6 5 , Tsogas. Markos. 9,40t 204_201 TubaExchan-ee. 3 types, 123 Two-sta_ee approach, 9,62, l16 Strengths andweaknesses, 91, I42t Typical users. 84 Strategy Consultin-e, Inc.,87 , Subsegmentatior-r, I9 Srrbstitute industries, 203,204-205, Uncertainty.4g 201,209 Uncleranalysis. 34 Switchin-e ver-rdors, I I6 llndil'lerentiarion. 7. 8. l2r. l5 Syndicated sources, 43.124-l2l Unilbrrn supply colnpany exarnple. 74 Synergy, 143 (asa resoLrrce), Universrties 52 Unobservable characteristics. I 23 Unordered segmentation, I l6 Target, retailstore, I l3 Unprof itable custonters. 84 Targetmarket Untapped rnarket. 27f,29. 32t corrcept, 2l f. 29-30, 33, l3J U p j o h n . 2Il examples, 3, 6. I 4, 29, 321. 5j _59, Ur-eency of order, i 16.I I 8f 6 3 ,7 4 ,g g _ 1 0 0 1.0 3 _ 1 0 l4 0,g , Usa_ge 121_123, 124,126, 127_129, analysis. BI -95 1 5 4 t t, i B - 1 1 9 , 2 2 3 assessmeltt. 91-94

S n r a lf l l r r n s8 , ,9, I 2.70,I l,l2-13. 1 2 3 , 1 9 31 , 94 S m i t h ,W e n d e l l 4 , . 16i So f t t a rg e ts, I 16 So n y ,5 Sophistication (of se-Qimeltlation), 5 l. 1 5 9 ,1 6 9 _ 1 6 9 SouthAfrica. Tl So u t h we st A i rl i n e s, 25 Speed of delivery,9 Sportrned , 219-223 SQIP (service, quality,image,and price), l0l-102 SR C .7 0 SRI Intemational, 125-121 St. JoeCornpany, 23t Standardized marketarealt.teasut es. 64-65 Staticversus dynamicsegnredtation.

Tar_eet rrinrket ( c o rt t i rtL tecl)

Texas Instruments. 169 Thinkin_u outside of thebox.I l5,169

Tltotrtcts Regi ster of Ante ric cLtt MartL(ctcnrers, 83 Thr:ee-s1nge app'oac5, 9

Index (cotttirtued) Usa-pe fi'eqLrency anclvariety, 86-87 groLrps 8,3 , 1 1 6 - 1 1 1 sholtconiings, 92 varialrles, 7, 9 U s e rs t a t u sI, 1 6 ,I l 8 f U.S. Food andDru_e Aclministration ( F D A ), 2 l 2 U . S.P o s tO ffi ce .1 0 2 Utilities7 ,

241

Waterman, Robert,115 W eb nrarketin_u , 84, 102.151 sources 4,4 , , 5,)5 5 - 5 8 ,I 6 , 8 3 Weinstein , r t , 8 , 2 1 , 1 6 5 ,I 6 J, 2 0 1 , A 2t9 Welclr,Jack,21, 138 Wind. Yorant(Jerry),167 W innebago, 30 Workman,John,Jr., l5l

VALS typolo_uy, 124l2i Vah"re c h a i n ,1 6 9 . 2 0 5 d e f i n e dl,0 l - 1 0 3 o f t h ei n t b rrl a L i o n 4.9 , 5 2 . 5 3 , 1 5 8 i n n o v a t i o n1 , 02 proposition , 0 . 1 0 2 ,1 0 3 9 seekers/seeking, 99, 168 Values1 . 0 0 ,1 2 0 Vandermerwe, Sand ra,)2.202-203

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Yahoo,23t Yankelovich Monitor. l2l

Zeithaml, Valarie,85, 86

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