HOW TO SEGMENT

INDUSTRIAL MARKETS
PRESENTED BY: GROUP 1
UM14271, UM14272, UM14273, UM14274, UM14275, UM14276

INTRODUCTION

Industrial Marketers use segmentation as a way to explain results rather than as

a way to plan.

Journal of Marketing Researchs

Segmentation Research.

Industrial Segmentation assist companies.

Nested approach- Not a cookbook.

Mr. Shapiro and Mr. Bonoma at HBS.

Segmenting Industrial World , 1983.

special

August

1978

section

Market

INTRODUCTION

Why is Industrial Segmentation difficult?

o

Same industrial products have different applications

Different products can be used in same applications

Customers differ greatly; Hard to discern which differences are important and which are
trivial for developing a strategy

How can industrial segmentation assist companies?

o

Analysis of the market- better understanding of market place, including how and why
customers buy

Selection of key markets- rational choice of market segment that fits the companys
capabilities

Management of marketing- development of strategies, plans to profitably meet the

needs of different market segments and to give the company a distinctive competitive
advantage

NESTED APPROACH

DEMOGRAPHICS

General, Easily Observable characteristics

Broad Description of the company

Visiting the Customer is not required

Obtained from General Directories and Government Statistics

1.

Industry: Marketers may wish to sub divide e.g. Financial Services

2.

Company Size: Example of chemical supplier

3.

Customer Location: Example of heavy duty pumps

OPERATING VARIABLES
These enable more precise identification of existing and potential customers within
the demographic categories.

Company Technology: determines a companys buying needs.

Example of colour televisions; Japan- automated and use large integrated circuits, USAinvolves discrete components and manual assembly and fine tuning, Europe uses hybrid of
integrated circuits and discrete components.

Product and Brand-Use Status: one of the easiest and obvious ways.
Example of manufacturers who replace metal gears with nylon gears; one approaches
existing customers, the other goes for new customers, and the third might target both.
Sometimes sellers use this strategy to identify competitors customers and try to lure
them in case of a weak customer. Example of Bethlehem Steel (state-of-art Burns Harbour
plant in Chicago area).

OPERATING VARIABLES

Customer Capabilities: companies with known strengths and weaknesses may

be perceived as an attractive market.
Example- technically weak companies in the chemical industry have traditionally
depended on suppliers for formulation assistance and technical support and suppliers
have used this to their advantage by identifying such customers
Digital Equipment Corporation sold its minicomputers to customers able to develop their
own software; an example of differentiation of customers by technical strength.

PURCHASING APPROACHES

Most neglected yet most valuable approach in industrial market segmentation.

Factors that determine purchase approaches:

Purchasing function Organization: determines to some extent the size and

purchase unit of company.

Power Structure: Impact of influential organizational units varies and often

affects purchasing function
Example: GM has a very powerful financial unit hence making the purchase decisions
extremely price oriented.

Buyer Seller Relationships: Supplier has stronger ties with some

sellers/customers as compared to others.

PURCHASING APPROACHES
o

General Purchasing policies: Customers tend to do business or are interested

in doing business with the companies or small firms that have established
affirmative action purchasing programs.

Purchasing Criteria : All the above points make the purchasing criteria. Benefit
segmentation approach used
Benefit segmentation is dividing your market based upon the perceived value, benefit or
advantage consumers perceive that they receive from a product or service.

SITUATIONAL FACTORS
Situational Factors require a more detailed knowledge of the customers. They
include the following:
o

Urgency of Order Fulfillment: routine replacements or emergency

replacement
Example: A chemical plant in need to replace a fitting quickly is often willing to pray a
premium price for a vendors installation skills, for flexible manufacturing capacity that
would be unnecessary with a routine replacements.

Product Application: has major impact on purchase criteria and process and
thus the choice of vendor.

Size of Order: An automated manufacturer will target that market which has a
need for high volume whereas the non-automated company will want smallquantity and short-run items.

BUYERS PERSONAL CHARACTERISTICS

Markets in B2B can also be segmented based on individuals involved.

Risk Averse and Risk Receptive buyers

Risk averse are not good prospects for new products and concepts, whereas Risk
Receptive buyers look at number of buyers and tend to shop around.

Depends on:

Personal style

Intolerance for ambiguity

Self confidence

Data on personal characteristics often expensive and difficult to gather. It is considered

worthwhile to develop a good and formal sales information system to ensure that
salesperson transmit the data they gather to the marketing department. This helps in
formulation of strategies