Industrial market segmentation

Market segmentation – “ process of dividing the total market for a product into several segments or distinct group of buyers with common characteristics”.

Each group of buyers are homogeneous and may require separate benefits from the product

Market segmentation procedure

segmentation

Carry out marketing research

Identify segmentation variables from the analysis of market research data

Prepare profiles of the resultingsegments

Target marketing

Evaluate the resulting segments

Select the target segment

Decide target market strategy

Positioning

Identify target customers attributes for differentiation

Select the right attributes or benefits

Communicate the chosen position to each target market

Marketing research (market segmentation) Secondary research is done for collecting information on

markets from co’s past data,online databases or industry associations.

If sy. Research info. is adequate,no need to collect primary data(descriptive research)

If info. Collected is inadequate, descriptive research should be done to collect the following info. From industrial buyers

* purchasing attributes considered by buyers * Buyers requirement of company’s product&

their purchasing policies * competitors information * buying behavior of buyers, buying phases &

buying situations

Analysis

Statistical technique – Analysis

1. Factor analysis

used to remove highly correlated variables

2. Cluster analysis used to identify different segments which

are mutually exclusive & at the same time each segment is homogeneous

Profiling Each group of customers are profiled by

its specific characteristics as : - application of the product - volume of requirements - type of industry - location - purchasing policies - major purchasing attributes - buyer’s personal characteristics - buying behavior

Benefits of market segmentation Enables industrial marketer to compare

mkg. Opportunities of different mkt. segments by studying customer needs & potential, competition & satisfaction levels of customers

Industrial firms develop separate mkg. Pgms. to meet the needs of different mkt. segments

Budgeted allocation of resources done effectively to various segments & hence mkg. resources used more efficiently.

Limitations of market segmentation Increase in mkg. Expenses – inventory

carrying cost, advertising cost, transportation……

Difficulty in segmenting due to the differences in buying practices, customer characteristics, product applications & benefit sought by different members of buying center.

Criteria – selection of segmentation variable

Measurable variables used should measure sales potential

or qty. of product required by customers & other customer info.

Differentiable segments should be distinguishable & should

respond differently to separate mkg. Plans or strategies

Substantial segments should be large enough in terms of

sales potential & profits

Identifying variables – segmenting industrial markets

Segmented Demographic

variables(age,income) Psychographic

variables(lifestyle,

personality)

Approach Macro variables Micro variables

In some instances, after using one variable it may be necessary to further

subdivide the market by other segmentation variable to obtain a more

detailed segmentation scheme called

SEQUENTIAL SEGMENTATION PROCESS

MACRO- SEGMENTATION This approach identifies macro- variables on the

basis of

* Industry / organizational characteristics

Such as type, size, geographic location or product application.

Information obtained through secondary sources like

* trade directories

* business magazines

* govt. publications

* company sources

Micro- segmentation Micro segments are homogeneous groups of

customers within macro – segments Industrial marketers subdivide macro into micro

segments only if necessary Micro variables are based on purchasing decisions Micro – variables:• Buy phases• Organizational capabilities• Purchasing policies• Purchasing criteria• Personal characteristics

Major variables used for segmenting industrial marketsMACRO VARIABLES Type of industry(customer) Which industries should we market our products or

services Types of customers include govt, commercial,

cooperative, & institutional

2. Company size(usage rate) What size of should we focus on?Based on sales

potential(usage) mkt is segmented into medium & small (A, B, & C) size customers

Contn… 3. Customer location What geographical areas should we

concentrate? Customers located near the factory or cluster of customers located in various urban areas

4. Application of product (end use) Should we focus on certain end- uses instead

of all the uses?Al extrusions are used for window frames,control panels, TV antennas…

Micro - variables1. Customer interaction needs Should we serve more customers who need

more information or discussions in DM process from the suppliers

2. Organizational capabilities Should we concentrate on customers who

need financial support(more credit), more services or technical support?

3. Purchasing policies Should we focus on customers who prefer

competitive bidding or mkt based negotiated prices or service contracts?

Contn….

4. Purchasing criteria Should we serve the customers who seek

quality, service or price?

5. Personal characteristics Should we focus on customers based on

the personal characteristics of buying – center members such as risk takers, risk avoiders, or personal motives

Evaluating market segments Size & Growth Mkt. Potential obtained by demand

forecasting methods as• Time series analysis• Regression analysis• Econometric models• Sales force estimates• Expert opinion Analysis indicate what is the size &

estimated market growth of each segment.

Profitability analysis

Market potential estimate the quantity & value of a product that

the entire mkt.purchase during specified time period

Sales forecast estimate of co’s sales based on the co’s share

out of the mkt. Potential in a specified time period Profitability refers to the difference b/w estimated sales

revenue(sales forecast) & the marketing cost servicing & maintaining customers in same time period

Competitive analysis

Penetrating a particular mkt. Depends on a careful analysis of strengths & weakness of existing or potential competitors.

It must be assessed in each mkt segment w.r.t to areas of mfg., R&D, finance,product quality,sales force,advertising,technology……

Company objectives & resources

Find whether each potential segment is in line with firm’s long- term objectives, if not eliminate segments.

A company will succeed in a segment if it has certain resources superior to competitors.