Prof. A. K.

Biswas

Agenda

What are the Unique Aspects of Business Market Segmentation? What are the Models of Industrial Market Segmentation? How Business Market Segmentation Should be Done? How to Select Market Segments to Serve?
Prof. A. K. Biswas 2

What are the Unique Aspects of Business Market Segmentation?

A business firm must define the market in which it wishes to operate. In defining the market, business market managers choose descriptors (bases) that characterize and delimit a market, with the intent pinpointing groups of firms that are of greater interest to the supplier firm.
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What are the Unique Aspects of Business Market Segmentation?

The difference between consumer and industrial market segmentation is generally seen in the specific bases of segmentation. Consumer markets are typically segmented on the basis demographic or psychographic variables. As the industrial customer is not an individual but a number of interacting individuals in a decision making unit (DMU) of a formal organization, the bases of segmentation are different.
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What are the Models of Business Market Segmentation?

Wind and Cardozo Model Bonoma-Shapiro Model

Prof. A. K. Biswas

Wind-Cardozo Model Of Business Market Segmentation

Given a generic product/service Identify macro-segments based on key organizational/ product characteristics such as: Size Usage Rate Application of product SIC category: market served Organization structure Location New vs. repeat purchase
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Wind-Cardozo Model of Business Market Segmentation

Select a set of acceptable macro-segments Evaluate each of the selected macrosegments on whether it exhibits distinct response to the firms marketing stimuli If it does not, identify within each acceptable macro-segment the relevant micro-segments based on key DMU characteristics.

Select the desired target micro-segments based on their costs and benefits associated with reaching the segment
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Wind-Cardozo Model of Business Market Segmentation

DMU may differ with respect to the composition and position within a firm. their decision making behaviour.

Prof. A. K. Biswas

Wind-Cardozo Model of Business Market Segmentation

DMU may differ with respect to: the importance they attach to the purchase of a particular item; the relative weight they attach to such purchase variables as price, quality, and service; their attitudes towards particular vendors; the specific rules they employ to seek out and evaluate alternative offerings.
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Wind-Cardozo Model of Business Market Segmentation

The three clusters of segmentation bases as per Wind-Cardozo are:

Organizational characteristics Product characteristics DMU characteristics

Marketers use two sets of criteria to evaluate these clusters:

Difficulty of implementation Appropriateness

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Wind-Cardozo Model of Business Market Segmentation

The difficulty of implementation criterion consists of a set of three criteria:

Cost of identifying segments Acceptance of the bases of segmenting by marketing personnel Ease of identifying segments and differentiating marketing programs

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Two-Dimensional Configuration Of Nine Bases Of Segmentation

Easier to Implement DMU Characteristics

1 Industry type
2 Size of Firm 3 Geographic Location

Organizational Characteristics

6 Buyers Identity

4 Frequency and Size of Purchase Least Appropriate

Most Appropriate

8 Source Loyalty 9 Buyers Personality

5 End Use

7 Specification of Project
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Difficult to Product Implement Characteristics Prof. A. K. Biswas

Wind-Cardozo Model of Business Market Segmentation

According to appropriateness dimension, the DMU characteristics is the most appropriate followed by organizational characteristics and product characteristics perceived as the least appropriate. On the other hand organizational characteristics are the easiest to identify though not the most appropriate.
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Wind-Cardozo Model of Business Market Segmentation

Based on empirical evidence, Wind and Cardozo argue that marketers often use inexpensive and acceptable means of segmentation, which they consider much less appropriate than what they would like to use. For examples, DMU characteristics are seen as very appropriate, yet are not currently used as bases of segmentation. Organizational characteristics appear to be used more widely now than may be appropriate.
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Bonoma And Shapiro Model Of Business Market Segmentation

Industry/ Company size/ Location
Organizational demographics: Operating variables:

General, observable (Macro)

Technology/User status/Customer capabilities (financial) Organization of DMU/Purchasing policies/Purchasing criteria

Purchasing approaches

(Intermediate)

Urgency/Applications/Order size Motivation/Buyer-seller dyad/ Risk perceptions

Personal characteristics:

Situational factors

Specific, subtle (Micro)

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Bonoma And Shapiro Model Of Business Market Segmentation

A marketer can begin at the outside nest and work inward because data are more available and definitions clearer in outer nests. On the other hand, situational and personal variables of the inner nests are often the most useful.
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Bonoma And Shapiro Model Of Business Market Segmentation

The outer-nest criteria are generally inadequate when used by themselves in all but simple or homogeneous markets because they ignore buying differences among customers. Over emphasis on the inner-nest factors, however, can be too expensive and time-consuming for small markets. A balance is to be achieved between the two nests.
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What is the Problem with these Market Segmentation Models?

Both the models help us in profiling the business firms their emporographic details, and their behavioral characteristics. However, they do not answer the question what these customers want. The problem is that customers dont conform their requirements to match with those of the average customer in their emporographic and behavioral segment.
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How Market Segmentation Should be Done?

The structure of a market, seen from the customers point of view, whether a individual or business firm, is very simple: They just need to get things done. When people find themselves needing to get a job done, they essentially buy products to do that job for them.
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How Market Segmentation Should be Done?

When choosing between competing offers, customers select the offer that meets their needs (to get things done) better than any other at the price they are willing to pay. Value or benefits (the ability of getting the job done) that people seek in products are the basic reasons for the heterogeneity in their choice behaviour, and benefits of the product are thus the most relevant bases for segmentation.
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How Market Segmentation Should be Done?

Earlier marketers used to succeed by providing superior products and other distinctive functional benefits. Today this is no longer enough, for such benefits can readily be imitated. The solution is to emphasize process benefits (which make transactions between buyers and sellers easier, quicker, cheaper, and more pleasant) and relationship benefits (which reward the willingness of consumers to identify themselves and to reveal their purchasing behavior).
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How Market Segmentation Should be Done?

However, it is no doubt more difficult for managers to implement the benefits-oriented approach of market segmentation. One possible solution to this problem is to provide opportunities to individual customers to design their own products and services by choosing from a menu of attributes, components, prices, and delivery options.
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How Market Segmentation Should be Done?

This facility can be provided through a choiceboard - an interactive on-line system. Cisco Marketplace is an on-line configurator that allows corporate customers to create the precise combination of data networking gear they need. Dells choiceboard allows individual as well as corporate customers to exercise their options in the personal computer realm.
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How Market Segmentation Should be Done?

GE Plastics: The GE Plastics Design Solutions Center lets customers use design tools to develop unique, customized products that then can be purchased on-line. GE Polymerland: The Polymerland Web site provides customers with digital tools that make choosing, ordering, and tracking plastic products easy, fast, and cost effective.
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How Market Segmentation Should be Done?

A choice board model of doing business with individual customers becomes possible in any industry when a system of accessible, integrateable components is available from which customers can select and combine options based on their own priorities. The choiceboard enables customer selfsegmentation, which is fast, costefficient, and far more precise than traditional manufacturer-imposed segmentation.
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How Market Segmentation Should be Done?

Segmentation in business markets should, in fact, be increasingly thought of as a negotiable and bilateral fit-seeking process where suppliers frame tentative segments (based on initial research) subject to exploration with well-placed key managers in those customer firms.

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How Market Segmentation Should be Done?

This would encourage the development of evolutionary segmentation that focuses not only on customer needs, but also on supplier needs. The process would also help to develop the sort of long-term relationships between supplier and customer that help to ensure that suppler offerings are developed in line with customer expectations and needs.
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How Market Segmentation Should be Done?

There are also instances where customers select suppliers that meet particular criteria (e.g., quality, financial stability, delivery reputation, collaborative product development strategies, etc.). By implication, a supplier able to exhibit appropriate reverse segmentation criteria to a customer can become significantly more attractive.
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How to Select Market Segments To Serve?

Selection of market segment to serve has to be on the basis of the fit between:
the attractiveness of the segment, the key success factors for operating in the segment, and the companys relative ability to compete in the segment.

The company also needs to consider the competitive reactions it might face if it decides to compete for a segment.
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How to Select Market Segments To Serve?

Segment attractiveness depends on:
Size and Growth of the segment Structural Characteristics of the segment such as competition, segment saturation, profitability, protectability, environmental risk etc.
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How to Select Market Segments To Serve?

Key Success Factors (KSF) for a segment could be

Product Quality Brand Reputation Technology Requirement Cost Structure Distribution System Quality of Service Financial Capacity
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How to Select Market Segments To Serve?

Company Objectives Compatibility with company goals Relationships with other segments Profitability Resources and Capabilities of the Company and Competitors Ability to conceive and design R & D Capability Existing Patents and Copyrights Access to new technologies through third partiesProf. A. K. Biswas 32

How to Select Market Segments To Serve?

Ability to Quantity) Produce (Quality &
Production Technology Production Capacity Flexibility in Production Cost Competitiveness Brand Reputation Distribution Strength Service Strength
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Ability to Market

How to Select Market Segments To Serve?

Ability to Finance Access to Capital from Operations Ability to Use Debt & Equity Finance Parents Willingness to Finance Ability to Manage/Execute Quality of Management Quality of Decision Making Innovativeness Organization Culture
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How to Select Market Segments To Serve?

In consumer markets, choice of customers whose needs the organization will satisfy with products involves selection of only horizontal market segments as this is the final transaction stage and is fixed. But in business markets, because intermediate transactions are involved, a firm must first choose the stage in the value-adding chain before selecting the horizontal market segments.
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A Value Adding Chain Involving Isopropanol

Acetone Coatings Propylene Isopropanal

Chemical Intermediates
Agricultural & Biological Chemicals Other
Prof. A. K. Biswas

Plastics

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How to Select Market Segments To Serve?

Consider the value-adding chain schematically shown in the previous diagram. An organization would have to decide whether to sell propylene, isopropanol, isopropyl acetate (chemical intermediates), and/or plastics. The stage in the value-adding chain where it decides to sell its output represents its choice of output markets.
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How to Select Market Segments To Serve?

Suppose the organization chooses to sell isopropanal. It must now decide whether to sell to producers of acetone, chemical intermediates, coatings, agricultural and biological chemicals. The latter decision reflects the organizations choice of macrosegments and represent one aspect of horizontal market choice.
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How to Select Market Segments To Serve?

In addition, micro-segments, which consist of organizations similar in their buying behaviour, must be selected to complete the horizontal market choice decision. Given customer needs in the output markets selected, the organization must decide the form of product required to satisfy these needs and the process used to make it.
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How to Select Market Segments To Serve?

These choices determine the organizations make/buy decisions concerning the value-adding activity to be performed internally within the organization and supplies to be bought in the input markets. Choice of output markets, the value adding performed by the organization, and input markets constitute the vertical market decision.
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How to Select Market Segments To Serve?

Vertical market choice is consequently an important element of firm strategy and may be examined in terms of organizational strengths and weaknesses versus environmental or market opportunities and threats. The opportunities and threats may take the form of changes in supply markets, changes in competition, and changes in output markets.
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Prof. A. K. Biswas

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