Chapter 6

Industrial Market
Segmentation, Target
Marketing and
Positioning
SEGMENTING, TARGETING, AND
POSITIONING (STP) NETWORK
For an industrial marketer, it is an important
strategic marketing decision to select the target
markets (or customers) and to position the
product (or service) favourably in the minds of
the target customer.
Cont’d
Procedure Followed for Market Segmentation

Common method or procedure consists of

three steps:
• Market research
• Analysis (to identify segments)
• Profiles (or outline ) segments
 Marketing research
In industrial marketing, secondary research (or desk research) is done
first by collecting information on the markets from the company’s past
data, online databases, data available on CD-ROMs, diskettes, and
magnetic tapes, library scanning, or the industry association.
If the secondary research is adequate to identify the market segments,
based on the analysis of the data then there is no need to collect the
primary data by spending money on the descriptive research.
However if the secondary data is inadequate, the descriptive research
(or market survey) should be done to collect the following information
from the existing and potential industrial buyers.
Cont’d
 Major purchasing attributes(or factors) considered by
buyers.
 Buyers’ present and future requirements of the company
product (or service) and their purchasing policy.
 Competitors’ information, such as customers perceptions
of the competitors’ ratings on the major purchasing
attributes, number of competitors, their market share,
their policies (or strategies) on pricing, payment terms,
after-sales-service, distribution, promotion.
 Buying behaviours of buyers, buying phases,and buying
 Analysis

Each group of customers (or segments) is now profiled (or outline) by

its specific characteristics such as:
• Factor analysis-is used to remove highly correlated variables
• Cluster analysis- is used to identify different segments which are
mutually exclusive and at the same time each segments is
homogeneous.
A part of analysis is used later for evaluating the segments as well as for
positioning
 Profiling
Each group of customers is now profiled (or outlined) by its specific
characteristics such as:
• Application (or use) of the product
• Volume of requirements (large, medium, or low)
• Location
• Type of industry
• Purchasing policies
• Major purchasing attributes
• Buyers personal characteristics
• Buying behaviour
 Benefits and Limitations of Target
Segmentation
Market segmentation in industrial marketing has not been
practice as effectively as in consumer marketing because of the
difficulty involved in segmenting industrial market.
The difficulty is in grouping industrial customers into market
segments whose responses to the company marketing program
may not be similar because of the involvement of many
individuals with different background in the decision process.
 Benefits or Advantages in Market
Segmentation
 It enables the industrial marketer to compare marketing opportunities
of different market segments by studying the customer needs and
potential, competition and satisfaction levels of customers in each
market segments.
 Industrial firms with the availability of adequate resources can develop
separate marketing programs or plan to meet the needs of different
market segments. Smaller firms with inadequate can also survive and
succeed by concentrating on a few segments.
 The budget allocation of resources can be done effectively to various
segments. The budgeted allocation of resources can be done effectively
Limitation

Market segmentation is not always beneficial or

practical, particularly when the market consists
of few customers, or single large customers, or
when the market is so small that marketing to a
portion of it is not profitable.
 Limitations of Market Segments
 Increase in marketing expenses such as inventory
carrying cost, advertising cost, transportation and so on.

 Difficulty in segmenting due to the existence of great

differences in buying practices, customer
characteristics, product applications, and benefits
sought by different members of buying centres.
Criteria used for selection of
Segmentation variables
 Measurable – variables used should measurable the sales
potential or quality of the product required by the customers,
and other customer information.
 Differentiable - segments should be distinguishable and should
respond differently to separate marketing plan or startegies.
 Substantial – segments should be large enough in terms of
sales potentials and profits. Only then a separate marketing
plan or strategy for each segment is justified.
IDENTIFYING BASES(VARIABLES)
USED FOR SEGMENTING
INDUSTRIAL MARKET
Industrial market segmentation is approached on the
basis of:

• Macro-variables
• Micro-variables
Major Variables used for Segmenting
Industrial Market
Cont’d
Macro-segmentation
Macro-segmentation is an approach consists of
identifying the macro-variables on the basis of industry
characteristics or organizational characteristics such as
type, size, geographic location or product application.
The information on macro-variables can be obtained
through secondary sources of information such as trade
directories, business magazines, government publication,
and company sources.
Some of the macro-variables used
for industrial market are classified
into
 Industry characteristics
Many industrial firms market their products or services to different
“types of industries”. These industries are classified by Standard
Industries Classification (SIC) by government publication.
 Organisational characteristics
The “size” of the customer organization is an important macro-
variable used to segment the market. Larger organisations have
different purchasing requirements and will respond differently to
marketing strategies or programs as compared to smaller firms that
Micro-segmentation
Micro-segments are homogenous groups of customers within the
macro-segments. Thus, industrial marketers subdivide macro-
segments into micro-segments only if necessary.

Micro-variables in Micro-segmentation are as follows:

1. Buy Phases- buying situations or buy phases, are used to segment
the customer groups further. Micro-segmentation is also done
based on customer interaction needs for complex products.
2. Organisational capabilities- micro-segmentation is also based on
organizational capabilities, such as financial, technical, or
Cont’d
3. Purchasing Policies- is another micro-segment variable
used to segment customers based on their purchasing
policies or practices
4. Purchasing Criteria- markets can also be segmented on
the basis of purchasing criteria used by buyers
organisations.
5.Personal Characteristics- of the individual buyers
within the organization is an important variable, as
ultimately the decisions are made individuals
Target Marketing
After segmenting the market into various (potential) segments,
the company should then evaluate the various segments.
Thereafter, it should select the target segments and decide which
market strategy it will adopt.

• Evaluating market segments

• Size and growth
• Profitability analysis
• Competitive analysis
• Company objectives and resources
INDUSTRIAL
MARKETING
SELECTING THE TARGET
SEGMENTS
�After evaluating several market segments based on the
various factors (or criteria). The company must now
decide which and how many segments it should select as
its target (market) segments.This decision can be made
by using either advanced computerised system, called
decision support systems (DSS)'. or a simple matrix
system (SMS).
TARGET-MARKET STRATEGIES

�Once the decision is made on target segments, the segments that will
be served by an industrial organisation. The next step is to decide which
strategy the firm will adopt out the three broad strategies available,
these are the following.

⚫CONCENTRATED MARKETING
⚫DIFFERENTIATED MARKETING
⚫UNDIFFRENTIATED MARKETING
CONCENTRATED MARKETING

�It means focusing all the marketing efforts on a single or relatively few, carefully defined
segment. The result is likely to be somewhat narrow range of product service accompanied by
high quality, high price, ang highly selective promotional and distribution strategies.

DIFFERENTIATED MARKETING
�Differentiated marketing focuses on a specific market, a “different” market, that is
interested in buying a certain type of product.
A differentiated marketing strategy is when a company creates campaigns that
appeal to at least two market segments or target groups. For example, a store can
promote a sale that appeals to people in at least two cities or locations, or a
company can market a product that appeals to women in at least two age groups.
Fig.6.2 Alternative strategies for
target markets
�UNDIFFERENTIATED MARKETING

This means a lack of effective segmentation. It refers to a

situation when an industrial firm ignores segment differences
and develops a single marketing plan or programme that will
be common to all segments or customers. This strategy is
used either because of lack of management analysis and
planning or it may be conscious strategic decision due
standardised products or services sold to a market where
there is a lack of meaningful differentiation among customers.
CRITERIA IN CHOOSING TARGET-MARKET
STRATEGY

�The following are the criteria that are useful to industrial marketers in
selecting a target-market strategy.

⚫If the company resources are limited, choose concentrated marketing

strategy.
⚫If a new product is in the "introduction" stage of the product life-
cycle, a firm can follow either concentrated or undifferentiated
marketing marketing strategy. For a "mature" stage of the of the
product life-cycle, differentiated marketing is sensitive
⚫If major competitors follow differentiated marketing strategy, an industrial marketers
must also follow the same strategy.If competitors use undifferentiated marketing strategy,
a company will gain by using either differentiated or concentrated marketing strategy.

NICHE MARKETING

�Market segments are large customer groups in a market. A niche is

more narrowly defined customer group, that seeks product or
services tailored specially to the individual needs and preferences.
NICHE MARKETING

�helps an organisation to provide such products or services

that are specially tailord to the customers' individual
preferences and desires.It is a strategic approach to marketing
that is gaining increasing acceptance in industrial marketing
because it enables company to succeed in a competitive
market
There are several examples of niche marketing.
• One being ang advertising firm. Which decided to
concentrate its expertise, knowledge, and efforts on
advertisement campaign for public issues. Its secured
maximum business in advertising for public issues and
succeeded in its objective of profitability in a competitive
advertising industry.
� Industrial marketers who would like to follow niche marketing
approach, should understand the following..

⚫The customers in the niche have a different and somewhat complex

set of needs. Which should be first indentified by getting information
from the customers with the help of marketing marketing research. The
company should then develop a new product (or sevices) or promote
an existing product in a new way so as to tailor to the special needs and
benefits of such customers.
⚫Generally, the customers in the niche are willing to pay a
higher price to the company which best satifies their special
needs.

⚫It is difficult for competitors to gain by attacking the

company which is a niche leader.

⚫In a "mature" market, either a company should be in "top

three" in the industry with high volume and low cost or should
follow niche marketing in order to achieve profits.
 *POSITIONING*
After selecting the target markets, the industrial marketer should decide
positioning strategy for each target market. The positioning strategy clearly
differentiate the company and its product(or services) from that of the
competitor’s.

Positioning –is defined as the distinct place a product (or service)occupies in the
minds of the target customers relative to competing products (or service). In
other words , positioning is how the firm wants its product (or service) to be
perceived by the target customers on important attributes or benefits.
 *PROCEDURE FOR DEVELOPING
A POSITIONING STRATEGY*
An industrial should follow the following steps while developing
a positioning strategy ;
 Identify the target customer’s needs in terms of major attributes or
benefits, while buying a product (or service).

 Select one or more attributes(or benefits)for differentiation, based on

the company’s strengths or distinctive competencies.

 Communicate the company’s positioning to the target market.

 *IDENTIFYING MAJOR
ATTRIBUTES FOR
DIFFERENTIATION *
The purpose of doing marketing research is to
understand which are the major factors(or attributes)
the target customer organizations consider important
while making buying decisions for a product. The
industrial firm should understand the customers
perceptions regarding the various competing products
with respect to the major(or important) attributes.
 *AN INDUSTRIAL MARKETER CAN USE
SEVERAL VARIABLES TO DIFFERENTIATE ITS
PRODUCTS FROM COMPETING PRODUCTS.*
 Product variables- For standard industrial product, the variation in product
features may be little, but the product quality or performance can be used for
differentiation.
 Service variables- Some industrial firms offer superior pre-sales services( ex;
solving customer problem)
 Personnel variables-Industrial firms differentiate from their competitors(or in
other words , gain competitive advantage)by recruiting better people and
arranging training programs at all levels.
 Image variables- Image is the way buyers perceive a company. The company
design its identity-building programmes to shape the buyers (or customers)
image. This process takes a longtime. The message is to conveyed in a distinctive
manner through all the variable promotional tols.
 *SELECTING THE
DIFFERENTIATING
ATTRIBUTES*
The industrial marketer has to decide how many and which
attributes or variables (or benefits or variables) should be
selected in order to differentiate the company or the product
from its competitors . Many companies select one benefit or
attribute, like, “best quality” or “best service”, or “most
advanced technology”.
 *COMMUNICATING THE
COMPANY’S POSITIONING*
Industrial marketers not decide the positioning strategy, but
also endeavour to communicate the same effectively to the
target market. In customer markets the positioning strategy is
mainly communicated through advertising.in industrial
markets the communication of positioning strategy is done
through personal selling (by the sales force), sales promotion
(ex: exhibitions or trade shows), and advertising (in technical
or trade journals).
Summary:
One of the most important strategic marketing decisions an industrial
marketer makes is with respect to market segmentation, target marketing,
and positioning.
In market segmentation a business firm decides whether it can serve the
entire market or a part(or segment) of the whole market more effectively
than the competitors. Major variables used for segmenting industrial markets
are macro-variables (consisting pf type of industry/customer , company size ,
customer location , and end-use/application of the product), and micro-
variables( including customer interaction needs, organizational capabilities,
purchasing policies , purchasing criteria, and personal characteristics) .
Industrial marketers subdivide macro-segments into micro-segments only if
needed.
 AFTER SEGMENTING ON MARKETTHE INDUSTRIAL
MARKETERS SHOULD EVALUATE THE RESULTING
(POTENTIAL) SEGMENTS BY USING FOUR
FACTORS:

I. SIZE AND GROWTH

II. PROFITABILITY ANALYSIS,
III. COMPETITIVE ANALYSIS
IV. COMPANY OBJECTIVES AND RESOURCES