Segmenting B2B Markets Anand G. Khanna

Why Segmentation ? Better matching of customer needs Enhanced opportunity for growth Retention of customer Targeted IM Communications Share of the Market Segment Enhanced operational efficiency Better share of customer wallet

High-Growth Companies Succeed By: Selecting well-defined groups of potentially profitable customers. Focusing marketing resources on acquiring, developing, and retaining profitable customers. Developing distinctive value propositions.

Five Criteria for Evaluating Potential Market Segments Measurability Accessibility Substantiality Compatibility Responsiveness

Criteria for effective Segmentation Measurable Size , Purchasing Power, profiles of segments can be measured Substantial Segments must be large or profitable enough to serve Accessible Segments can be effectively reached and served Differential Segments must respond differently to different marketing mix elements Actionable Must be able to attract and serve the segment

Segmentation Benefits Attunes marketer to unique needs of customer segments Focuses product development efforts, develops profitable pricing strategies, selects appropriate distribution channels Provides valuable guidelines to allocate marketing resources.

Bases for Segmenting Business Markets Macro segmentation Micro segmentation

Business Marketing Segmentation Geographic Customer Type Customer Size Product Use Business Markets Purchasing Criteria Purchasing Strategy Importance Personal Characteristics Micro- segmentation Macro-

MAJOR SEGMENTATION VARIABLES FOR INDUSTRIAL MARKETS Demographic Industry : which industries that buy this product should we focus on ? Company size ; what size companies should we focus on ? Location : what geographical areas should we focus on ? Operating Variables Technology : what customer technologies should we focus on? User/non-user status : should we focus on heavy, medium, light users or non-users? Customer capabilities : should we focus on customers needing many services or few services? Purchasing Approaches Purchasing function organization : should we focus on companies with highly centralized or decentralized purchasing organizations? General purchase policies: should we focus on companies that prefer leasing ? service contracts? systems purchases? sealed bidding? Purchasing criteria; should we focus on companies that are seeking quality? service ? price?

Situational Factors Urgency ;Should we focus on companies that need quick and sudden delivery or service Size of order : Should we focus on large or small orders Organizational Characteristics (Personal ) Buyer –Seller similarity : People and values are similar to ours Attitudes toward risk : Risk taking or risk avoiding customers Loyalty (or Attitude) : Should we focus on companies that show high loyalty to their suppliers

Purchasing Strategy Classifications Satisficers approach given purchasing requirement by contacting familiar suppliers and placing order with first supplier to satisfy product and delivery requirements. Optimizers consider numerous suppliers, familiar and unfamiliar, solicit bids, and examine all alternative proposals carefully before selecting supplier.

Meaningful Micro Segments Importance of Purchase -- appropriate when product is applied in various ways by various customers Attitudes toward Vendors – analysis of how various clusters of buyers view alternative sources of supply often uncovers opportunities Organizational Innovativeness – some organizations innovate more and are willing to purchase new industrial products than others Personal Characteristics – although some interesting studies have shown viability of segmentation based on individual characteristics, further research needed to explore potential as valid base for micro segmentation.

An Approach to Segmentation of Business Markets Figure combines these macro segment bases and outlines steps required for effective segmentation. Source: Adapted by permission of the publisher from Yoram Wind and Richard Cardozo, “Industrial Market Segmentation,” Industrial Marketing Management 3 (March 1971): p. 156. Copyright 1974 by Elsevier Science Publishing Co., Inc. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.