Segmenting B2B Markets Anand G. Khanna. Why Segmentation ? 1. Better matching of customer needs 2. Enhanced opportunity for growth 3. Retention of customer.

Segmenting B2B Markets

Anand G. Khanna

Why Segmentation ?

1. Better matching of customer needs

2. Enhanced opportunity for growth

3. Retention of customer

4. Targeted IM Communications

5. Share of the Market Segment

6. Enhanced operational efficiency

7. Better share of customer wallet

Selecting well-defined groups of potentially profitable customers.

High-Growth Companies Succeed By:

• 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 SegmentationGeographic

Customer Type

Customer Size

Product UseBusinessBusinessMarketsMarketsBusinessBusinessMarketsMarkets

Purchasing Criteria

Purchasing Strategy

Importance

Personal Characteristics

Micro- segmentation

Micro- segmentation

Macro- segmentation

Macro- segmentation

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

1. Satisficers approach given purchasing requirement by contacting familiar suppliers and placing order with first supplier to satisfy product and delivery requirements.

2. 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.

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.

An Approach to Segmentation of Business Markets

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