MARKET

SEGMENTATION

E.ANAND
LECTURER
BIET - MBA PROGRAMME, DAVANGERE
NATURE OF MARKET SEGMENTATION

BASIC CRITERIA: Market and its specific segments must be

Measurable: Information on location and other characteristics
of buyers must be available.
Substantial / Significant: The given market or the market
under study must be sufficiently large in size and should have
like future potential too.
Stable:This means that customers have staying power and that
a relationship can be established between supplier and clients.
NATURE OF MARKET SEGMENTATION

Accessible: This means that supplier can retain old customers

and pinpoint new ones.
Compatible: It is the degree of similarity between buyer and
seller in terms of risk taking, service standards and corporate
style.
Ex: Tata Automobiles (Tata buses)
 Private Sector Public Sector Institutions
By type of Organization By levels
• Companies • Central Government
Sector or • Non Governmental
• Proprietors Departments
Organizations
Industry • Partnership Companies • State Government
Departments
• Social Welfare
Organizations
By type of Sector • Central Government • Educational Institutions
• Manufacturing Controlled Organizations
• Research Centres
• Service • State Government run • Associations
• Primary - Ex. Mining organizations

Medium Medium Medium

Size of Operation Large Large Large
& Small & Small & Small

Civil Defence
Global Presence of Tata Automobiles
 BASES FOR SEGMENTATION
“THE FIRST STEP IN ANALYZING INDUSTRIAL MARKET IS TO DIVIDE
IT....”

Is there a single route for segmentation like (location wise) or

dual bases (location and sector) or multiple bases (industry,
size and order etc.)

Is there a ideal or fixed selection of base for segmentation?

Most of the organizations segment on two bases: Location &

Sector as it is easy to segment on these two bases.
NESTED LOOP APPROACH TO SEGMENTATION
General, Emporographics

Observable, • Industy
Objective • Size of the Company
• Location
(MACRO) Operating Variables

• User-Nonuser Status
• Customer Capabilities (Financial)
• Technology

Purchasing Approaches

Intermediate • Organization of Decision-making unit

• Purchasing Policies
• Purchasing Criteria
Situational Factors

• Urgency
• Application
• Size of Order
Personal Characteristics

Specific, Subtle, • Motivation

Subjective • Buyer/Seller Relationship
• Risk Perceptions
(MICRO)
MACRO BASES (EMPOROGRAPHICS)
Emporographics is to Industrial markets as Demographics is to
Consumer markets. Emporographics encompasses macro bases
- Size of buying unit, Type of industry and Location.
SIZE OF BUYING UNIT
- Which companies get maximum coverage in newspapers, BW
500, BT 500
- Globally Fortune 500 companies
- Turnover exceeding 50 crores are considered as Large
companies in India
- Turnover not exceeding 50 crores are considered as Small &
Medium size companies
- Giant companies are recognized by their huge employee
population, physical assets and sales
- Medium & small size companies always try to supply wide
variety of goods and services to Large companies
- These finally divest or else get merged into large ones or
bought by large companies
- Small vendors supply to large and medium size companies
even though there is less compatibility
- Small companies usually prefer business deals with
companies of similar size
- These small companies usually can be referred to Business
directory of the city
 TYPE OF INDUSTRY

CONFEDERATION OF INDIAN INDUSTRY (CII)

 TYPE OF INDUSTRY
SECTORS AS MENTIONED BY FICCI - FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTY

! Advertising & Marketing, ! Apparel, ! Agriculture, ! Art and Business of Art, ! Aviation, ! Banking &
Financial Institutions, ! Biotechnology, ! Brand Protection, ! Capital Goods, ! Capital Market,
Communication & Digital Economy, ! Chemicals, ! Corporate Laws & Governance, ! Convergence, ! CSR &
Community Development, Defence, E-Business, Education, !Electronics Hardware, !Entertainment, ! E n v i r o n m e n t ,
!
Food Processing, ! Foreign Trade, ! FICCI Boating Forum, ! FICCI Trade Facilitation Forum, FICCI Young Leaders
Forum, ! Financial Inclusion, ! FMCG, ! Food Processing, ! Foreign Trade, ! Gems and Jewellery, ! H e a l t h ,
!
HRD, ! Hydrocarbons, ! Health Services, ! Higher Education, Information Technology, ! Infrastructure, ! Insurance &
Pensions, ! Intellectual Property Rights, !Innovation, ! Labour, Employment, Skill Developments, ! Lifestyle
Forum, Logistics, ! Manufacturing, ! Mining & Minerals, ! Non-conventional Energy, ! Pharmaceuticals, !
Power, ! Real Estate, ! Resource Conservation & Management Group, Retail, Rural Development, ! Renewable
Energy, ! Science &Technology / Innovation, ! Small and Medium Enterprises (SME), ! Sports, ! Taxation, !
Telecom, ! Tourism, ! Urban Development, ! Working Group on Civil Nuclear, Water Resources
 TYPE OF INDUSTRY
NIC INDUSTRY CODE - 1998 & http://mospi.nic.in/nic_1998.htm
 TYPE OF INDUSTRY
NIC INDUSTRY CODE - 1998 & http://mospi.nic.in/nic_1998.htm
 TYPE OF INDUSTRY
NIC INDUSTRY CODE - 1998 & http://mospi.nic.in/nic_1998.htm
 GEOGRAPHIC LOCATION
Pinpoint the resources or facilities of a given industry. Like
identify where are mills, mines, offices etc. where your product
can be sold.

Location of industries would vary from resource(raw

materials)-centric industries to customer-centric industries.
Location of industry depends on which stage the material is in
the processing of it?

ADB or WB sites give lot of information - region-wise (best

sources for identifying regions of your interest). Knowing
which mineral is mined in which area would be useful data.
COMBINING SIZE, LOCATION & INDUSTRY
IBM has identified several small businesses which might use
their products and services.
For textiles - which area would you target?

Can you do segmentation for:

i) Asian Paints
ii) HP products
iii) Helicopter company which is planning to start selling in
India.
THE INTERMEDIATE BASES FOR SEGMENTATION
OPERATING VARIABLES
USAGE RATE

Segmentation of clients on the bases of usage occurs along

the following lines: Heavy, Moderate and Light users.

Challenge is to retain heavy users while targeting light users

OEMs or After-market?

Predict the future scenario too - software or hardware?

 CUSTOMER CAPABILITY
Develop long-trusting bond - Will lead to future straight buys
But never forget that modified rebuys and New task gives you
a chance to become first-time suppliers
Tenders are notified to all the preferred buyers. So trust
becomes important to establish

TECHNOLOGY
Be the first to understand the technical requirements of your
client
Americans - breakthrough technologies while Japanese -
steady improvement in technologies
Intel Vs AMD
 PURCHASING APPROACHES
PURCHASING POLICIES AND PRACTICES
While some buyers plan their purchase, why do others
postpone till last minute?
Which departments are actually interested in investigating
the specifications, bid invitations, supplier selection?
Purchasing policies differ according to industry, according to
countries, regions. Agricultural industry’s purchasing policies
would be different from manufacturing industry’s policies.
Vendor must obtain documentation than oral understanding
regarding gift giving, the way in which bids are processed etc.
Do they believe centralized purchasing or decentralized ?
Do they believe system solution or part solution (assembly
line)
 PURCHASING CRITERIA

Whether it is prompt delivery, price, follow-up service or

quality products?
For prompt delivery which delivery service the client is using
FedEx., United Parcel Service, DHL, TNT etc.?
The criteria varies according to the country too. Canadians
like prompt quotation, delivery reliability while Brits like
having testing facilities near them, delivery reliability.
Few companies in the same industry look for technical
support while few companies look for service support
 SERVICE LEVEL

Although price is major consideration, many companies also

require services issues like reliability, ability to obtain
emergency deliveries, quality of technical assistance
More the service sought by companies, more is the necessity
that you have to stay near your clients place
Ex: Tata nano.
 SITUATIONAL VARIABLES

Three important situational considerations are

Urgency
Application
Size of the order

Whether client needs standardized solution or a customized

solution?
Ex. Biometric solutions
 MICRO BASES FOR SEGMENTATION
Why Business Clients Switch Vendors?

Various circumstances why business buyers switch vendors:

Dissatisfaction with existing vendor’s quality, service or price

Retirement, transfer, resignation or death of a key contact
Changes in requirement - now requires totally different
material
In times of turbulence - Ex. recession, inflation, shortages etc.
because of pressure of cost cutting, corporate downsizing,
outsourcing etc.
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

Not good for new products and

new concepts
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

Not good for new products and

new concepts
They tend to avoid untested
vendors
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

Not good for new products and

new concepts
They tend to avoid untested
vendors
They can rely on old friends and
colleagues to be vendor
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

Not good for new products and

new concepts
They tend to avoid untested
vendors
They can rely on old friends and
colleagues to be vendor
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

Not good for new products and Shop around for vendors
new concepts
They tend to avoid untested
vendors
They can rely on old friends and
colleagues to be vendor
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

Not good for new products and Shop around for vendors
new concepts Attend many trades and
They tend to avoid untested exhibitions to catch good vendors
vendors
They can rely on old friends and
colleagues to be vendor
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

Not good for new products and
new concepts
They tend to avoid untested
vendors
They can rely on old friends and
colleagues to be vendor
Shop around for vendors
Attend many trades and
exhibitions to catch good vendors
Look for good vendors
 INDIVIDUAL CHARACTERISTICS
BACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

Risk Averse Risk Receptive

Not good for new products and
new concepts
They tend to avoid untested
vendors
They can rely on old friends and
colleagues to be vendor
Shop around for vendors
Attend many trades and
exhibitions to catch good vendors
Look for good vendors
Initially split up orders between
vendors and then select few
REASSEMBLING THE NEST
 REASSEMBLING THE NEST

Personal
Character Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics
Purchasing Approaches

VISIBILITY PERMANENCE INTIMACY

 REASSEMBLING THE NEST

Personal
Character Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
VISIBILITY Demographics
Purchasing Approaches

PERMANENCE INTIMACY
 REASSEMBLING THE NEST

Personal
VISIBILITY Character Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics
Purchasing Approaches

PERMANENCE INTIMACY
 REASSEMBLING THE NEST

Personal
VISIBILITY Character Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics
Purchasing Approaches

PERMANENCE INTIMACY
 REASSEMBLING THE NEST

Personal
VISIBILITY Character Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics
PERMANENCE
Purchasing Approaches

INTIMACY
 REASSEMBLING THE NEST

Personal
Character
VISIBILITYPERMANENCE Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics
Purchasing Approaches

INTIMACY
 REASSEMBLING THE NEST

Personal
Character
VISIBILITYPERMANENCE Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics
Purchasing Approaches

INTIMACY
 REASSEMBLING THE NEST

Personal
Character
VISIBILITYPERMANENCE Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics INTIMACY
Purchasing Approaches
 REASSEMBLING THE NEST

Personal
Character
VISIBILITYPERMANENCE Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics INTIMACY
Purchasing Approaches
 REASSEMBLING THE NEST

Personal
Character
VISIBILITYPERMANENCE Purchase Purchase
INTIMACY Process Decision
istics
Situational
factors

Company Variables
Demographics
Purchasing Approaches
 REASSEMBLING THE NEST

Personal
Character
VISIBILITYPERMANENCE
INTIMACY
Purchase Purchase
istics Process Decision

Situational
factors

Company Variables
Demographics
Purchasing Approaches
FOUR OUTCOMES OF SEGMENTATION

NO SEGMENTATION

SUPERFICIAL SEGMENTATION

OBTUSE, CONVOLUTED AND DISORGANIZED SEGMENTATION

AFTER-THE-FACT SEGMENTATION
MISAPPLICATIONS OF SEGMENTATION
Over concern with demand level - paying attention only to
large scale industries and less to small scale industries.
Similarly paying attention to current users and neglecting
potential users

Needless searching for identification - Searching for proper

classification of location, industry or size of the organization

Myopic views of product forms - Do think beyond the actual

use of your product (Ex.Washing machines for Punjabi
Dhabas)