B2B PGE 2016-7 Session 3

Session 3.
B to B market segmentation
Course: B to B Marketing
PGE-M5-MKT-215-E-L-MRS #3
2016/2017
Session 3 B to B market segmentation

Objectives
be able to link segmentation to buyer behaviour
understand conventional segmentation approaches and
limitations
Louise Canning & Diego Rinallo
Segmentation: the link to buyer behaviour & research

organisational
buying behaviour
business market
segmentation
variety in
-purchase behaviour
-relationships
determine which customers

-require unique handling
-can be targeted with more
standard offering
business
market research
secondary data: guides segmentation
primary research: concentrated markets
poor response rates
B2B market segmentation

iterative process of classifying market into meaningful groups
each step defines further subdivisions
clearly defined segments, members share common traits &

homogeneous with respect to response to market offer (Griffith & Pol 1994)
Challenges for industrial marketer is knowing

correct combination of descriptive & explanatory variables to use
where to stop with set of meaningful segments

Market segment: definition

A group of present or potential customers with some common characteristic which is
relevant in explaining (and predicting) their response to a suppliers marketing stimuli
http://www-935.ibm.com/industries/automotive/
http://www.pininfarina.it/en/homepage/homepage.htm
http://www.alcantara.com/
Markets are dynamic

Segments may be unstable over time because
buyer behavior changes
competitors change
the business environment changes
So it is important to view segmentation as . . .
a process to support business decisions
not a static classification of the market
Pros of Segmentation
often market niches with little or no competition can be found

can build greater customer loyalty
can obtain higher profit margins
can establish a distinct positioning
more efficient and effective resource allocation
Cons of segmentation
production costs can be higher -- loss of scale economies

loss of scale in marketing costs
increased market research costs
greater management and time costs
targeting one segment may limit access to others
so . . .
Levels of Segmentation
mass
market
macro
segments
micro
segments
segments
of one
B to B segmentation: nested approach

demographics
operating variables
macro
purchasing
approach
micro
situational
factors
personal
characteristics
Bonoma & Shapiro 1984
B to B segmentation: variables in nested approach
B to B segmentation: variables in nested approach

Finding data on:
different sectors
key locations
companies
operating variables
STOP & THINK:

so where
would you
look?
purchasing approach
situational

macro-segmentation: most often used.enable description
on basis of easily observed "macro" factors
e.g. where they are, what they make, how big they are
micro-segmentation: most useful..enable explanation

on basis of hard-to-observe "micro" factors
e.g. what their key buying criteria are

size & complexity of the buying centre,
purchasing strategy
end-user behaviour (feature use; benefit)
B to B segmentation: benefit/use approach

Decide on what bases to segment market
then
first order segmentation:
group together customers looking for

same benefits in using product
benefit/use characteristics (micro)
second order segmentation:
background (demographic) characteristics

help to match offering to specific
customer group.
B2B segmentation
Means by which utility of segments determined
measurable:
criteria used enable segment to be

- clearly measured (firm size, capabilities, purchase criteria)
- targeted with market suitable offering
substantial:
big enough or customers willing to pay high enough

prices to justify costs of serving segment
accessible:
reach - physical ease of getting offering to customer

ability to communicate with customer
unique
response:
compatible:
response to market offerings can be clearly

distinguished from other segments & offerings
similar values, service standards, attitudes to risk taking
Market targeting strategy
http://www.bcg.com/expertise_impact/industries/default.aspx
http://www.pambianco.com/eng/industry-served.html
Suppose the market for 300 users of industrial adhesives were represented by the table below
Segments based
on needs
Organization size
as a descriptor
Organization
size
Price
sensitive
Durability
sensitive
Service
sensitive
Large
30
20
50
Medium
50
20
30
Small
20
60
20
What can we conclude from this table?
What can we conclude from this table?

To sum up, what weve covered in this session

linked buyer behaviour to segmentation
conventional b to b segmentation approach and its limitations
Sources
Brennan, DR Canning, LE McDowell, R (2014) Researching business-to-business markets; Business market segmentation, ch. 5 and 6
Business to Business Marketing, Sage Publications.
Forsyth, JE Gupta A, Haldar S Marnm MV 2000, Shedding the commodity mindset, McKinsey Quarterly, 4: 79-85
Harrington, RJ Tjan, AK (2008), Transforming strategy one customer at a time, Harvard Business Review, 86, 3: 62-72.
Shapiro, B., Bonoma, T. (1984), How to segment industrial markets. Harvard Business Review, 62, 3: 104-10.

B2B PGE 2016-7 Session 3

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Session 3.

Session 3 B to B market segmentation

Segmentation: the link to buyer behaviour & research

determine which customers

B2B market segmentation

clearly defined segments, members share common traits &

Challenges for industrial marketer is knowing

where to stop with set of meaningful segments

Market segment: definition

Markets are dynamic

buyer behavior changes

the business environment changes

So it is important to view segmentation as . . .

a process to support business decisions

not a static classification of the market

often market niches with little or no competition can be found

production costs can be higher -- loss of scale economies

B to B segmentation: nested approach

Bonoma & Shapiro 1984

B to B segmentation: variables in nested approach

B to B segmentation: variables in nested approach

B to B segmentation: nested approach

STOP & THINK:

B to B segmentation: nested approach

micro-segmentation: most useful..enable explanation

e.g. what their key buying criteria are

B to B segmentation: benefit/use approach

group together customers looking for

second order segmentation:

background (demographic) characteristics

criteria used enable segment to be

big enough or customers willing to pay high enough

reach - physical ease of getting offering to customer

response to market offerings can be clearly

Market targeting strategy

What can we conclude from this table?

What can we conclude from this table?

To sum up, what weve covered in this session

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