Segmenting the Business Market

High-Growth Companies Succeed By:

Selecting welldefined groups of potentially profitable customers. Developing distinctive value propositions that meet these customer needs better than the competition.

Focusing marketing resources on acquiring, developing, and retaining profitable customers.

5 Criteria for evaluating potential market Segments

MeasurabilityThe degree to which information on the particular buyer characteristics exists or can be obtained. AccessibilityThe degree to which the firm can effectively focus its marketing efforts on chosen segments. SubstantialityThe degree to which the segments are large or profitable enough to be worth considering for separate marketing cultivation. CompatibilityThe degree to which the firm's marketing and business strengths match the present and expected competitive and technological state of the market. ResponsivenessThe degree to which segments respond differently to different marketing mix elements, such as pricing or product features.

Evaluating the Competitive Environment

Few extremely dynamic industries, such as the computer or telecommunications industries, "market stability is threatened by
Short product life cycles Short product design cycles New technologies Frequent entry by unexpected outsiders Repositioning by incumbents Radical redefinitions of market boundaries as diverse industries emerge.

Competitive Analysis
1. Define Industry Boundaries 2. Identify Competitors 3. Determine Strengths & Weaknesses of rivalswhile anticipating their actions
Focus on the strategic intent of current and potential competitors. Here attention is directed to competitors' core competencies and how they can be leveraged in the pursuit of new applications, especially in divergent industries.

Sintex has leveraged its core competency in plastic injection molding first in overhead water tanks(B2C) & then in an array of products(B2B) such as septic tanks,panel tanks, Upvc Windows & Doors,Public Dustbins,Garbage Carts etc.

Plastic Fuel Tank

Spotting new Competitors

Marketers should examine scenarios of industry change and competitor entry and exit.
Which firms (current and potential) find this segment attractive? How do we match up with each? When, where, and how will they enter?

Technological Environment Assessment

1. Product technologyset of ideas embodied in product or service. 2. Process technologyset of ideas or steps involved in production of product or service. 3. Management technologymanagement procedures associated with selling product or service and with administering the business Changes in any of these areas can lead to Less market-segment stability Shifts in traditional product market boundaries New sources of competition.

Industry Convergence
Industry boundaries are blurring at an incredible rate. Companies are recognizing that new opportunities lie at the intersection of 2 or more industries. Firms are learning about new markets & competitors as well as how to achieve maximum synergy across the different parts of their business.

TMT(Technology,Media,Telecom)
The merger of AOL & Time Warner has created an online & traditional media hybrid that opens up a host of new marketing communication options. Traditional PC Cos such as HCL.HP,Dell & Gateway have launched consumer electronics products such as TVs,Digital Cameras to take advantage of the marriage of computing & CE. Photography Cos such as Kodak are also chemical Cos ,but they are moving into electronics to digitize their image making capabilities.
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 Straddles 5 Industries
Entertainment- Top US music retailer due to its itunes online music store Telecom Information Technology Consumer Electronics Publishing
Content,Device & Experience

For movie studios,publishers & music labels,Apple represents promising new ways to reach consumers as well as a potentially threatening shift in a balance of power that has traditionally favoured the creators of content.

Storage Media
Compact Disc Segments Entertainment Education Digital Storage Segments Enterprise Data Internet Data Servers E-governance

Demand Demand

Stock: Moser Baer Period : 1995-2011 Lifetime High : Rs 346 in Jan 2008

Media & Information Content

Movies (Warner Bros.,ColumbiaPictures,Sony ) Music (Apple itunes,RPG SaReGaMa) Encyclopaedia Brittanica Industry Research Reports(IDC,Frost & Sullivan) Scientific Journals (Cross Referencing,Tagging) Publishing Industry(Print Media)
e-reader (Kindle,iPad,Sony)

Display Media
Paper Segments Information(Newspaper & Magazines) Education Advertising Packaging LCD Segments Television Computer Monitors Mobile Phones Digital Devices(Cameras, Watches,gaming,printers etc.) E readers

Major Supplier of Paper to Publishing Industry

Demand
Major Supplier of LCD panels for Apples iPad

Demand

IPTV
Offer voice, cable TV and Internet services on a single line. Operators hope to generate a new revenue source as the growth of fixed lines remain stagnant.

Google marries Web & Television

Not just a browser,you will be able to search for and navigate both TV and online content. Currently Set Top box are needed to access TV feed. Pre-installed on Sony TVs and Blu ray players as well as Logitech companion boxes; will later integrate with Sony Playstation. Will require around 3 Mbps connection for good performance. Developers can immediately work on Google TV projects. Will be available to consumers in late 2010.International expansion planned for 2011. Google expected to make money through advertising & revenue share.

 The browser on Google TV is simply the Linux version of Google Chrome The user interface will be modified for TV. Android software will power Google TV. With the browser built in,Google TV is expected to help you access all your favourite websites & easily move between TV and the web.Hence a TV can be a photo slideshow viewer, a gaming console, a music player ,etc. Google has started building strategic alliances with a no. of cos like Jinni.com and Rovi. Jinni.com is a next generation TV application firm working to provide semantic search,personalised recommendation and social features for Google TV across all sources of premium content avaialable to the user
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Sonys internet-enabled LCD television, Sony Internet TV, powered by Googles Android-based Google TV platform

Segmentation Benefits
Attunes marketer to unique needs of customer segments. Focuses product development efforts, develops profitable pricing strategies, selects appropriate distribution channels,develop & target advertising messages, and train & deploy the sales force. Provides valuable guidelines to allocate marketing resources.

Bases for Segmenting Business Markets

Macrosegmentation : centers on the characteristics of the buying organization and the buying situation. Microsegmentation : requires a higher degree of market knowledge, focusing on the characteristics of decision-making units within each macrosegment.

Selected Macrolevel Bases of Segmentation

Macrolevel segmentation bases concerned with general characteristics of buying organization, nature of product application, and characteristics of buying situation.
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Macrolevel Characteristics of Buying Organisations

Market Size: The influence of owners declines with an increase in corporate size & the influence of other participants, such as purchasing managers, increases. Usage Rate:
Heavy users may place more value on technical or delivery support services than their counterparts. An opportunity may exist to convert moderate users into heavy users through adjustments in the product or service mix.

Structure of Procurement Function

Centralized buyers place significant weight on long-term supply availability and the development of a healthy supplier complex. Decentralized buyers emphasize short-term cost efficiency.

Product/Service Application
The marketer can divide the market on the basis of specific end-use applications.
The manufacturer of a component such as springs may reach industries incorporating the product into automobiles,machine tools, bicycles, surgical devices, office equipment, telephones,railways, guns & rifles,and missile systems. Similarly, Intel's microchips are used in household appliances, retail terminals, toys, and aircraft as well as in computers.

Manufactures more than 4,000 varieties of springs varying from 0.15mm wire diameter to 26mm wire diameter,

Brush springs and alternators, window regulator mechanisms, seat recliners, Brakes, Clutches, Gear boxes chain tension mechanism, defence mechanism, timer mechanism, cord retraction mechanism

Engines

Clutch for 4 wheelers (Cars, LCV & HCV

Yarn dyeing for cotton, polyester and silk

4 wheeler & 2 wheeler & Railways

Value in Use
Value in use is a product's economic value to the user relative to a specific alternative in a particular application. The economic value of an offering frequently varies by customer application.

What Buyers of Industrial Products Look For

First-Time Prospects Novices Dominant theme "Take care of me." "Help me make it work." Benefits sought A sales rep who knows and Easy-to-read manuals understands my business An honest sales rep Technical support hot lines A vendor who has been in business for some time A sales rep who can communicate in understandable manner A trial period A high level of training What's less important Sales rep's knowledge of products and services A high level of training Sales reps who knowledgeable are Sophisticates "Talk technology to me." Compatibility with existing systems Products customized to customer needs Track record of vendor Maintenance speed fixing problems Post-sales support technical support An honest sales rep A sales rep who knows and understands my business in

and

Training Trial Easy-to-read manuals A sales rep who can communicate in an understandable manner

Selected Microlevel Bases of Segmentation

Marketers often find it useful to divide each macrosegment into smaller microsegments based on similarities and differences among decisionmaking units.
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Value Based Strategies

Many customers actively seek business marketing firms that can help them create new value to gain a competitive edge in their markets
Innovation-focused customers who are committed to being first to the market with new technologies and who seek new-product-development expertise and innovative solutions that will attract new customers. Customers in fast-growing market who are pressured by competitive battles over market growth and seek proven performance in technology, manufacturing, and supplychain management. Customers in highly-competitive markets who produce mature products, center on process efficiency and effectiveness in manufacturing, and seek cost-effective solutions that keep overall costs down.

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.

A supplier entering the market would have a higher probability of penetrating a decision-making unit made up of optimizers than of penetrating a unit consisting of satisficers who rely on familiar suppliers.

GE is an optimiser.Infosys and Wipro stopped working for GE because every year,GE wants contracts to be awarded afresh and ask their existing vendors to lower prices.

Structure of the Decision making Unit

The structure of the decision-making unit, or buying center, likewise provides a way to divide the business market into subsets of customers by isolating the patterns of involvement in the purchasing process of particular decision participants (e.g., engineering versus top management)

 A Study initiated by DuPont indicates that the medical equipment market can be segmented on the basis of the type of institution and the responsibilities of the decision makers and decision influencers in those institutions.
Groups that select a single supplier that all member hospitals must use, such as investor-owned hospital chains. Groups that select a small set of suppliers from which individual hospitals may select needed products. Private group practices(Polyclinics) and the nonhospital segment.

Importance of Purchase
Buyer perceptions differ according to the effect of the product on the total mission of the firm. Appropriate when product is applied in various ways by various customers.

Attitudes towards Vendors

Analyzing how various clusters of buyers view alternative sources of supply often uncovers vulnerable segments that competitors are either neglecting or not fully satisfying.(Opportunities)

Organizational Innovativeness
Some organizations are more innovative and willing to purchase new industrial products than others. Products diffuse more rapidly in some segments than in others,boosting the accuracy of new product forecasting. IGIA/BIAL used reflective sheets from 3M for traffic signages whereas BBMP is slow to adopt the product.

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 microsegmentation.

Segmentation of Hand Power Tool Industry

Industry
Construction Metals

Professional Service Providers Do It Yourself(DIY)

An Approach to Segmentation of Business Markets

Figure combines these macrosegment 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.