How to segment Industrial Markets

ByBenson P. Shapiro

Thomas V. Bonoma

Presentation by Narayanan Palani, PGDM (Exec)’2011-12

Basics

• Industrial marketers use segmentation as a way to explain results rather than as a way to plan

• Industrial segmentation can assist companies in following areas:

• Analysis of the market• Selection of key markets• Management of marketing

Segmentation Criteria

• Customer groups and Individual customers within these groups may differ in

• Demographics• Operating differences• Purchasing organization• “culture”• Personal characteristics

Five general segmentation criteria

1. Demographics

2. Operating Variables

3. Customer Purchasing Approaches

4. Situational Factors

5. Personal Characteristics of Buyers

*It is possible to skip irrelevant criteria

Demographics/1

• Relate to general customer needs and usage patterns

• The Industry– Broad understanding of customer needs– Perceptions of purchase situations– Industry is an important basis for

• Selling paper, office equipment, business oriented computers, financial services

Demographics/2

• Company Size– Large companies justify and require

specialized programs affects market segmentation

• Customer Location– Decisions related to deployment– Organization of sales staff

Operating Variables/1

• Identification of existing and potential customers within demographic categories.

• Operating Variables are stable include– Technology– User/Non user status (by product and brand)– Customer Capabilities (operating, technical

and financial)

Operating Variables/2

• Company Technology:– Manufacturing process– Product– Determining it’s buying needs– The technology used affects companies’

requirements for • test gear, • tooling, and components and thus, helps • determine a marketer’s most appropriate

marketing approach.

Operating Variables/3

• Product and Brand-Use status:– Industrial Sales Managers follow

Two step process:• First they seek to gain an initial order on trial• They seek to increase the share of major

customer’s business than to generating new accounts

Operating Variables/4

• Customer Capabilities:– Company operating with tight materials

inventories would greatly appreciate a supplier with reliable delivery record

– Technically weak customers in the chemical industry have traditionally depended on suppliers for formulation assistance and technical support

– Technical strength also differentiate customers

Purchasing Approaches/1

• Purchasing Function Organization:– Determines the size and operation of a

company’s purchasing unit– Centralized approach (merge individual

purchasing units to single group)– Decentralized approach (field oriented sales

force)

Purchasing Approaches/2

• Power Structures: Influence of one department over the other

• Buyer Seller Relationships• General Purchasing Policies• Purchasing Criteria

Situational Factors

• Urgency of order fulfillment• Product Application• Size of Order

– An urgent replacement is generally purchased on the basis of availability, not price

Buyer's personal characteristics

• Some buyers are risk averse• Buyers who are risk averse are not good

prospects for new products and concepts• Data on personal characteristics are

expensive and difficult to gather

Resembling the nest

• Marketers are interested in purchase decision that depend on company variables

• Industrial marketing executive can choose from following outcomes

• No segmentation• After the fact segmentation• Superficial segmentation• Obtuse, convoluted and disorganized

segmentation