4.4:
How Should Business Markets Be Segmented
OPMM 6013 Strategic Marketing
Prepared by:
AYU IRYANTI BINTI AZNI
824356
01 Definitions
OUTLINE
02 Levels of Micro Marketing
03 Patterns of Market Segmentation
04 Types of Business Market
05 Bases for Segmenting Business Market
06 Segmenting Business Market
07 Segmentation Procedure
08 Effective Segmentation
09 Market Segmentation Procedure
10 Advantages of Segmentation
11 Market Targeting
12 Patterns of Target Market Selection
Segmentation, Targeting, and Positioning
Develop Marketing Mix for Each Target
Segment
Develop Positioning for Each Target
Segment
Select Target Segment(s)
Develop Selection Criteria
Develop Profiles of Resulting Segments
Identify Bases for Segmenting the Market
MARKET
POSITIONING
MARKET
TARGETING
MARKET
SEGMENTATION
Definition of Market Segment
Segmentation is the process of
classifying customers into groups
which share some common
characteristic
A market segment consists of a
group of customers who share a
similar set of needs ad wants.
Levels of Micro-Marketing Segmentation
01
02
03
03
04
04
Segment Marketing
Different products to one or more segments
(some segmentation)
Niche Marketing
Different products to subgroups within segments
(more segmentation)
Local Marketing
Tailoring brands/ promotions to local customer
groups
Individual Customer Marketing
Tailoring products/ programs to individual customers
Patterns of Market Segmentation
(Preference Segments )
Homogeneous preferences
exist when consumers want the same things
Diffused preferences
01
02
exist when consumers want very different
things
Clustered preferences
reveal natural segments from groups with
shared preferences
03
Definition of Business Market
The business market consists of all
the organizations that acquire goods
and services used in the production of
other products or services that are
sold, rented, or supplied to others.
A business market buy goods and
services to be used goods or to make
other goods or to help with the
production process.
Types of Business Market
Industrial markets
Reseller markets
Organizations that require goods and
services for the purpose of producing
goods and services. (manufacturing
sector)
In which Organizations that buy goods and
services which they later sell at a profit.
(retailers, wholesalers and etc)
do they operate?
TYPES
Nonprofit Organizations
Non governmental organizations (NGOs)
that serve their stake holders but do not
have profits as organizational goal. (Red
cross, MAKNA and etc)
Government markets
Government agencies that buy products
and services for use in the production of
public goods and services. (Federal, states,
local authority and etc)
Bases for Segmenting Business Market
Situational
Factors
Operating
Variables
Demographic
• Industry
• Company Size
• Location
• Technology
• User or Nonuser
status
• Customer
Capabilities
Purchasing
Approaches
• Purchasing-Function
organization
• Power structure
• Nature of existing
relationship
• General purchase
policies
• Purchasing Criteria
• Urgency
• Specific
application
• Size of order
Personal
Characteristics
• Buyer-seller similarity
• Attitudes toward risk
• Loyalty
Bonoma and Shapiro proposed segmentation of the business market.
Bases for Segmenting Business Market
Situational
Operating
Industry
:
Which
industries
should
we
serve?
Factors
Variables
Demographic
• Industry
• Company Size
• Location
Personal
Purchasing
Company Size
: What size companies should
Characteristics
Approaches
we serve?
Location : What geographical areas should
we serve?
Bonoma and Shapiro proposed segmentation of the business market.
Bases for Segmenting Business Market
Operating
Variables
Demographic
• Industry
• Company Size
• Location
• Technology
• User or Nonuser
status
• Customer
Capabilities
Situational
Technology : What
customer technologies
Factors
should we focus on?
Purchasing
Approaches
User/Nonuser:
Personal
Characteristics
serve
heavy users,
Should we
medium users, light users, or
nonusers?
Capabilities : Should we serve customers
needing many or few services?
Bonoma and Shapiro proposed segmentation of the business market.
Bases for Segmenting Business Market
Operating
Variables
Purchasing : Should we serve companies
with highly centralized or
decentralized purchasing
Demographic
organizations?
Power structure: Should we serve
companies that are
engineering dominated,
financially dominated,
and so on?
Purchasing
Approaches
• Purchasing-Function
organization
• Power structure
• Nature of existing
relationship
• General purchase
policies
• Purchasing Criteria
Existing relationship : Should we serve
companies with which
Situational
we have strong
Factors
relationship or simply
go
after the most
Personal
desirable companies?
Characteristics
Purchase policies : Should we serve
companies that prefer
leasing? Service contract?
Systems purchases?
Sealed bidding?
Purchase criteria : Should we serve
companies that are
seeking quality? Service?
Price?
Bonoma and Shapiro proposed segmentation of the business market.
Bases for Segmenting Business Market
Operating
Urgency : Should we serve
companies that
Variables
need quick and sudden delivery or
Purchasing
services?
Approaches
Demographic
Specific application: Should we focus on
certain application of
our products rather
than all applications?
Situational
Factors
• Urgency
• Specific
application
• Size of order
Personal
Characteristics
• Buyer-seller similarity
• Attitudes toward risk
• Loyalty
Size of order : Should we focus on large or
small order?
Bonoma and Shapiro proposed segmentation of the business market.
Bases for Segmenting Business Market
Situational
Factors
Operating
Variables
we
serve
Similarity : Should
companies whose people and
values are similar to ours?
Purchasing
Approaches
Demographic
Attitudes
toward risk: Should we serve risk-taking or riskavoiding customers?
Loyalty: Should we serve companies that show high
loyalty to their suppliers?
Personal
Characteristics
• Buyer-seller similarity
• Attitudes toward risk
• Loyalty
Bonoma and Shapiro proposed segmentation of the business market.
Segmenting Business Market
(through Sequential Segmentation Process)
• Segmentation by customer size or geographic location
• Micro-segmentation – distinguished among customers buying on Price, Service or Quality.
Buyer Decision
Process
First-time prospects
Channel
Preferences
Salespersons
Novices
Catalog / direct mail
Sophisticated
Electronic
Segmenting Business Market
(through Sequential Segmentation Process)
• One study found that there are four
business segments
Programmed buyers
Buyers who view the product as not
very important to their operation.
They but routine purchase items,,
usually paying full price and
receiving below-average service.
(Highly profitable)
Relationship buyers
Buyers who regard the products as
moderately important and are
knowledgeable about competitive
offering. They get small discount and a
modest amount of service.
(Second most profitable)
Transaction buyers
Buyers who see product as very
important to their operations. Price
and service sensitive. They are
knowledgeable about competitive
offering.
(Less profitable)
Bargain hunters
Buyers who see products as very
important and demand deepest
discount at the highest service. They
know alternative suppliers, bargain
hard, and are ready to switch.
(Not very profitable)
• Groups of business buyer
Price Oriented
(Transactional
selling)
Solution
Oriented
(Consultative
selling)
Strategicvalue
Oriented
(Enterprise
selling)
Want value at
lowest price
Want value
through more
benefits and
advice
Want value
through
supplier coinvesting and
participating I
the customers’
business
Segmentation Procedure
STEP 01
STEP 02
STEP 03
STEP 04
STEP 05
STEP 06
FINAL
Needs-Based
Segmentation
Segment
Identification
Segment
Attractiveness
Segment
Profitability
Segment
Positioning
Segment
“Acid Test”
Marketing-Mix
Strategy
Source: Kotler, P., Keller, K.L., Ang, S.H., Leong, S.M. & Tan, C.T. (2003). Marketing Management: An Asian Perspective (3rd ed). UK: Pearson
Effective Segmentation
MEASURABLE
SUBSTANTIAL
ACCESSIBLE
DIFFERENTIAL
ACTIONABLE
Size, purchasing
power, profiles
of segments can
be measured.
Segments can be
effectively
reached and
served.
Segments are
large or profitable
enough to serve.
Segments must
respond
differently to
different
marketing mix
elements &
programs.
Effective
programs can be
designed to
attract and serve
the segments.
Advantages of Segmentation
1. The process of breaking up a homogeneous market into heterogeneous
segments forces the marketer to analyse and consider both the needs of the
market and the company’s ability to competently serve those needs – thereby
making the company better informed about its customers
2. Competitor offerings and marketing positioning must also be analysed in this
context so the company must consider what its competitive advantages and
disadvantages are, helping it to clarify its own positioning strategy
3. Limited resources are used to best advantage, targeted at those segments that
offer the best potential
Market Targeting
1.Once the firm has identified its market-segment
opportunities, it has to decide how many and which
one to target.
2.Firms must look at TWO (2) factors; segment’s overall
attractiveness and company’s objectives and
resources.
Patterns of Target Market Selection
• Firms gains a strong
knowledge of the
segment’s needs and
achieve a strong market
presence.
• Specializing its
production, distribution,
and promotion.
• Risky.
• Example: Porsche car
• The firm selects a
number of segments,
each objectively
attractive and
appropriate.
• Little synergy but
promise to be a
moneymaker.
• Diversifying risk.
• Example: Radio
• Firms make a certain
product that is sold to
several segments.
• The downside risk is the
product maybe
supplanted by an
entirely new technology.
• Example: Microscope
• The firm concentrates
on serving many needs
of a particular customer
group.
• Example: assortment of
products for laboratory.
• Gains strong reputation
in serving this
customers and becomes
a channel for additional
products.
• Risk that the customer
may suffer budget cuts.
• The firm attempts to
serve all customer
groups with all the
products they might
need.
• Example: Sony, Toyota
and Coca-Cola
• Can cover a whole
market by two ways:
undifferentiated
marketing or
differentiated
marketing.
Thank You
Main Reference:
Kotler, P., Keller, K.L., Ang, S.H., Leong, S.M. & Tan, C.T. (2003). Marketing Management: An Asian
Perspective (3rd ed). UK: Pearson