B2B Market Segmentation

18. February 2010 – 16:45

Market Segmentation is part of the Strategic Planning Process. It’s the first step in Target Marketing.

There are three stages in Target Marketing:

1. market segmentation – that means identifying distinct segments that are quite similar in wants and needs

“A market segment consists of a large identifiable group within a market with similar wants, purchasing power, geographical location, buying attitudes, or buying habits.”

For example, an auto company may identify four broad segments: car buyers who are primarily seeking transport or high performance or luxury or safety.
2. market targeting – select one or more market segments to enter

3. market positioning – establish and communicate the products’ key distinctive benefits to the market
Source: Kotler, Philip (2000). Marketing Management.New Jersey: Prentice Hall. p 256 f

Segmenting B2B markets is different from segmenting consumer markets.

Godefroid identifies two different levels of segmentation in B2B markets:

1. Macro segmentation: Markets and customers are classified according to organizational criteria of the consumer company.
Segmentation base e.g. field of business, religion, company size

2. Micro segmentation: That means segmentation according to individual characteristics of buyers involved in the purchasing decision.
Segmentation base e.g. Buying centre structure, individual features

Business markets can be segmented with some variables we know from consumer markets:

The major segmentation variables for B2B markets are:

Demographic
1. Industry: Which industry should we serve?
2. Company size: What size of companies should we serve?
3. Location: What geographical areas should we serve?

Operating Variables
1. Technology: what customer technology should we focus on?
2. User or Nonuser status: Should we serve heavy users, medium users, light users, or nonusers?
3. Customer Capabilities: Should we serve customers needing many or few services?

Purchasing Approaches
1. Purchasing organization:Should we serve companies with highly centralized or decentralized purchasing organisations?
2. Power structure: Should we serve companies that are engineering dominatied, financially dominated or so on?
3. Nature of existing relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?
4. General purchase policies: Should we serve companies that prefer leasing? Service contracts? System purchases? Sealed bidding?
5. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

Situational Factors
1. Urgency: Should we serve companies that need quick and sudden delivery or service?
2. Specific application: Should we focus on certain applications of our product?
3. Size of orders: Should we focus on large or small orders?

Personal Characteristics
1. Buyer-seller similarity: Should we serve companies whose people and values are similar to ours?
2. Attitudes towards risk: Should we serve risk-taking or risk-avoiding customers?
3. Loyalty: Should we serve companies that show high loyalty to their suppliers?

Source: Adapted from Kotler, Philip (2000). Marketing Management.New Jersey: Prentice Hall.p 272

Example using purchasing criteria: e.g. low prices and services contracts

Benefits B2B companies are seeking value due to their stage in the purchase decision process. First-time prospects require understanding of their business, trust.
Customers at the beginning of their relationship seek hotlines, training, knowledgeable sales representatives.
Established customers want high technical support, speed in maintenance.

Business buyers may also have different channel preferences. While first-time buyers prefer a deal with a company sales person, sophisticated buyers, the established group, conduct most of their business over electronic channels.

Other researchers found four business segments based on the profitability of the segment:
programmed buyers, relationship buyers, transaction buyers and bargain hunters.

Questions

1. Define the term “market segment”
2. Godefroid pursues a sequential segmentation process for B2B markets. Describe the stages.
3. What variables can be used to segment business markets?

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