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Business-to-Business Marketing. Chapter 6 Business Market Segmentation. Learning outcomes. Know what segmentation is and how the segmentation process unfolds in business markets; Be able to segment business markets using several segmentation variables;
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Business-to-Business Marketing Chapter 6 Business Market Segmentation
Learning outcomes • Know what segmentation is and how the segmentation process unfolds in business markets; • Be able to segment business markets using several segmentation variables; • Know the criteria for successful segmentation; • Understand how segmentation information can be used to aid the process of targeting business prospects; • Know how segmentation and the identification of target customers influences the establishment of differential positioning for those target markets.
Segmentation The pioneering view of segmentation put forward by Wendell Smith was that it: ‘consists of viewing a heterogeneous market … as a number of smaller homogeneous markets in response to differing product preferences among important market segments’ (1956, p.6).
Segmentation - benefits • Facilitating better understanding of the whole market place including the behaviour of buyers and why they buy; • Enabling better selection of market segments that best fit the company’s capabilities; • Enabling improved management of the marketing activity (Source: Shapiro and Bonoma, 1984)
Segmentation and targeting • Segmentation provides the marketer with the basis to achieve efficient as well as effective solution to customer problems by establishing degrees of homogeneity in what would otherwise be a heterogeneous market place. • The homogeneous groups that result from a process of segmentation enable the marketer to decide what parts of the market to target with its solutions, in the expectation that it can solve customer problems more effectively and profitably than competitors.
Segmentation and relationships • Segmentation enables the best match between the problem-solving abilities and uncertainties of both buyer and seller so that sustainable relationships can be created.
Figure 6.1 The Segmentation Funnel - Nested use of segmentation bases (Adapted from Shapiro and Bonoma, 1984). Firmographics Operating variables Purchasing Approach Situational Factors MACRO Personal Characteristics MICRO
B2B Segmentation • Business market “demographics” • What we call “firmographics” • segmentation by industry sector • e.g. the plastics industry is a different segment from the pharmaceutical industry • segmentation by organization size • e.g. retailers with over 100 outlets are a different segment from single-outlet shopkeepers • segmentation by location • e.g. farmers in East Anglia are a different segment from farmers in Wales
Segments and differentiation • Companies that engage in an undifferentiated targeting strategy make essentially the same offer to all segments. • Differentiated target market selection involves choosing a variety of different segments and providing offerings that are focused on meeting the needs of those targets more specifically.
NAICS codes Segment Category Table 6.1 2002 NAICS codes relevant to ceramic tile manufacturing(www.census.gov/epcd/naics02/)
Questions for discussion • What are the benefits of segmentation? What are the drawbacks? • List four macro-segmentation variables and explain their value in business markets. • List four micro-segmentation variables and explain their value in business markets. • How might a company making and distributing kitchen equipment segment the marketplace? Compare this with a company making kilns for the manufacturing process in the ceramics industry. • What criteria are used to select target markets?
