Prof. A. K. Biswas

AgendaNature, Scope, and Challenges of Business Marketing Understanding Business CustomersSegmentation of Business MarketNew Industrial Product DevelopmentManaging Mature Industrial Products

Prof. A. K. Biswas

AgendaBranding of Industrial ProductsPricing of Industrial ProductsDistribution Channel for Industrial ProductsPersonal Selling of Industrial Products

Prof. A. K. Biswas

Prof. A. K. Biswas

AgendaWhat is Market Segmentation?Unique Aspects of Industrial Market SegmentationModels of Industrial Market SegmentationSegmentation DilemmaPractical Suggestions for Organizational Market Segmentation

Prof. A. K. Biswas

Defining MarketA business firm must define the market in which it wishes to operate. In defining the market, business market managers choose descriptors (bases) that characterize and delimit a market, with the intent pinpointing groups of firms that are of greater interest to the supplier firm. Market segmentation and determining market segment of interest are fundamental to defining the market.

Prof. A. K. Biswas

What Is Market Segment?A market segment is a group of actual or potential customers, sharing a particular need, who want the same type of benefits or solutions to problems from the product or service.

Prof. A. K. Biswas

What Is Market Segmentation?Market segmentation is the process of dividing a varied and differing groups of customers or potential customers into smaller groups, who want the same type of benefits or solutions to problems from the product or service.

Prof. A. K. Biswas

First and most necessary is heterogeneity of customer needs and wants. Second, these customers do cluster into specific groups whose members needs are similar.Thirdly, it is possible to identity of these customers (i.e., ability to reasonably profile these customers).Finally, the costs of serving customers in a segment must be no more than they are willing to pay.Fundamental Factors For Effective Market Segmentation

Prof. A. K. Biswas

Segmentation BasesWhen segmenting market, business market managers look for a set of variables or characteristics (called segmentation bases) that capture significant differences in requirements and preferences of prospective customers.These variables should, therefore, be related to some aspect of potential customers needs or wants and should reflect differences between customers.

Prof. A. K. Biswas

Unique Aspects Of Industrial Market SegmentationThe difference between consumer and industrial market segmentation involve these specific bases of segmentation.Consumer markets are typically segmented on the basis demographic or psychographic variables. As the industrial customer is not an individual but a number of interacting individuals in a decision making unit (DMU) of a formal organization, the bases of segmentation are different.

Prof. A. K. Biswas

Wind-Cardozo Model Of Industrial Market SegmentationWind and Cardozo have proposed a two-stage model of industrial segmentation:The first stage involves formation of macro-segments, based on key organizational characteristics of the buying organization.The second stage involves dividing those macro-segments into micro-segments, based on characteristics of decision making units (DMUs).

Prof. A. K. Biswas

Wind-Cardozo Model Of Industrial Market SegmentationGiven a genericproduct/serviceIdentify macro-segments based on key organizational/product characteristics such as:SizeUsage RateApplication of productSIC category: market servedOrganization structureLocationNew vs. repeat purchase

Prof. A. K. Biswas

Wind-Cardozo Model Of Industrial Market SegmentationSelect a set of acceptable macro-segmentsEvaluate each of the selected macro-segments on whether it exhibits distinct response to the firms marketing stimuliIf it does not, identify within eachacceptable macro-segment the relevant micro-segments based on key DMU characteristics. Select the desired target micro-segmentsbased on their costs and benefits associated with reaching the segment

Prof. A. K. Biswas

Wind-Cardozo Model Of Industrial Market SegmentationOnce the marketer has formed a set of acceptable macro-segments, he may divide of them into micro-segments, or small groups of firms, on the basis of similarities and differences among DMUs within each macro-segment. Information for this second stage of segmentation will come primarily from the sales force, based on salesmens analyses of situations in particular firms, or from specially-designed market segmentation studies.

Prof. A. K. Biswas

Key DMU CharacteristicsDMU may differ with respect tothe composition and position within a firm.their decision making behaviour.

Prof. A. K. Biswas

DMU may differ with respect to:the importance they attach to the purchase of a particular item; the relative weight they attach to such purchase variables as price, quality, and service; their attitudes towards particular vendors; the specific rules they employ to seek out and evaluate alternative offerings.Key DMU Characteristics

Prof. A. K. Biswas

Evaluation Of Different Bases Of SegmentationThe three clusters of segmentation bases as per Wind-Cardozo are:Organizational characteristicsProduct characteristicsDMU characteristicsMarketers use two sets of criteria to evaluate these clusters:Difficulty of implementationAppropriateness

Prof. A. K. Biswas

The difficulty of implementation criterion consists of a set of three criteria:Cost of identifying segmentsAcceptance of the bases of segmenting by marketing personnelEase of identifying segments and differentiating marketing programsEvaluation Of Different Bases Of Segmentation

Prof. A. K. Biswas

Two-Dimensional Configuration Of Nine Bases Of Segmentation 4Frequency andSize of Purchase5End Use7Specificationof Project6BuyersIdentity8SourceLoyalty9BuyersPersonalityOrganizationalCharacteristicsProductCharacteristicsDMU CharacteristicsMostAppropriateLeastAppropriateEasier toImplementDifficult toImplement1Industry type

2Size of Firm3GeographicLocation

Prof. A. K. Biswas

According to appropriateness dimension, the DMU characteristics is the most appropriate followed by organizational characteristics and product characteristics perceived as the least appropriate.On the other hand organizational characteristics are the easiest to identify though not the most appropriate.Evaluation Of Different Bases Of Segmentation

Prof. A. K. Biswas

Based on empirical evidence, Wind and Cardozo argue that marketers often use inexpensive and acceptable means of segmentation, which they consider much less appropriate than what they would like to use.For examples, DMU characteristics are seen as very appropriate, yet are not currently used as bases of segmentation. Organizational characteristics appear to be used more widely now than may be appropriate.Evaluation Of Different Bases Of Segmentation

Prof. A. K. Biswas

Bonoma And Shapiro Model Of Market Segmentation Bonoma and Shapiro expanded the use of macro- and micro-segmentation into what is called the nested approach.This method assumes a hierarchical structure of segmentation bases that move from very broad or general bases to very narrow and specific bases. Rather than a two-step process, the nested approach allows upto five steps.

Prof. A. K. Biswas

Bonoma And Shapiro Model Of Market Segmentation Organizational demographics:Industry/ Company size/ LocationOperating variables:Technology/User status/Customer capabilities (financial)Purchasing approachesOrganization of DMU/Purchasing policies/Purchasing criteriaSituational factorsUrgency/Applications/Order sizePersonal characteristics:Motivation/Buyer-seller dyad/Risk perceptionsGeneral, observable(Macro)Specific, subtle(Micro)(Intermediate)

Prof. A. K. Biswas

Bonoma And Shapiro Model Of Market Segmentation The three outer nests cover company variables, the fourth inner-middle nest - situational factors, and the inmost nest - personal characteristics.The data in the outer nests are generally highly visible, even to outsiders, are more or less permanent, and require little intimate knowledge of customers.

Prof. A. K. Biswas

Bonoma And Shapiro Model Of Market Segmentation But situational factors and personal characteristics are less visible, are more transient, and requires extensive vendor research.A marketer can begin at the outside nest and work inward because data are more available and definitions clearer in outer nests.On the other hand, situational and personal variables of the inner nests are often the most useful.

Prof. A. K. Biswas

Bonoma And Shapiro Model Of Market Segmentation The outer-nest criteria are generally inadequate when used by themselves in all but simple or homogeneous markets because they ignore buying differences among customers.Over emphasis on the inner-nest factors, however, can be too expensive and time-consuming for small markets.A balance is to be achieved between the two nests.

Prof. A. K. Biswas

Problem with Traditional Market Segmentation ProcessBoth the models help us in profiling the business firms their emporographic details, and their behavioral characteristics.However, they do not answer the question what these customers want.The problem is that customers dont conform their requirements to match with those of the average customer in their emporographic and behavioral segment.

Prof. A. K. Biswas

Better Way Of Market SegmentationThe structure of a market, seen from the customers point of view, whether a individual or business firm, is very simple: They just need to get things done.When people find themselves needing to get a job done, they essentially buy products to do that job for them.

Prof. A. K. Biswas

The marketers task is therefore to understand what jobs periodically arise in customers lives (individual or business firm) for which they might buy products the company could make.If a marketer can understand the job, design the product and associated experiences in purchase and use to do that job, and deliver it in a way that the customers want, and the price they are willing to pay, they will buy that product. Better Way Of Market Segmentation

Prof. A. K. Biswas

When choosing between competing offers, customers select the offer that meets their needs (to get things done) better than any other at the price they are willing to pay. Value or benefits (the ability of getting the job done) that people seek in products are the basic reasons for the heterogeneity in their choice behaviour, and benefits of the product are thus the most relevant bases for segmentation.Better Way Of Market Segmentation

Prof. A. K. Biswas

Earlier marketers used to succeed by providing superior products and other distinctive functional benefits. Today this is no longer enough, for such benefits can readily be imitated.The solution is to emphasize process benefits (which make transactions between buyers and sellers easier, quicker, cheaper, and more pleasant) and relationship benefits (which reward the willingness of consumers to identify themselves and to reveal their purchasing behavior). Three Dimensions of Benefits

Prof. A. K. Biswas

Segmentation DilemmaSegmentation based on customer needs, i.e., benefits-oriented approach, is attractive in the theoretical sense and is clearly more applicable to marketing decisions , but also more difficult for managers to implement.Many companies that sell to other businesses, therefore, segment customers on the basis of such characteristics as their size, the volumes of their accounts, and the industries in which they compete.

Prof. A. K. Biswas

Solving The Segmentation DilemmaUnfortunately, businesses of the same size, account volume, and industry may very well have rather different values and needs.There are several ways to solve this dilemma.One way to solve the segmentation dilemma is self-selection.The basic idea of self-selection is to reverse the roles of a company and its customers.

Prof. A. K. Biswas

Sometimes a segmentation strategy works even if you can't identify who is in which segment.Instead the company figures out what segments it wants to reach and gives the customers in them ways of finding them.Companies most commonly develop a product line and have customers sort themselves among the various offerings based on their preferences.Solving The Segmentation Dilemma

Prof. A. K. Biswas

However, the problem in this business system is that product lines represent the best guesses of the companies about what buyers will want.Most buyers get too little of what they want and too much of what they dont.Manufacturers and dealers also lose as predictions of future demand are inevitably inaccurate.Solving The Segmentation Dilemma

Prof. A. K. Biswas

Another possible solution to this problem is to provide opportunities to individual customers to design their own products and services by choosing from a menu of attributes, components, prices, and delivery options.This facility can be provided through a choiceboard - an interactive on-line system. Solving The Segmentation Dilemma

Prof. A. K. Biswas

Cisco Marketplace is an on-line configurator that allows corporate customers to create the precise combination of data networking gear they need. Dells choiceboard allows individual as well as corporate customers to exercise their options in the personal computer realm.Solving The Segmentation Dilemma

Prof. A. K. Biswas

GE Plastics: The GE Plastics Design Solutions Center lets customers use design tools to develop unique, customizes products that then can be purchased on-line.GE Polymerland: The Polymerland Web site provides customers with digital tools that make choosing, ordering, and tracking plastic products easy, fast, and cost effective.Solving The Segmentation Dilemma

Prof. A. K. Biswas

A choice board model of doing business with individual customers becomes possible in any industry when a system of accessible, integrateable components is available from which customers can select and combine options based on their own priorities.The choiceboard enables customer self-segmentation, which is fast, cost-efficient, and far more precise than traditional manufacturer-imposed segmentation.Solving The Segmentation Dilemma

Prof. A. K. Biswas

Another way to solve the segmentation dilemma is to use dual-objective segmentation models.Dual-objective segmentation models trade a small amount of precision in delineating segments for a significantly increased ability to identify the customers who belong in each of them. Solving The Segmentation Dilemma

Prof. A. K. Biswas

Dual-Objective SegmentationIdentification of CustomersIdentification of ValueLowHighLowHighValue-based SegmentationDemographics-based SegmentationActionable SegmentationJoint Optimization

Prof. A. K. Biswas

In any case, the supplier firm could start with, emporographic segmentation bases, such as Standard Industrial Classification (SIC) codes, location and organizational size, as they are relatively easy to identify and measure.However, suppliers and customers have to work collaboratively towards a better mutual understanding. Solving The Segmentation Dilemma

Prof. A. K. Biswas

Segmentation As Bilateral NegotiationSegmentation in organizational markets should, in fact, be increasingly thought of as a negotiable and bilateral fit-seeking process where suppliers frame tentative segments (based on initial research) subject to exploration with well-placed key managers in those customer firms.

Prof. A. K. Biswas

This would encourage the development of evolutionary segmentation that focuses not only on customer needs, but also on supplier needs.The process would also help to develop the sort of long-term relationships between supplier and customer that help to ensure that suppler offerings are developed in line with customer expectations and needs.Segmentation As Bilateral Negotiation

Prof. A. K. Biswas

Reverse SegmentationThere is still another process of segmentation reverse segmentation.It is a process whereby customers select suppliers that meet particular criteria (e.g., quality, financial stability, delivery reputation, collaborative product development strategies, etc.).By implication, a supplier able to exhibit appropriate reverse segmentation criteria to a customer can become significantly more attractive.

Prof. A. K. Biswas

Segmenting Customers In Mature Industrial MarketsABCDHighLowPriceLowHighCost to ServeValueAxisMarketPowerAxisNo-frills solutionAugmented SolutionCommoditySpecialties

Prof. A. K. Biswas

Customers in mature markets may be aligned along the two dimensions of price and cost-to-serve.Customers who demand low price will be offered a no-frills product accompanied by minimal service (the south-west quadrant, C).Segmenting Customers In Mature Industrial Markets

Prof. A. K. Biswas

Customers who value an augmented product will pay higher price and receive the full compliment of services (north-east quadrant, B).In both cases, price-service offering is equitable to the seller and the buyer. Firms operating in mature environments expect to align their customers along the value axis. Segmenting Customers In Mature Industrial Markets

Prof. A. K. Biswas

Customers may not necessarily align themselves along the value axis as sellers expect, but prefer to operate in quadrant D, depending on their knowledge of competitive offerings and their own market power.Supplier may also be in a position to extract a relatively high price, without providing the services to go along with it, if the product offering is truly superior that competitors are unable to match (north-west quadrant, A).Segmenting Customers In Mature Industrial Markets

Prof. A. K. Biswas

Ongoing Segmentation ProcessSegmentation, whether of consumer or business customers, should be considered an ongoing process and, to the extent possible, be built into a companys marketing intelligence system.Effective segmentations are dynamic in two senses:

Prof. A. K. Biswas

First, they concentrate on customers needs, attitudes, behaviour, which can change quickly.Secondly, they are reshaped by market conditions, such as fluctuating economics, emerging consumer niches, and new technologies, which in todays world are evolving more rapidly than ever.Ongoing Segmentation Process

Prof. A. K. Biswas

To facilitate this ongoing segmentation process, a company must transform its sales and service forces into information sources.Sales force is a repository of valuable raw information.A structured interview with the sales persons would be of immense help.Ongoing Segmentation Process

Prof. A. K. Biswas

Benefits of Effective Customer SegmentationEffective customer segmentation accomplishes four things:It enables you to divide customers into relatively homogeneous groups.It also allows you to describe these groups in quantitative terms and easily identify the segment a given customer belongs to, so that you can measure, assign, and monitor them.

Prof. A. K. Biswas

It ensures that you have the sales channels and consistent communication messages to reach the groups.Finally, it creates groups that match up with the products and services your company can actually provide.Benefits of Effective Customer Segmentation

Prof. A. K. Biswas

If you segment your customers according to preferences and willingness to pay, you are likely to find that you can serve some of the resulting segments more competitively and profitably than you can others.You should concentrate your resources on such segments and devote fewer resources to others or even ignore them entirely. Benefits of Effective Customer Segmentation

Prof. A. K. Biswas

Businesses will always need to explore opportunities to enter new markets and develop new products.They need to determine how they can successfully move beyond their core and into adjacent market areas.Those explorations, however, take considerable time and investment. Benefits of Effective Customer Segmentation

Prof. A. K. Biswas

Selection of market segment to serve has to be on the basis of the fit between:the attractiveness of the segment, the key success factors for operating in the segment, and the companys relative ability to compete in the segment. The company also needs to consider the competitive reactions it might face if it decides to compete for a segment. Selecting Market Segments To Serve

Prof. A. K. Biswas

Segment attractiveness depends on:Size and Growth of the segmentStructural Characteristics of the segment such as competition, segment saturation, profitability, protectability, environmental risk etc.Selecting Market Segments To Serve

Prof. A. K. Biswas

Key Success Factors (KSF) for a segment could beProduct QualityBrand ReputationTechnology RequirementCost StructureDistribution SystemQuality of ServiceFinancial CapacitySelecting Market Segments To Serve

Prof. A. K. Biswas

Company ObjectivesCompatibility with company goalsRelationships with other segmentsProfitabilityResources and Capabilities of the Company and CompetitorsAbility to conceive and designR & D CapabilityExisting Patents and CopyrightsAccess to new technologies through third partiesSelecting Market Segments To Serve

Prof. A. K. Biswas

Ability to Produce (Quality & Quantity)Production TechnologyProduction CapacityFlexibility in ProductionCost CompetitivenessAbility to MarketBrand ReputationDistribution StrengthService StrengthSelecting Market Segments To Serve

Prof. A. K. Biswas

Ability to FinanceAccess to Capital from OperationsAbility to Use Debt & Equity FinanceParents Willingness to FinanceAbility to Manage/ExecuteQuality of ManagementQuality of Decision MakingInnovativenessOrganization CultureSelecting Market Segments To Serve

Prof. A. K. Biswas

In consumer markets, choice of customers whose needs the organization will satisfy with products involves selection of only horizontal market segments as this is the final transaction stage and is fixed. But in business markets, because intermediate transactions are involved, a firm must first choose the stage in the value-adding chain before selecting the horizontal market segments.Selecting Market Segments To Serve

Prof. A. K. Biswas

A Value Adding ChainInvolving IsopropanolPropyleneIsopropanalAcetoneCoatingsChemical IntermediatesAgricultural & BiologicalChemicalsOtherPlastics

Prof. A. K. Biswas

Consider the value-adding chain schematically shown in the previous diagram.An organization would have to decide whether to sell propylene, isopropanol, isopropyl acetate (chemical intermediates), and/or plastics.The stage in the value-adding chain where it decides to sell its output represents its choice of output markets.Selecting Market Segments To Serve

Prof. A. K. Biswas

Suppose the organization chooses to sell isopropanal.It must now decide whether to sell to producers of acetone, chemical intermediates, coatings, agricultural and biological chemicals.The latter decision reflects the organizations choice of macro-segments and represent one aspect of horizontal market choice.Selecting Market Segments To Serve

Prof. A. K. Biswas

In addition, micro-segments, which consist of organizations similar in their buying behaviour, must be selected to complete the horizontal market choice decision.Given customer needs in the output markets selected, the organization must decide the form of product required to satisfy these needs and the process used to make it. Selecting Market Segments To Serve

Prof. A. K. Biswas

These choices determine the organizations make/buy decisions concerning the value-adding activity to be performed internally within the organization and supplies to be bought in the input markets.Choice of output markets, the value adding performed by the organization, and input markets constitute the vertical market decision.Selecting Market Segments To Serve

Prof. A. K. Biswas

Vertical market choice is consequently an important element of firm strategy and may be examined in terms of organizational strengths and weaknesses versus environmental or market opportunities and threats.The opportunities and threats may take the form of changes in supply markets, changes in competition, and changes in output markets. Selecting Market Segments To Serve

Prof. A. K. Biswas

Prof. A. K. Biswas