Bases for segmenting organizational/industrial markets - Marketing Management

The basic approach to segmentation, targeting and positioning does not differ greatly between consumer and organizational markets. Segmenting industrial product markets introduces additional bases, whilst precluding others.

The most commonly encountered bases for segmenting organizational markets include:

  • type of application/end use: e.g. fabric for curtains and fabric for fashion wear;
  • geographical: e.g. north and south; the European Union; the USA;
  • customer type: e.g. heavy engineering and light engineering;
  • product technology: e.g. glass tubing, metal tubing and plastic tubing;
  • purchaser loyalty status;
  • customer size and usage rates;
  • buying procedures: e.g. tender or non-tender; centralized and non-centralized buying;
  • benefits sought.

Segmentation of Consumer and Industrial Markets

Consumer markets, organizational market segmentation may be on an indirect (associative) base or a direct (behavioural) base, and can use a variety of combined bases to obtain more precise segmentation.

A more neglected area of industrial segmentation has seen the emergence of powerful industrial segmentation frameworks, based on a step-by-step, hierarchical approach. A classic example is that developed by Wind and Cardozo15. The approach is that customers in organizational markets be segmented in two stages. The first stage involves the formation of macrosegments, based on characteristics of the organization. The second stage involves dividing those macro-segments into micro-segments, based on characteristics of the DMU.

This hierarchical approach enables an initial screening of organizations and selection of macrosegments which, on the basis of organizational characteristics, provide potentially attractive market opportunities. Organizations that may have no use for the given product or service can be eliminated. Starting with the grouping of organizations into homogeneous macro-segments provides a reduction in total research effort and cost. Instead of examining detailed buying patterns and attempting to identify the characteristics of the DMU in each organization individually, such analysis is limited only to macrosegments that pass the initial screening.

Once a set of acceptable macro-segments has been formed, the marketer may divide each 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 comes primarily from the sales force, based on salespeople’s analysis of situations in particular firms or from specially designed market segmentation studies.

It is argued that the outcome from this segmentation model should include an important variable on which firms can be assigned to segments, i.e. the bases for segmentation, and a set of independent variables that allow marketers to predict where along the key dependent variable a particular group of customers may lie, as well as providing an insight into the key characteristics of the segment. This concept of successively combining industrial market segmentation bases giving more and more precise and meaningful segments is taken further in another classic model developed by Shapiro and Bonoma.16 Their ‘nested’ approach. This approach identifies five general segmentation bases that are arranged in the nested hierarchy shown. Moving from the outer towards the inner, we now examine each.

Demographics

This outermost nest contains general segmentation criteria that give a broad description of the segments in the market and relate to general customer needs and usage patterns. They can be determined without visiting the customer and include industry and company size and customer location. A good example of how demographics can be used in industrial market segmentation is provided by Powers and Sterling.

An approach to segmenting industrial markets

An approach to segmenting industrial markets

Operating variables

The second nest contains a variety of segmentation criteria called ‘operating variables’. These enable more precise identification of existing and potential customers within demographic categories. Operating variables are generally stable and include technology, user/non-user status (by product and brand) and customer capabilities (operating, technical and financial).

Purchasing approaches

A neglected, but valuable, method of segmenting industrial markets involves customer purchasing approaches and company philosophy. Factors here include formal organization of the purchasing function, its power structure, the nature of the buyer/seller relationship, purchasing policies and purchasing criteria.

Situational factors

The model has so far focused on grouping customer firms. It now moves to consider the tactical role of the purchasing situation. Situational factors resemble operating variables, but are temporary and require a more detailed knowledge of the customer. These include the urgency of order fulfilment, product application and the size of order.

A ‘nested’ appraoch to industrial market segmentation

A ‘nested’ appraoch to industrial market segmentation

Buyers’ personal characteristics

People, not companies, make purchase decisions, although the organizational framework in which they work and company policies and needs constrain their choices. Marketers for industrial goods, like those for consumer products, can segment markets according to the individuals involved in a purchase in terms of buyer/seller similarity, buyer motivation, individual perceptions and riskmanagement strategies.

Having identified market segments, the next step in target marketing is to evaluate the attractiveness of these segments as a prelude to selecting target markets.


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