Approaches to organizational market segmentation
Organizational - Marketing Strategy

Organizational Market Segmentation

Organizational markets can be segmented according to the characteristics of the organization. This is sometimes referred to as the macro level. Factors that would be analyses at this level would be:

• Industry sector:Standard industry classification codes (SIC codes) will identify an organization’s primary business activity. Different industry sectors may have unique needs from product or service. In the computer hardware and software market the needs of retailers, financial services companies and local government will be different.
• Size of the organization:This can be judged using several variables such as the number of employees, volume of shipments and market share. This method of segmentation has to be used with caution – just because an organization is large does not mean that it will be a large purchaser of your product. However, larger organizations will differ from smaller companies by having more formalized buying systems and increased specialization of functions.
• Geographic location:Traditional industries can tend to cluster geographically, an example being the car industry in Detroit,USA. However, even emerging technologies show a tendency to locate in the same geographical area. The UK computer industry has clusters in central Scotland (‘SiliconGlen’) and along the M4 motorway in southern England. Internationally there may well be different regional variations in purchasing behavior, for example between Western and Eastern Europe.
• End use application:The way in which a product or service is used by a company has an important effect on the way the organization views its value. A truck used twelve hours a day by a quarrying company may represent great value. But for a construction company that only uses the same piece of equipment for two hours a day it may represent a much lower value-for-money purchase. Establishing end-use application can help establish the perception of value that will be used in particular segments.

Organizational markets can also be segmented according to the characteristics of the decision-making unit; this is sometimes called micro segmentation. The factors used include:

• The structure of the decision-making unit:This is directly related to the models covered earlier in this chapter on organizational buyer behavior. The type of individuals involved in the DMU of an organization will vary, as will its size and complexity.
• The decision-making process:This can be short and straightforward or complex and time-consuming. This will largely be dependent on the size and complexity of the DMU.
• Structure of the buying function:The buying function can be centralized or decentralized. Centralized buying allowsan individual buyer to specialize in purchasing particular types of product categories.An individual is responsible for buying much larger volumes per purchase than under a decentralized structure. This allows them to negotiate larger discounts. In centralized structures the professional buyer has much greater influence within the DMU over technical advisers compared with buyers in decentralized systems.
• Attitude towards innovation:There may be specific characteristics that mark out innovative companies. Identifying companies that exhibit this profile will allow a segment to be established at which new products can be initially targeted. There are organizations that are followers and only try product once innovators have already adopted it. Identifying these companies can also be useful to a marketer.
• Key criteria used in reaching decision on a purchase:These can include product quality, price, technical support,supply continuity and reliability of prompt deliveries.
• Personal characteristics of decision makers:Factors such as age, educational background, attitude toward risk and style of decision making can potentially be used to segment the market. summarizes macro and micro segmentation.

Organizational macro and micro segmentation

A more systematic method of organizational market segmentation has been developed called the nested approach. This method moves through layers of segmentation variables, starting with the demographics of the organization (the macro level) down through increasingly sophisticated levels, reaching the complex areas of situational factors and personal characteristics. This approach effectively establishes a hierarchical structure in which to undertake the segmentation process There is a balance to be struck with this approach between the macro level, which is generally inadequate when used in isolation, and the micro level, which may be too time-consuming and expensive to establish and operate in markets with limited potential.