SEGMENTING INDUSTRIAL MARKETS

Industrial markets can be segmented into some variables employed in consumer market segmentation. Such variables include geographic,
benefits sought, and usage rate. Apart from these, several other variables can
also be employed. For instance, Bonoma and Shapiro (1983) have suggested
segmenting the business market with the variables.

The demographic variables among others, are the
most important, filled by the operating variables, then, down to the personal
characteristics of the buyer. You will observe that the
table lists major questions that business marketers should ask in determining which
segments and customers to serve. For instance, a tyre manufacturing company
should first decode which industries it wants to serve.

The company can sell tyres to
manufacturers of automobiles, trucks, farm tractors, forklift trucks, or
aircraft. From a chosen target industry, it can

Demographic

1. Industry: which
industries should we serve?

2.     
Company
size: What size companies should we serve?

3.      
Location:
What geographical areas should we serve? Operating Variables

4.      
Technology:
What customer technologies should we focus on?

5.     
User
or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?

6.     
Customer
capabilities: Should we serve customers needing many or
few services?

Purchasing Approaches

4.     
Purchasing-function
organization: Should we serve companies with highly centralized or
decentralized purchasing organizations?

5.     
Power
structure: Should we serve companies that are engineering dominated, financial
y dominated, and so on?

6.     
Nature
of existing relationships: Should we serve companies with which we have strong
relationships or simply go after the most Desirable companies?

7.     
General
purchase policies: should we serve-companies that prefer leasing? Service
contracts? System purchases? Sealed bidding?

8.     
Purchasing
criteria: Should we serve companies that are seeking quality? Service? Price?

Situational Factors

6.      Urgency: should we serve companies
that

need quick and sudden
delivery or service?

7.     
Specific
application: should we focus on certain applications or our product rather than
al applications?

8.Size of order: Should
we focus or smal orders?

9.

Personal
Characteristics

9.     Buyer-seller similarity: Should we
serve companies whose people and values are similar to ours?

10.    Attitude toward risk: Should we serve
risk-taking or risk-avoiding customers?

11.    Loyalty: Should we serve companies
that show high
loyalty to their supplier?

Major Segmentation variables for Business markets further segment by customer size. For
example the company might set up separate operations to sell to both large and
small customers.

TARGET-MARKET STRATEGIES

Once a company has segmented the
total market for its product, the next thing is for it to decide how many and
which ones to decide. In order to arrive at a good decision, management has to
evaluate all the market segments, by following some guidelines in selecting the target market(s).

EVALUATING THE MARKET SEGMENTS

In evaluating different market segments, management needs to consider
some factors, which act as guidelines for target market selection. General y,
the firm must ask whether a potential segment has the characteristic that make
it generally attractive, such as size, growth, profitability, scale economics,
and low risk. In addition, the firms must consider whether investing in the
segment makes sense vis-a vis the firms’ objectives and resources. On these
bases, some attractive segments could be dismissed for lack of compatibility
with the firm’s long-run objectives. Furthermore, a seemingly attractive
segment could be dismissed if the firm lacks one or more necessary competences
to offer superior value.

GUIDELINES
IN SELECTING A TARGET MARKET

From the general premises laid down
in section 3.5.1, four guidelines can be followed in determining which segments
should be the target markets:

(i)      
the
target market(s) should compatible with the organization goals and image;

(ii)     the market opportunity represented in
the target market(s) should match the

company’s
resources;

(iii)    
the
target market(s) should generate sufficient sales volume at a low enough

cost
to result in a profit and

(iv)    
the
target market(s) should have the least and smallest competitors.

Ordinarily, a seller should not enter a market that is already saturated
with competition unless it has some overriding differential advantage that will enable it to take customers from
existing firms.

TARGET
MARKET STRATEGIES

After thoroughly evaluating the different segments, the company can follow one of three strategies: market aggregation, single segment concentration, or multiple­ segments targeting

AGGREGATION STRATEGY

The market-aggregation strategy is also known as a mass-market or an undifferentiated market strategy. Here, a seller treats its total market as a single segment. This strategy is not very common. However, it is usual y selected after a firm has examined a market for segments and came to the conclusion that the majority of customers in the total market are likely to respond in a very similar fashion to one marketing mix. 

In this case, the company develops a single product for this mass audience; develops one pricing structure and one distribution system for its product; and uses a single promotional programme aimed at the entire market. This strategy is appropriate for firms that are marketing an undifferentiated, staple product such as salt or sugar.

SINGLE-SEGMENT STRATEGY

MULTIPLE — SEGMENT STRATEGY