Download Overview:

FACULTY OF COMMERCE
DEPARTMENT OF MARKETING
NAME
REG NO.
MODE OF ENTRY
Ncube Cathrine
Moyo Cosmas
Mazhunga Munyaradzi
R08240H
R08362C
R08161X
PDP
CDP
PDP
MODULE
:
Industrial Marketing
LEVEL
:
4.1
LECTURER :
Topic
Industrial Segmentation
Ms Nkala
Introduction
Segmentation, targeting, and positioning are marketing tools used by a company to gain
competitive advantage in the market. They help the company to differentiate its product
offering from that of its competitors and ensure that the same reaches the exact market
profile for which it is intended.
Market Segmentation: is the process of breaking a market of varied potential customers
into subgroups of customers with similar needs, desired product benefits and purchase
behaviors.
Market Targeting: is the market segment or segments toward all marketing activities will
be directed, after choosing the segment you want you then direct all your effort towards
it and it only.
The Positioning:
The art of designing the company’s offering and image so that they occupy a meaningful and
distinct competitive position in the target customers’ minds. A product’s position is the way the
product is defined by consumers on important attributes---the place the product occupies in
consumers’ minds relative to competing products.
Reasons for market segmenting, targeting and positioning
1. More efficient use of resources-knowing exactly what your customers need you save
a lot because you know the exact specifications
2. Better understanding of customer needs-as you target one segment you will know
the exact preferences of your customers there by building o good relationship with
them
3. Better understanding of competitors-going for segments makes it easier to know your
competitors because you have enough time to study them
4. Developing new products-once you understand your customers’ needs you can
easily develop new products to satisfy their new needs and wants.
Criteria for Segmentation
Measurability
Potential
Stability
Accessibility
These criteria for segmentation should lead to segments that are:
1. Measurable/identifiable Here, the bases used should preferably lead to ease of
identification in terms of who is in each segment. It should also be capable of
measurement in terms of the potential customers in each segment.
2. Accessible Here, the bases used should ideally lead to the company being able to
reach selected market targets with their individual marketing efforts.
3. Meaningful The bases used must lead to segments which have different
preferences or needs and show clear variations in market behaviour and response
to individually designed marketing mixes.
4. Substantial The bases used should lead to segments which are sufficiently large
to be economically and practically worthwhile serving as discrete market targets
with a distinctive marketing mix.
The third criterion is particularly important for effective segmentation, as it is an essential
prerequisite when attempting to identify and select market targets.
Industrial market segmentation is a scheme for categorizing industrial and business
customers to guide strategic and tactical decision-making, especially in sales and
marketing. While government agencies and industry associations use standardized
segmentation schemes for statistical surveys, most businesses create their own
segmentation scheme to meet their particular needs.
While similar to consumer market segmentation, segmenting industrial markets is
different and more challenging because of greater complexity in buying processes,
buying criteria, and the complexity of industrial products and services themselves.
Further complications include role of financing, contracting, and complementary
products/services.
The goal for every industrial market segmentation scheme is to identify the most
significant differences among current and potential customers that will influence their
purchase decisions or buying behavior, while keeping the scheme as simple as possible
Bases for Industrial Market Segmentation
There are three main bases of industrial segmentation; namely
1) Macro Bases for Segmentation
2) Micro Bases for Segmentation
3) Nested Approach to Segmentation
Differentiated marketing programs for its segments may differ with respect to product
design, communication or distribution channel used advertising and selling messages. To
be useful to marketers segments must be sufficiently large. The only difference between
consumer and industrial market segmentation involves the specific bases for
segmentation. The segmentation can reflect such differences from informal and
unsophisticated buying procedures to formal budgets and decision process. Some factors
used in industrial segmentation include or are:
Macro-segmentation
The macro bases of segmentation are based on the industry and organizational
characteristics. Macro segmentationhere the segmentation is done on the basis of industry
location, organisation size; Organizational characteristics include demographics, end-use
markets, and product applications.
Company / organization size:
This is one of the most practical and easily identifiable criteria; it can also be a good
rough indicator of the potential business for a company. This method normally uses
the 80/20 rule. The seller finds that 80% of his sales are made to 20% of his
customers. The firm in this position will want to give special attention to the large
customers and small customer groups can be aggregated and served through
middlemen. This is the case with Diesel Fashions; it sells its industrial overalls to
mining companies like Unki Mine directly because of the large orders associated and
sells small orders through retail outlets and other distributors. Portland Cement
concentrates more on big construction companies like Murray and Roberts and
Costain construction whilst small companies were catered for by hardware shops.
Geographic location
It tells a company a lot about culture and communication requirements. For example a
company would adopt a different bidding strategy with an Asian customer than with
an American customer. Geographic location also relates to culture, language and
business attitudes. For example, Middle Eastern, European, North American, South
American and Asian companies will all have different sets of business standards and
communication requirements. Some organizations specialize in different regions for
example Ingwebu Beer Breweries specialize and distributes its products to corporates
in Bulawayo and the British Tobacco Company only sells its products in Zimbabwe.
Situational factors
Urgency – organisations segment the market depending on the urgency of delivery for
example Fedex, DHL Swift and One night Express have managed to segment the
market depending on urgency in service delivery (Overnight bag)
Size of Order
Organizations will be focusing on either large or small orders. This is normally
practiced within the insurance especially on pension administration. Aon selects
clients depending on the number of employees a company has. Those with few
employees are excluded since it will be uneconomic to service these small clients. For
example Aon offer insurance to ZIMASCO and other companies which have many
employees.
Loyalty
Normally, some organisations sell to companies that show high loyalty towards their
products or services. This was the case with Zimbabwean companies during the
inflationary period when the country was experiencing food shortages, e.g GMB
could give first preference to National Foods during the shortages of grain. Even in
the present day some companies are catered for differently from the other companies.
For example Econet wireless, do not cut contract lines of managed accounts that have
been loyal for some time for example National foods and Dunlop, get payment
extensions on their debts because they are loyal to the company. National Foods and
Dunlop are given longer times to pay their outstanding debts. But these credit terms
are not offered to other companies who do not buy on a regular basis.
Benefit segmentation:
The product’s economic value to the customer (Hutt & Speh, 2001), which is one of the
more helpful criteria in some industries. It “recognizes that customers buy the same
products for different reasons, and place different values on particular product features.
(Webster, 1991) For example, the access control industry markets the same products
for two different value sets: Banks, factories and airports install them for security
reasons, i.e. to protect their assets against. However, sports stadiums, concert arenas and
the installs similar equipment in order to generate revenue and/or cut costs by eliminating
manual ticket-handling. For instance a company which manufactures metal dictators can
sell its products to mining for the purpose of dictating minerals, and the same products
may be used by security companies to dictating weapons at stadiums or gatherings
Micro-segmentation on the other hand requires a higher degree of knowledge. While
macro-segmentation put the business into broad categories, helping a general product
strategy, micro-segmentation is essential for the implementation of the concept. “Microsegments are homogenous groups of buyers within the macro-segments” (Webster,
2003). Macro-segmentation without micro-segmentation cannot provide the expected
benefits to the organization. Micro-segmentation focuses on factors that matter in the
daily business, it can be done by using product quality, buyer's attitude, price etc. The
most common criteria include the characteristics of the decision-making units within each
macro-segment, (Hutt & Speh, 2001). “The marketer might divide the market based on
supplier profiles that appear to be preferred by decision-makers, e.g. high quality –
prompt delivery – premium price vs. standard quality – less-prompt delivery – low
price”. (Hutt & Speh, 2001)
Structure of the decision-making unit
Knowing the decision-making process has been shown to make the difference between
winning and losing a contract. If this is the case, the supplier can develop a suitable
relationship with the person / people that have / have real decision-making power in an
organisations. For example, the medical equipment market can be segmented on the basis
of the type of institution and the responsibilities of the decision makers, according to Hutt
and Speh. A company that sells protective coatings for human implants would adapt a
totally different communication strategy for doctors than hip-joint manufacturers.
Attitudes towards the supplier:
Personal characteristics of buyers (age, education, job title and decision style) play a
major role in forming the customers purchasing attitude as whole. Is the decision-maker a
partner, supporter, neutral, adversarial or an opponent? Industrial power systems are best
“sold” to engineering executive than purchasing managers; industrial coatings are sold
almost exclusively to engineers; matrix and raw materials are sold normally to purchasing
managers or even via web auctions.
Purchasing approaches
Purchasing function organization- should we serve companies with highly centralized or
decentralized purchasing organisations.
Nature of existing relationship- should we serve companies with which we have
relationship or simply just go after the most desirable companies.
Purchasing criteria – should we serve companies that are seeking quality, service or
price? For example Mercedes Benz serves companies seeking quality and NRZ serve
those seeking reasonable price.
Purchasing situation,
That is a new task, modified re-buy or straight re-buy. This is another relatively
theoretical and unused criterion in real life. As a result of increased competition and
globalization in most established industries, companies tend to find focus in a small
number of markets, get to know the market well and establish long-term relationship with
customers. The general belief is, it is cheaper to keep an existing customer than to find a
new one. When this happens, the purchase criteria are more based on relationship, trust,
technology and overall cost of purchase, which dilutes the importance of this criterion
Webster states that “the strategic implications of micro-segmentation lie primarily in
promotional strategy. Decisions influenced by micro-segments include selecting
individuals for the sales call, design of sales presentations and selecting the advertising
media” (Webster, 2003). However, promotion should not be seen in isolation, as it cannot
facilitate long-lasting success, unless supported on all the relevant functions such as
product, price and place. One only needs to consider that purchasing criteria (part of
micro-segmentation) includes factors such as product quality, price and delivery, which
are directly relevant to product, price and place.
EVALUATING POTENTIAL SEGMENTS
Generally companies face the problems of selecting the best territories and allocating
their market budget optimally among these territories. Therefore they need to estimate the
market potential of different cities, states or nation.
Market build up method
It calls for identifying all potential buyers in each market and estimate their potential
purchases. Therefore if an organisation has many potential buyers the market potential
will be high.
Market Testing Methods
Alpha & Beta Testing
Expensive industrial goods and new technology normally undergo Alpha and Beta
testing. Alpha testing refers to the in- company product testing to measure and improve
product performances, reliability, design and operating cost. Following satisfactory
results companies will initiate Beta testing which involve inviting potential adapters to
permit confidential testing at their sites. Beta testing provides benefits to both vendors
and the test sites. The vendor’s technical people will observe how these test sites use the
product, a practice that often exposes unanticipated problems of safety and gives clues to
the vendor about customer training and servicing requirement. The vendor will ask the
users at the test site, after the test to express their purchase intention and other reaction.
The higher the intentions the high the market potential will be. A good example is when
Econet wireless wanted to launch the VOIP service, before the official
commercialisation, Delta Beverages was used as a testing ground for this service and
when satisfactory results were obtained, the product was launched at a national level.
Trade show
Trade shows draw a large number of buyers who can view new products in a few
concentrated days. The vendor can observe how much interest buyers show in the new
product, how they react to various features and terms and how many express their
purchase intention or place orders. If the turn-up is high it means the segment is
profitable and the market potential is high for example
Dealer Display
New industrial products can also be tested in distributor display rooms where it may
stand to the manufacturer’s other products and possibly competitor’s products. This
method yields preference and pricing information in the normal selling atmosphere of the
product. If buyers are much interested in the product then the market potential is higher
and profitable.
Test marketing
Have been used by manufacturers to evaluate market potential of chosen segments. They
produce a limited supply of the product and give it to the sales force to sell in a limited
set of geographical areas that receive promotional support, printed catalogue sheets etc. in
this way management can learn what might happen under full scale marketing and make
more informed decision about commercialising the product I a given segment basing on
the market potential exposed during the product test marketing.
Decision making support system
A decision support systems (DSS) is a computer-based information system that supports
business or organizational decision-making activities. DSSs serve the management,
operations, and planning levels of an organization and help to make decisions, which may
be rapidly changing and not easily specified in advance.
DSSs include knowledge-based systems. A properly designed DSS is an interactive
software-based system intended to help decision makers compile useful information from
a combination of raw data, documents, personal knowledge, or business models to
identify and solve problems and make decisions.
Typical information that a decision support application might gather and present are:
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inventories of information assets (including legacy and relational data sources,
cubes, data warehouses, and data marts),
comparative sales figures between one period and the next,
projected revenue figures based on product sales assumptions
Different authors propose different classifications. Using the relationship with the user as
the criterion, Haettenschwiler differentiates passive, active, and cooperative DSS. A
passive DSS is a system that aids the process of decision making, but that cannot bring
out explicit decision suggestions or solutions. An active DSS can bring out such decision
suggestions or solutions. A cooperative DSS allows the decision maker (or its advisor) to
modify, complete, or refine the decision suggestions provided by the system, before
sending them back to the system for validation. The system again improves, completes,
and refines the suggestions of the decision maker and sends them back to her for
validation. The whole process then starts again, until a consolidated solution is generated.
Another taxonomy for DSS has been created by Daniel Power. Using the mode of
assistance as the criterion, Power differentiates communication-driven DSS, data-driven
DSS, document-driven DSS, knowledge-driven DSS, and model-driven DSS.
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A communication-driven DSS supports more than one person working on a
shared task; examples include integrated tools like Microsoft's NetMeeting or
Groove
A data-driven DSS or data-oriented DSS emphasizes access to and manipulation
of a time series of internal company data and, sometimes, external data.
A document-driven DSS manages, retrieves, and manipulates unstructured
information in a variety of electronic formats.
A knowledge-driven DSS provides specialized problem-solving expertise stored
as facts, rules, procedures, or in similar structures.
A model-driven DSS emphasizes access to and manipulation of a statistical,
financial, optimization, or simulation model. Model-driven DSS use data and
parameters provided by users to assist decision makers in analyzing a situation;
they are not necessarily data-intensive. Dicodess is an example of an open source
model-driven DSS generator.
Target marketing
Target marketing is the act of evaluating and selecting one or more of the market segment
to enter. Before positioning attractive market segments must be identified and evaluated,
target markets selected and decisions must be made as to how the firm will compete in
those market. Assessment of potential target markets must be based on their potential for
future growth, competitor’s strength and any unsatisfied need. The several market
selection strategies are available.
Undifferentiated marketing
The firm ignores the segment difference and develops a single marketing program that
will focus on what is common to all the buyers within the market. However when highly
similar products are marketed, organisations must insure that other marketing mix factors
differentiate them from competitors. For example, NOCZIM supplies fuel to everyone
and the product is the same to all customers. ZESA also does the same
Differentiated marketing
A firm may also choose to offer its product or services to a number of diverse segments
because needs product usage, or marketing responses are appreciably different. This
marketing strategy increases overall cost in such areas as product development and
medication, marketing e.t.c. higher sales and a deeper position within each market
segment are the objectives of this strategy. E.g. Mercedes Benz, Mazda Willowvale
motor industry produces different cars depending on usage.
Concentrated Marketing
When company resources are limited the firm may choose to go after a large share of one
or a few markets. As a firm increases its knowledge of the segments marketing responses
an tailors its strategy to serve them better than competitors, it also increases the
reputation of the company in the market thereby achieving a strong market positin
Niche marketing
Is a process by which a firm segment the market into finer, more homogeneous clusters
than that which is normally approached under traditional segmentation strategies, this
niche marketing enables an organization to provide products to buyers who are seeking
products that are specially tailored to their individual desires and preferences. For
example Business Equipment Machines which specializes in switch boards repairs and
Clovgate which specialize in repairing electronic lifts. Dong Feng a Chinese company
supplies military trucks to different governments e.g Botswana Defence Force
Product positioning
Positioning is defined as the distinct place a product or service occupies in the minds of
the customers in comparison to competing products or services. The procedure normally
followed is as follows:
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Identify the target customers’ needs in terms of major attributes or benefits.
Select one or more major attributes for differentiation
Communicate the positioning to the target market
An industry can position its products or services by;
1) Technology-e.g. HP computers
2) Price-e.g. Toyota cars
3) Qualities-Mercedes Benz, Audi and BMW
4) Images, Distribution, or Service
In the consumer market positioning strategy is accomplished through advertising in
industrial markets it is accomplished through personal selling, publicity, trade shows and
the company’s performance. Some products are perceived as up markets and expensive
for example posh cars while other products are down market and inexpensive. Some
companies give impression of technology leadership e.g. Sony while others give an
example of classical excellence e.g. Mercedes Benz. According to Sun Tsu “he who
occupies the battle field first and aware the enemy is at easy, he who comes later to the
scene and rushes into fight is at weary. Before any military action the battle field is
mapped and studied in great detail whilst in marketing, marketing research traditionally
has served this purpose.
Perceptual mapping- is a widely used technique for examining the relative strength and
weaknesses of product compared to that of a computer.