B2B Marketing Introduction

Segmentation
 Learning Objectives

• LO1 Know the benefits, limitations, and requirements

of B2B market segmentation.
• LO2 Explain the process of segmenting and targeting
business markets.
• LO3 Identify the bases for segmenting business
markets, including the Nested approach to
segmentation.
• LO4 Evaluate and select the target segments and
decide the strategy for the target segments.
• LO5 Outline the positioning strategy.
 Benefits, Limitations and Requirements of B2B
Market Segmentation
Benefits of B2B market segmentation
• It enables the marketer to understand the market better.
• Larger firms with adequate resources can develop separate
marketing strategies to meet the needs of different
market segments.
• Smaller firms can also survive and succeed by focusing on
niche market segments.
• Effective allocation of resources to segments can be
done.
• It can establish how the company stands competitively
with respect to the market segments.
 Limitations of Market Segmentation

• Segmentation is not beneficial or practical for small market

or for a few customers.
• It Increases the marketing costs like communications,
inventory carrying and transportation.
• Difficulty in the segmenting process due to differences in
buying practices, requirements and characteristics of buying
center members.
 Requirements of Effective Segmentation
For effective segmentation, criteria used by marketers to
evaluate potential segments are:
i. Measurable - Can the size, growth and needs of the
potential segments be measured?
ii. Substantial - Is the sales and profit potential large enough
to serve the proposed segments?
iii. Accessible - Can the segments be identified and served by
the company’s marketing efforts ?
iv. Differentiable - Are the segments responding differently to
different marketing-mix elements like product and pricing?
 The Process of Segmenting and Targeting
The process includes a two-staged hierarchical approach, with the following
four steps.
• Conduct marketing research.
• Identify and select macro-segments.
• Macro-segments – size, growth, profitability, company resources, competition etc
• Micro- Segments – Buying situation, Purchasing Policies/criteria. Personal
characteristics of buying center personnel (willingness to take risk) etc. However, cost
and complexity of collecting data is more in Microsegments

• Go for micro-segmentation, if selected macro-segments do not explain

difference in buying behavior of buying firms
• Profile selected target segments.- e.g. is your are manufacturing heat sinks
which are used for the cooling of the devices such as Television, mobile
phones then collect information of customer’s location, purchasing criteria,
risk taking willingness to give order to new or small vendors etc.
Bases/Variables for Segmenting:Macro-segmentation
Bases/Variables for Segmenting -MicroSegmentation
The Nested Approach to Segmentation

• Here, the five

segmentation variables
Demographics or criteria are arranged
as a nested hierarchy,
Operating variables moving from the outer
Purchasing approaches nest towards the inner
nest.
Situational factors • Marketers go through
many variables, but
Personal characteristics select important
variables/criteria.
• Cost and time of
information collections
is less for outer nests
variables compared to
that of inner nests.
 The Nested Approach to Segmentation
Approach for Segmentation
Demographics It is most outer approach and also called as firmographics in B2B contexts
It includes variables such as industry, company size, location. It is also called Macro
segmentation
Operating Variables Technology – Analysis of the technology of buying organization as it points out buying
needs e.g. soda ash can be produced using 2 different technologies, hence require different
machinery
User Status – Prospective customer, existing customer, Similarly usage level – High,
medium and low
Customer Capabilities – same as micro segmentation
Purchase Organization of purchasing functioning - Large companies like Ashok Leyland have
Approaches centralized purchasing for large value items and distribution structure other items with
different factories
Power structures – e.g. in case textile manufacturing company purchasing power
department can be manufacturing and other departments may have to follow them
buyer-seller relationship, purchasing polices and purchasing criteria
Buyer –Seller relationship- based on customer relationship segmentation can be done
Situational factors Urgency of order, size of order etc.
Personal Charcharis Risk taking capacity of buyer for giving orders to new customers
of Buyer
 Evaluate and Select Target Segments and
Decide Strategy for Target Segments
Criteria used for evaluating each segment:
- Size and growth rate.- current and future demand estimated using
forecasting techniques
- Profitability analysis.
- Competitive analysis.- strengths and weaknesses, R&D, technical
service, product quality. Sales force, advertising, supply chain
- Company objectives and resources.
Selecting the target segments – identifying most attractive segments
that are compatible with the company’s objectives and resources are
selected.
 Guidelines : Strategy for Target Segments

After selecting target segments, firms adopt one of the

following strategies:
- Concentrated marketing
- Differentiated marketing
- Undifferentiated marketing
- Niche marketing
 Evaluation Target Segments
After Evaluation several market segments based on various attributes or criteria , the
company decides which and how many segments it should target.
This decision can be made using either advance computerized system called DSS
(Decision Making Support) or Simple Matrix System (SMS)

Let us consider an Example for Simple Matrix System

ABC company is marketing Precision Steel Tubes in the Domestic Market in India.
Based on Marketing research conducted analysis of data was done based on various Micro
variables

After Evaluation marketing Manager decided to use SMS as shown in the next slide.
They identified Target segments as follows:

• Automative – consisting of 2, 3,and 4 wheelers –

• Bicycles
• General Engineering Manufacturers
For the following reason - Have large market potential, High to average growth rate, good
profitability and high compactivity with company’s objectives and resources.
Simple Matrix System for Selecting Target Segments
 Outline the Positioning Strategy

What is Positioning ?
• It is a distinct (or unique) place a product (or service)
of a selling firm occupies in the minds of target
customers in relation to competition.
• In B2B marketing, it is the value proposition of the
market offering of a selling firm to target customers
that should answer the question:
• “Why should the target customer buy the
• selling company’s product/service instead of
• from the competitor ?”
 The Process : Positioning Strategy?

• Decide target market segments

(segmenting and targeting)
• Identify the target customers’
major attributes or benefits for
differentiation by conducting
marketing research.
• Select one or few differentiating
attributes or benefits by using
perceptual map technique,
which helps to decide positioning
strategy.
• Communicate the positioning
strategy to target segments
effectively and efficiently.
Positioning
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