B2BMARKETSEGMENTATION 5KEYSEGMENTATIONDIMENSIONS

WRITTENBY:

ARTWEINSTEINPHD PROFESSOROFMARKETING NOVASOUTHEASTERNUNIVERSITY ART@HUIZENGA.NOVA.EDU 9542625097

FRANKJAMIESONMBA PRESIDENT APPLIEDDMRESEARCHINC FRANK@APPLIEDDMRESEARCH.COM 4158849902

B2BSEGMENTATIONSTRATEGYDEVELOPMENT VITALINGREDIENTS+CREATIVECOOKING Effectiveb2bsegmentationislikegourmetcookingyouneedanicevarietyofingredientstocreate adeliciousbalanceofflavorsandacertainunexplainableartisticskilltocombinetheingredientsinto acrowdpleasingexperience. Theprimarypurposeofthiswhitepaperistointroducealistofb2bsegmentationingredientsthat shouldbeconsideredwhenyoudevelopyouruniqueb2bsegmentationstrategy.Wehavesorted theingredientsintofivemajorgroupsthatwecallsegmentationdimensions. Werecommendthatyoucarefullyselectingredientsfromeachofthefivedimensionstoassurethat youcreateabalancedviewofyourmarketandtargetaudience.Atthesametimewealsorecommend thatyouavoidselectingtoomanyvariablesthatwouldbesimilartoselectingtoomanyingredients foragourmetrecipeitwillresultinmoreconfusionthanenlightenment. Wealsowanttowarnyouinadvancethatreviewingourlistofb2bsegmentationvariablesissomewhat likelookinginyourkitchenpantryandhavingyourheartsinkasyourealizethatittakesagreatdealof creativitytoputthoseingredientstogooduse. Thesecondarypurposeofthiswhitepaperistogiveyousomesuggestionsonhowtocreativelycombine segmentationvariables.Weofferthesesuggestionsasastartingpointtomotivateyoutodowhatyou needtodocreateatrulyuniqueandcreativesegmentationstrategythatisunlikeyourcompetitors metoob2bsegmentationstrategiesrarelyresultinsustainablecompetitiveadvantage. Letsfirstquicklyreviewthefivesegmentationdimensionstoillustratewhyyoushouldselectvariables fromeachofthefiveseparatedimensions.Thefiveb2bsegmentationdimensionsareasfollows: Geographics,Firmographics,ProductUsage,BenefitsDesired,andPurchaseBehavior.Eachdimension answersadifferentquestionaboutyourmarketandtargetaudience.Geographicsanswersthewhere question.Firmographicsanswersthewhoquestion.ProductUsageanswersthehowmuchquestion. BenefitsDesiredanswersthewhyquestionandPurchaseBehavioranswersthehowquestion. Whenyouselectkeyvariableswithineachdimensionyouwillbebuildinganaccuraterepresentation ofyourmarketandtargetaudience. Wehaveworkedhardtocreateaveryextensivelistofb2bsegmentationdimensionsandvariables howeverwedonotbelievethatanylistofthissortcanbeabsolutelyexhaustive.Similartogourmet cooking,thereareendlesspossibilitiesforaddingexoticingredientsthatmaymakenosensetosome peoplebutallthedifferencetoothers,soweencourageyoutoviewourlistasawellbalancedsetof ingredientsthatcanserveasasolidfoundationforsegmentationstrategydevelopmentandalsoas alaunchpointformoreexoticsegmentationvariableideas. Finally,itisimportanttosaythattheselectionofsegmentationvariablesmustbevalidatedbyyour observationofyourmarketandtargetaudiencetheyshouldnotbeselectedbecauseyoulikethem. Theyshouldbeselectedbecausetheyareimportantandrelevanttoyourmarketandtargetaudience.

GEOGRAPHICSSEGMENTATIONDIMENSIONANSWERSWHEREQUESTION MARKETSCOPEdescribesthegeographicscopeofyourmarket GLOBAL WorldwideNorthAmerica Europe Asia LatinAmerica SelectedCountries NATIONAL AggregationofStates REGIONAL NewEngland PlainsStates SoutheasternStates WesternStates LOCAL ZipCode MSA County City CULTURAL ExampleFrenchSpeakingCanadians MEASUREMENTUNITSdescribeshowgeographicswillbemeasured CENSUS MSA PMSA CMSA CensusTract CensusBlockGroup POSTAL 5digitzipcode 3digitzipcode

 GOVERNMENT City County State URBANICITY Urban Suburban Rural Exurbia MEDIA ADI=Arbitron=AreaofDominantInfluence DMA=ACNielson=DesignatedMarketArea TRADEAREA Primary Secondary Tertiary Marginal CLIMATE ClimateZones FIRMOGRAPHICSSEGMENTATIONDIMENSIONANSWERSWHOQUESTION AGE YearsinBusiness SIZE Numberofemployees NumberofLocations NumberofPlants FINANCIAL Sales Profits CreditRating DECISIONS Headquarter/Subsidiary Branch

INDUSTRY SICCode NAICSCode NACE(EU) ISICInternational OWNERSHIP PublicCompany PrivateCompany Government NonProfit MARKET MarketSize NumberofPotentialCustomers MarketStructure POSITION MarketShare IndustryPosition STAGE ProductLifeCycle IndustryLifeCycle TRENDS Growth Decline Stability CUSTOMERS BusinesstoBusiness BusinesstoConsumer BusinesstoEducation BusinesstoGovernment PROPERTY LeasePlant&Equipment OwnPlant&Equipment RESIDENCY LengthofResidency

MANUFACTURING DiscreteManufacturing ProcessManufacturing TECHNOLOGY HighTech LowTech PRODUCTUSAGESEGMENTATIONDIMENSIONANSWERSHOWMUCHQUESTION VOLUME High Medium Low VARIETY SingleProductversusMultipleProducts High Medium Low FREQUENCY FirstTime OneTime Regular Continuous Seasonal Occasional RFM(goodmeasureofusageandloyalty) Recency Frequency MonetaryValue TRENDS Growth Decline Stable APPLICATION RawMaterial WorkinProgress FinishedGood

PRODUCTUSES SingleApplication MultipleApplications VALUECHAIN Locationwithin CustomersCustomers IntermediarySales EndUsers IMPORTANCE CriticalComponent Insignificant Replaceable SHARE ShareofCustomer ShareofMarket MARKET OEMOriginalEquipmentManufacturer MROMaintenance,Repair,Overhaul(aftermarket) ADOPTION ProductUsebyAdoptionCategory Innovators Followers Laggards HEURISTICS HeavyHalfSegmentation Pareto80/20rule KEYWORDS InternetSearchWords KeyWordsRepresentProductResearch IndicationofProductUsage USERTYPE Current Former NonUser

BUYERSIZE Large Medium Small COMPARISONS UsersversusNonUsers UsersversusCompetitorUsers HeavyUsersversusLightUsers UsageLevelversusProfitLevel BENEFITSDESIREDSEGMENTATIONDIMENSIONANSWERSWHYQUESTION BUYERMOTIVES Physical Emotional Psychological PRIORITY PrimaryBenefits SecondaryBenefits MULTIPLICITY Usuallyonlyoneuseforproduct Therecanbemanybenefitsassociatedwithoneproduct VARIABLES Price Value Quality Reputation Service Delivery Timing Relationship Reliability Durability EaseofUse Innovation Warranty Customization PaymentOptions Experience

VARIABLES(continued) Scalability GeoScope VendorSize Expertise Technology Patents 4MAJORBENEFITS Service Quality Image Price Mustexcelinatleastone Mustbeacceptableinall PURCHASEBEHAVIORSEGMENTATIONDIMENSIONANSWERSHOWQUESTION ORGANIZATIONAL Centralized Decentralized POWERSTRUCTURE Engineering Finance Sales Marketing Manufacturing BUYERSELLERRELATIONSHIP Strong Weak Similaritybetweenbuyerandseller PURCHASEPOLICY Bid Price Lease Purchase Vendorapprovalprocess RISKATTITUDE RiskTaker/RiskAverse

PURCHASECRITERIA Price Quality Image Service Specifications VendorCapacity DECISIONMAKINGUNIT DMU=DecisionMakingUnit NumberofDMUStakeholders RolesofDMUStakeholders DMUSeniorityLevel SITUATIONALISSUES Orderurgency Fast/SlowDelivery ProductApplication ORDERSIZE Large Medium Small RISKATTITUDE RiskTaker RiskAverse PURCHASELOYALTY High/Medium/Low MARKETSTRUCTURE NumberofBuyersinMarket BuyerIndustryConsolidation Buyer/SellerPowerContinuum COMPLEXITY SimpleSalesProcess ComplexSalesProcess SaleCycleTime COMPETITION Marketcompetition

GEOCLUSTERING BuyerGeoClustering SiliconValleyexample PSYCHOGRAPHICSculturalcomponentofpurchasebehavior CORPORATECULTURE Attitudes Opinions Personality Values Beliefs Interests Motivations Selfconcept Ideology Lifestyle Psychological Sociological Anthropological BUYERCLUSTERS SocialBuyers FactualBuyers STRATEGICCLUSTERS Defenders/Prospectors/Analyzers/Reactors ORIENTATIONCLUSTERS CustomerOrientation FinancialOrientation InternalOrientation Research&DevelopmentOrientation PRODUCTADOPTIONCURVE Innovators EarlyAdopters EarlyMajority LateMajority Laggards

SUGGESTIONSONHOWTOGETSTARTED Aspreviouslymentioned,thesecondarypurposeofthiswhitepaperistogiveyousomesuggestions onhowtocreativelycombinesegmentationvariablestodevelopauniqueandeffectivesegmentation strategyforyourcompany.Apotentialbenefitofthesesuggestionsistohelporganizeyourthinking aboutsegmentationstrategydevelopment. Beforegoinganyfurtherwewanttoemphasizethatthereisnorightwaytodosegmentation. Thekeyissueistobetterunderstandyourcurrentmarketsandtoidentifynewmarketsegments thatcanbesuccessfullyandprofitablyexploited. Thesecondinsightthatwewantofferpriortodiggingintosuggestedmethodologiesishowtostart. Thereisnorightwaytostartyoucanbeginpiecemealoryoucandoanextensiveanalysis italldependsonyourinternalresourcesandyouruniqueneeds. Belowwebrieflydescribefoursuggestedapproachestob2bsegmentationstrategydevelopment. Thesemethodshavebeenwellresearchedandvalidatedwithpositivemarketexperience. NESTEDAPPROACHSUGGESTEDMETHOD#1 ThisapproachwasdevelopedbytwoHarvardprofessors,BonomaandShapiro.Itsattractivebenefits includemultidimensionaldescriptivequalitiesandasystematicprogressionfromobservablevariables tosubtlebuyerbehaviorvariables.Belowisasummaryofthenestedapproach. DEMOGRAPHICS Industry CompanySize CustomerLocation OPERATINGVARIABLES Technology ProductUsage CustomerCapabilities PURCHASINGAPPROACHES PurchasingProcedures PowerStructure Buyer/SellerRelationships PurchasePolicies PurchaseCriteria SITUATIONALFACTORS OrderUrgency OrderSize/ProductApplications

BUYERPERSONALCHARACTERISTICS Buyer/SellerSimilarity AttitudetowardRisk BuyerMotivations BuyerPerceptions 3LEVELMARKETDEFINITIONMODELSUGGESTEDMETHOD#2 The3LevelModelisanicewaytoidentifytheappropriatelevelofmarketsegmentabstraction todefineattractivemarketsegmentsgivenyourresources,objectives,andmarketingenvironment. Akeybenefitofthismodelisavoidingmyopia(toonarrowsegmentdefinitions)andalsoavoiding massmarketing(toobroaddefinition)sothatthebestdefinitionbalanceisachieved. LEVEL1RELEVANTMARKET DefineGeographicTradeArea=currentmarketserved DefineProductMarket=currentproductsoffered(myopia) DefineGenericMarket=massmarketingdefinition(massmarket) RelevantMarket=LargerthanProductMarket/SmallerthanGenericMarket LEVEL2DEFINEDMARKET DefinedMarket=RelevantMarketcontainingcustomersandnoncustomers LEVEL3TARGETMARKETS ApplySegmentationDimensionstoDefinedMarket IdentifyMultipleSegmentswithinDefinedMarket SelectAttractiveSegmentswithinDefinedMarket SEGMENTSELECTIONCRITERIASUGGESTEDMETHOD#3 TheSegmentSelectionCriteriaMethodisasimplechecklistofqualitativeandquantitativecriteria thatcanhelpyouselectthebestmarketsegmentsforyourbusiness. QUALITATIVECRITERIA Natureofbusinesspreferred Strategicsynergy StrengthsandWeaknesses Markettrends Geographiccoverage Industrystructure QUANTITATIVECRITERIA Salesgrowthrates Saleswithinmarket

QUALITATIVECRITERIA(continued) Marketshare Profitpotential Customerlifetimevalue(LTV) Customerretentionindicators Returnoninvestment(ROI) Breakevenanalysis(BEA) Netpresentvalueanalysis(NPV) Paybacktimeframe 3KEYCONSIDERATIONS Growth Profits Segmentsize 4RTEST RANKABLE Abilitytoobjectivelyranksegments Abilitytosubjectivelyranksegments REASONABLESIZE Largeenoughtopursue Tojustifydifferentialtreatment REACHABLE Abilitytocommunicatewithsegments RESPONSIVE Segmentrespondstomarketingcommunication MARKETINGAUDITSUGGESTEDMETHOD#4 Thefinalsuggestedmethodisagreatwaytostartthesegmentationprocessbyaskingyourselfaseries ofpointedquestionsaboutyourcurrentmarketingsituation.Theanswerswillidentifyareasthatneed improvementagreatstartingplaceforyourmarketsegmentationstrategydevelopment. SALESHISTORY Howdosalesbreakdownbyproductline? Doyoubreakdownsalesbycustomersegments? Whatproductsarenotmeetingpotential? Whatmarketsarenotmeetingpotential? Whatsegmentsarenotmeetingpotential?

MARKETINGCOMMITMENT Doyoudevelopandimplementformalmarketingplans? Areyourmarketingplansbasedonmarketsegmentation? MARKETINGENVIRONMENT Whatmajordevelopments/trendsrepresentopportunities? Whatmajordevelopments/trendsrepresentthreats? Whatactionshavebeentakeninresponsetoopportunities? Whatactionshavebeentakeninresponsetothreats? Whatmajortechnologydevelopments/changesareoccurring? Howhaveyourespondedtotechnologydevelopments/changes? Whatarecompetitorsstrengthswithinmarketsyouserve? Whatarecompetitorsweaknesseswithinmarketsyouserve? Whatarecompetitorsstrategieswithinyourmarkets? Whatishappeningrelativetomarketsize? Whatishappeningrelativetomarketgrowthrates? Whatishappeningrelativetomarketprofitrates? MARKETSEGMENTS Whatinyourviewareyourmajormarketsegments? Howdodifferentcustomersegmentsmakebuyingdecisions? Whoarenewpotentialcustomersforyourproducts? Aresegmentsidentified,measured,andmonitored? Areanysmallbutprofitablesegmentsoverlooked? Howdoyoupresentlysegmentyourmarkets? Isyourpresentmarketsegmentationapproacheffective? Howdoescompetitiondefinemarketsegmentationdefinitions? Haveyoucreatedcustomerprofilesformajormarketsegments? Shouldyourcompanywithdrawfromanybusinesssegment? Whatwouldbeshortterm/longtermconsequences? Aremarketsegmentdefinitionsbasedonresearch? PRODUCT Whatareobjectivesforcurrentproductlines? Howdoyougather,generate,andscreennewproductideas? Doyoudomarketresearchpriortonewproductlaunches? Doyouweedoutunprofitableproductsandaddnewones? MARKETINGMANAGEMENT Doyouhaveamarketingintelligencesysteminplace? Ismarketingresearcheffectivelyusedbydecisionmakers? Doyouregularlyanalyzeprofitabilityofmarketsegments?

MARKETSEGMENTATIONRECOMMENDEDRESOURCE Thebasisandfoundationofallinformationpresentedinthiswhitepaperhasbeenthefollowingbook: HandbookofMarketSegmentationStrategicTargetingforBusinessandTechnologyFirms Author:ArtWeinsteinPhD,ProfessorofMarketingNovaSoutheasternUniversity Publisher:HaworthPress2004thirdedition