A Critical Review of
Industrial Market
Segmentation
Richard
This article reviews approximately 30 articles over the past
20 years that have addressed the topic of industrial market
segmentation. The pursuit of a normative model to guide
practitioners in segmenting industrial markets has made some
progress with three identifiable models. There are a host of
problems with the work done in the area both conceptual and
methodological.
INTRODUCTION
The concept of market segmentation has received a
great deal of attention since the term was first coined and
defined by Smith 1491. Although the term is relatively
new, the concept of a market having segments and the
marketer utilizing market segmentation is not. In an early
textbook of industrial marketing Frederick [21] notes:
The first step in analyzing an industrial market is to divide
the whole market into its component parts. Any particular
group of prospective or present users of a product to
*The author wishes to thank Professors Leon Schiffman and Conrad
Berenson at Baruch College for their encouragement and guidance in develop-
ing this paper.
Address correspondence to: Prof. Richard E. Plank, School of Admin-
istrative Sciences, Marketing Department, Rutgers University, New
Brunswick, NJ 08903.
Industricrl Marketing Manqment 14, 1%9 1 (I 985)
0 Elsevier Science Publishing Co., Inc., 1985
52 Vanderbilt Ave., New York, New York 10017
E. Plank
whom a concentrated advertising and sales appeal may be
made should be considered as a component market.
Wind [59] has developed a framework and has re-
viewed the status of segmentation research in general.
An examination of this work indicates that most of the
segmentation research has dealt with consumer markets
rather than with organizational markets. Wind contends
that the concept of segmentation and most of the research
approaches are equally applicable to industrial market
situations.
Although industrial market segmentation as a concept
has not been heavily researched, it is obviously not
barren either. When one examines the literature on the
topic, a number of perspectives surface, but as will be
noted, a number of shortcomings are also present. The
explicit focus of this critical analysis is in terms of the
development of a normative model of industrial market
segmentation. A number of steps should be completed.
The first step involves a definition of terms. Explicit
definitions of normative, industrial, market segmenta-
tion, and related terms will be developed.
The second step involves an extensive literature re-
view. Two types of references are discussed, those deal-
ing directly with industrial market segmentation and
those indirectly, such as industrial buying behavior stud-
79
0019-8501185/$3.30
ies or general market segmentation work. The third or
last step involves an evaluative analysis of the work done
in the topic area from the perspective of how this work is
leading to the development of a normative model of
industrial market segmentation.
CONCEPTS AND TERMS
The term market segmentation appears to have been
coined by Smith [49]. He looked at market segmentation
and product differentiation as alternative marketing strat-
egies. Market segmentation was defined as “a rational
and more precise adjustment of product and marketing
effort to consumer or user requirements.”
Defining market segmentation is not an easy task, as
there appear to be two separate schools of thought. The
earliest writing on market segmentation took a strategic
orientation. As marketing entered an era of the use of
more sophisticated quantitative techniques, the orienta-
tion became one of a research technique. A current and
Segmentation is more of a strategic problem
of resource allocation than of measuring,
and statistical analysis.
apparently widely used and accepted definition of market
segmentation is presented in Kotler [33] as follows:
Market segmentation is the subdivision of a market into
distinct subsets of customers, where any subset may con-
ceivably be selected as a target market to be reached with
a distinct marketing mix.
Market segmentation is clearly defined as an analytical
tool used to research markets in a meaningful way and
then to use target marketing to evaluate, select, and
concentrate on those segments the firm feels it can serve.
Kotler [33] describes this orientation more clearly as a
series of three steps: ( 1) market segmentation; (2) target-
ing; and (3) positioning.
RICHARD E. PLANK is a doctoral student in marketing at the
Baruch College of the City University of New York and
Assistant Professor of Marketing at Rutgers University, New
Brunswick, N.J.
80
Schiffman and Kanuk 1461 define market segmentation
as follows:
the process of dividing a potential market into distinct
subsets of consumers and selecting one or more segments
as a market target to be reached with a distinct marketing
mix.
The differences here are not subtle. The Schiffman and
Kanuk [46] definition clearly indicates a process men-
tality with the indication that market segmentation is
more than just an analytic technique. What they say in
effect is that market segmentation not only defines the
segments, but also allocates the resources to them. The
Kotler 1331 orientation leads one to believe that defining
the segments and allocating resources to them are sepa-
rate and distinct operations.
Mahajan and Jain [36] commented on the problem of
separating the development of segments from the alloca-
tion of resources in a normative model of market seg-
mentation. It is clear from their work that there are
substantial risks in separating these two aspects. Johnson
and Flodhammer 1291 express a similar viewpoint as
follows:
Segmentation is more of a strategic problem of resource
allocation than of measuring and statistical analysis.
The term industrial as it relates to markets is also a
difficult term to deal with. When an examination of
industrial buying behavior is undertaken, two terms are
utilized to describe the general market. Sheth [47] refers
to the topic as industrial buying behavior. Webster and
Wind I.551 refer to the topic as organizational buying
behavior. An examination of the bulk of the literature in
the area and the associated managerial literature indicates
that both terms are used in abundance. Yet it is obvious
that the second term has a much broader connotation.
Many organizations, for example, nonprofit organiza-
tions, would not be classified as industrial marketers. Yet
virtually all of the market segmentation literature that is
not consumer oriented utilizes the term industrial. Wind
[59] compromises by using the term industrial, but defin- could be classified. Some of the work is strictly concep-
ing it in a broader context as in organization. Hunt [28] is tual with no attempt at empirical testing. Other literature
perhaps clearest in his definition of normative. He notes has both a conceptual and empirical base to it. Still other
the positive-normative dichotomy, positive being what work is mainly interested in methodological concerns
is and normative being what ought to be. Thus, nor- such as which statistical technique to use or how to
mative suggests some generalized way or method we sample to get a particular data base. Case studies are also
should go about doing something. Ideally, we would present.
want the positive and normative aspects of a practice to The classification scheme that will be used to discuss
equate. the literature is based on what appears to be the major
An important concept of segmentation is that of a issue in industrial market segmentation, that of selecting
base. A segmentation base has been defined by Choffray a basis for segmentation. In effect three types of models
and Lilien [ 131 as a criteria used to group potential or of industrial market segmentation are identified within
actual customers. A segment descriptor as defined by the literature.
Choffray and Lilien [ 131 is a variable or characteristic Table I provides the classification of the industrial
that is linked to segment membership and is relevant for market segmentation literature. The first category com-
marketing strategy formulation and implementation. prises those references that give no specific advice as to
It is obvious that there is some difference of opinion as how to choose a particular base. Category two contains a
to what market segmentation actually is as well as what two-step micro-macro segmentation base selection
an industrial market is. This has presented a number of scheme. The final category calls for a multistep ap-
problems in terms of the development of a normative proach, with the only reference being the work of Bo-
model of industrial market segmentation. noma and Shapiro [5]. A review of these three categories
follows.
CRITICAL LITERATURE REVIEW
Category 1: Unordered Segmentation Notions
The literature on industrial market segmentation is
somewhat diverse and can be surveyed in terms of how it Prior to the defining of the term market segmentation
by Smith [49] there was some activity in the area. A
TABLE 1 previously cited example by Frederick [21] provides an
Classification of industrial Market Segmentation Literature
example. Frederick establishes five factors that should be
Unordered Base SelectIon considered in arriving at the definition of a component
market. These are industry, product use, company buy-
1. Frederick [21] I I Neidell [39] ing habits, channels of distribution possibilities, and geo-
2. Hummel [26] 12. Wilson, Mathews, and Sween-
graphic location. In modem terms these are obviously
ey [571
3. Hummel [27] 13. Unger [53] segment bases. Frederick does not discuss this in terms
4. Roberts [42] 14. Assael and Ellis [3] of strategy development, but merely in terms of an ana-
5. Yankelovitch [63] IS. Schiff, Fernandez, and Winer
lytical technique.
1451
6. Keman and Sommers 1321 16. Green [23] Hummel deals with industrial market segmentation in
7. Robinson, Faris, and Wind [43] 17. Cardozo [9] several early works [26, 271. He does not explicitly deal
8. Faria [ 171 18. Johnson and Flodhammer (291
with market segmentation, but nevertheless an important
9. Feldman and Cardozo [ 181 19. Forbes and Mehta [ 191
10. Cardozo [8] 20. Spekman (501 early contribution is made. A major contribution deals
with the analysis of secondary data to measure market
Two-Step Base Selection and sales potentials. An extensive discussion of SIC
I. Frank, Massy, and Wind [20] 6. Choffray and Lilien [ 121
codes and their use has led to the adoption of end use and
2. Wind and Cardozo [60] 7. Choffray and Lilien [ 131 industry as major industrial segmentation variables.
3. Wind, Grashof and Goldhar [61] 8. Moriarty [37] Roberts [42] gives the reader an early illustration of
4. Wind [58] 9. Wind, Robertson, and Fraser
5. Choffray and Lilien [I I]
implementing the strategy of market segmentation in an
1621
industrial market. He identifies three submarkets in the
MultIstep Base SelectIon livestock chemical business based on the type of custom-
er being dealt with. They are professional licensed veteri-
I. Bonoma and Shapiro [5]
narians, bulk product or the feed industry, and quasi

81
consumer packaged goods. or the drug store, feedstore,
mills, elevators, and other retailers who sell livestock
chemicals direct to the farmer. The author carefully notes
how some companies deal with only one of the segments
and how these companies implemented and identified
segmentation strategy. He also notes it is common for
companies to utilize different corporate names or divi-
sions to serve different segments of this market, while
others have a less aggressive approach. A major and
important point made by Roberts is that the market is
dynamic and changing, which alters the profile of the
market and the importance of the various submarkets
over time.
Three types of industrial segmentation
models are identified.
Yankelovitch (631 argues that demographics are not
really the only or best way to segment markets. A total of
ten markets are discussed, with three of these-adding
machines, computers, and light trucks-being industrial.
The author develops three segments for adding machines
based on the customers’ perception of value and benefits
they desire to obtain. Two segments are developed for
computers-those who believe they can make their own
decisions because they are well informed, 20% of the
market, and those who felt they did not know enough
about the purchase to make an evaluation. Yankelovitch
also suggests that the prospects’ attitudes toward the
inevitability of progress could be a good basis for seg-
menting the market. The light truck market is also seg-
mented based on whether or not prospects feel they can
make a decision in the area. The author notes that people
who perceive they do not have this ability tend to rely on
the reputations of both the dealers and the manufacturers.
These customers tend to be brand loyal and tend not to be
price sensitive, whereas buyers who can make decisions
in the area will be the opposite. Yankelovitch contends
that this latter group can be sensitive to the right types of
competitive appeals since they generally will put perfor-
mance before reputation.
There are other discussions of market segmentation
with an industrial perspective in the early literature. Two
authors have commented that the early industrial market-
ing literature deals mainly with either geographic loca-
tion or end use of the product as the segmentation base
82
IS, 541. Although this does not appear to be entirely
accurate these were probably the most used bases for
those practitioners who applied the concept. It can be
added that much of the work done in the area was case
study focused.
Keman and Sommers [32] present what can be de-
scribed as the first real theory-based industrial market
segmentation proposal. The major thrust is to describe
how salespeople could use knowledge of their customers
to improve their selling efforts. Knowledge of buyer
behavior, in any context, including market segmentation,
leads to better marketing is their implicit thrust. The
framework used revolves around role theory and an un-
derstanding of company role, individual roles within the
company, and the individual’s commitment to those
roles. A behavioral matrix was developed that has market
segmentation implications.
Robinson, Faris, and Wind 1431 and Faris [ 171 devel-
oped a more comprehensive theoretical structure in the
area of industrial buying behavior and suggest segmenta-
tion usages. Robinson, Faris, and Wind 1431 develop
many of the concepts that are now commonly used in
industrial buying research and applications of that re-
search. Buying situations are defined using the typology
of straight rebuy, modified rebuy, and new task buy,
based on the various elements of the buying task itself.
An eight-step buying decision typology is also devel-
oped. The Faris [ 171 work is explicit in utilizing these
concepts for industrial market segmentation.
Feldman and Cardozo [ 181 look at the different strat-
egies used by different buyers to process information and
then to select suppliers. The authors suggest that these
strategies could be viable bases for segmenting industrial
markets.
Cardozo [8] authored what is the first review article
dealing with industrial market segmentation and also
developed the first model of industrial buyer behavior
whose specific intent was to assist in the development of
industrial market segmentation strategies. Probable sup-
plier choice is dictated by the profiles of the suppliers
available and the strategies used to choose among sup-
pliers. These strategies are influenced by both the indi-
vidual characteristics of the buyers and the problems and
risks that the buyer perceives. The problems and risks are
influenced by both purchase requisitions and environ-
mental forces that may also affect the requisitions them-
selves. Cardozo then goes on to review the other bases as
suggested by the previously mentioned literature and to
offer five additional bases. Purchasing strategies and
information search was the first base discussed, and
Cardozo developed the dichotomy of the simultaneous
scanner versus the sequential evaluator as purchasing
information search strategies. The second base, indi-
vidual characteristics, included individual risk tolerance
and preference for risk, the individual role type, and the
individual cognitive style. A third base, problems and
risks perceived, was discussed in terms of the Robinson,
Faris, and Wind framework [43]. A fourth base, dif-
ferences among purchase requisitions, related to the
number of dimensions a requisition allowed the buyer to
consider. The fifth base, environmental factors, consist-
ed of internal and external factors. Internal factors in-
cluded working relationships and work load. Five exter-
nal factors were also discussed. No guidance is given as
to the ordering of the segmentation bases in terms of
choosing which base, when, under what conditions, and
in what order.
Neidell [39] discussed the use of multidimensional
scaling (MDS) as an analytical technique and illustrated
its use for market segmentation. Using pharmaceuticals
marketed to physicians he illustrated how MDS coupled
with cluster analysis could be used to define market
segments. The treatment by the author was strictly
methodological.
Wilson, Mathews, and Sweeney 1571 did an empirical
study to determine how well a company could segment a
market based on the decision styles of the purchasing
agent. Two decision styles, normative and conservative,
based on whether the purchasing agent used or did not
use an expected monetary value criterion, were devel-
oped. Using personality measures as segment descriptors
the authors found they could correctly classify 75% of
their research subjects. It was argued that different types
of buyers needed different communication approaches.
Unger I53 ] responds to the work of Wind and Cardozo
[60] commenting that he perceives that those authors’
development of a two-step model of industrial market
segmentation does not acknowledge the vital importance
of end user or industry in the scheme and thus signifi-
cantly lessens its importance. Unger then goes on to
demonstrate how L. Givaudan & Cie S.A. go about
segmenting markets and ultimately defining and control-
ling their marketing strategy based on end user mac-
rosegmentation only.
Assael and Ellis [3] present an empirical study done
for AT&T. The study is basically a macro only segmen-
tation study based on the concept of heavy and light users
of a product. Using company characteristics such as
company size in sales and employees, location, and
heavy users versus light users they define four segments
for the industrial telecommunications market. What they
predictably find is that two of the segments contain a
total of only 10% of the customers, but account for 40%
of the sales.
Schiff, Fernandez, and Winer [45] briefly review mar-
ket segmentation in industrial markets. They state the
literature on industrial market segmentation suggests that
markets may be segmented on characteristics of organi-
zations, buying habits of organizations, and attitudes and
preferences of firms. The consumer segmentation liter-
ature suggests that markets can be segmented by demo-
graphic and socioeconomic criteria and market behavior
criteria, which can also be used in industrial markets.
Green (231 has proposed what is referred to as a new
approach to market segmentation, which was also exten-
sively reviewed and praised by Wind [59]. Green begins
his discussion with an adaptation of the Ansoff [2] strat-
egy formulation matrix. To this is added the fact that
product offerings have structural as well as functional
characteristics and that a general problem in strategy
formulation is to achieve congruence between these
structural and functional components. Green then argues
that possible courses of strategy should shape the seg-
mentation study to be done. Previous segmentation stud-
ies are defined in terms of having been a priori, post hoc,
or some hybrid of the two and each type of study is
demonstrated. Green then suggests that the major prob-
lem in segmentation is the choosing of the basis for
segments and then outlines Componential Segmentation
(COSEG). COSEG works by evaluating several compet-
ing segmentation bases as well as defining the overall
ability of the market to be segmented. Green uses the
example of a firm trying to develop a credit card from the
perspective of the retailer accepting it or not as an exam-
ple of the procedure.
Cardozo [9] bases his most recent work on 30 inter-
views with various types of companies and suggests that
organizational buying situations may be classified on
four distinct dimensions. The first dimension is famil-
iarity with the buying task and is discussed in terms of
the Robinson, Faris, and Wind framework [43]. The
second is product type, with product use and degree of
83
standardization being the key components. A third di-
mension is the importance of the purchase to the organi-
zation; this basically refers to the degree of risk believed
to be present in the particular purchase situation. The last
category is the type of risk present and is based on the
work of Lehman and O’Shaughnessy 1341, Hakansson,
Johannson, and Wootz (2.51, and Parket and Rabinowitz
[40]. Five types of uncertainty are discussed: need, tech-
nical, market, acceptance, and transaction. The four di-
mensions discussed may be used separately or in com-
bination to classify organizational buying situations, and,
as such, these classes can then constitute market seg-
ments.
Johnson and Flodhammer (291 develop a model of
industrial market segmentation based on how the topic is
used and understood in some Swedish firms. The authors
first define where there is a need for industrial market
segmentation. It is appropriate for industrial firms when
their products are heterogeneous, when products are ap-
plicable to a variety of industries. and when a firm’s
heterogeneous customers have different profitability re-
quirements, different buying strategies and environmen-
tal characteristics, and different supplier requirements.
The authors identify 10 variables in 5 major groups:
technology, economy, market, competition, and organi-
zational. They then proceed to further define these vari-
ables in terms of a high, medium, and low typology as to
whether they are identifiable and measurable, concep-
tually available, useful for predictive strategy, and actu-
ally used in industrial settings.
"The Strengthsand Weaknesses of
Segmentation Approaches"
Forbes and Mehta [ 191 briefly discuss industrial mar-
ket segmentation. The authors develop a concept called
EVC, for economic value to the customer. EVC is de-
fined as follows:
the relative value a given product offers to a specific
customer in a particular application--that is, the max-
imum amount a customer should be willing to pay, as-
suming ihat he is fully informed about the product and
offerings of the competitors.
The authors suggest that one can examine the variables
that underlie significant EVC variations and segment the
84
market accordingly. These variables are proposed to be
situation specific, but four are purported to be repeatedly
significant. They are intensity of product usage, growth
in the customer’s business, geographical scope of cover-
age, and the nature of the application.
Spekman [50] wanted to determine if it was possible to
classify organizations according to the type and degree of
information that purchasing managers use in purchasing
situations. The author identifies three types of organiza-
tions: commercial, not for profit, and governmental. A
total of 92 purchasing agents responded to a 30-item list
of situational factors that they may consider at some time
during the purchasing process. Spekman concludes with
the idea that organizational type may be an adequate
macrosegmentation variable, but, from a normative per-
spective, a two-stage macro-micro orientation might im-
prove the firm’s marketing effectiveness.
Category 2: Two-Step Notions
Although it is obvious from Table 1 that most of the
literature on industrial market segmentation has concen-
trated on defining segmentation bases in terms of no
apparent ordering in their selection, a number of refer-
ences have been developed describing or testing a two-
step approach.
The first book that attempted to develop a logical and
coherent framework to evaluate segmentations was that
of Frank, Massy, and Wind [20]. Although they dealt for
the most part with consumer segmentation, it did make
an elementary contribution to the area of industrial mar-
ket segmentation. The authors suggest that the difference
between consumer and industrial market segmentation is
the specific bases used. For industrial markets, they
develop a two-step segmentation scheme defining both
macro segmentation bases and decision-making unit
bases. The first step is to define macro organizational
segments and then within each acceptable macro segment
the marketer can further divide the market based on
decision-making unit characteristics. The authors then
proceed to develop a classification scheme for bases for
industrial market segmentation. Along with the level of
segment is the type of measure, either objective or infer-
red, and the nature of the characteristics, either general
or specific to the situation. The authors then proceed to
discuss the organizational characteristics in some detail,
but do not discuss the decision-making characteristics,
suggesting that they are likely to be the same as in
consumer marketing.
Wind and Cardozo [60] make a contribution toward a
normative model of industrial market segmentation by
defining one. They found that segmentation was not used
extensively in planning and strategy formulation by most
companies. The majority of segmentation users seemed
to be used to explain the success or failure of a particular
marketing program after the fact. The authors then pro-
ceed to develop what they perceived to be an “ideal”
market segmentation model. Using the Frank, Massy,
and Wind framework [20], they define macrosegments
based on organizational characteristics and microseg-
ments based on decision-making characteristics. The
procedure is to start with a given product and identify a
set of macrosegments. After selecting a set of appropriate
segments, each must then be evaluated to determine if it
exhibits a distinct response to the firm’s marketing stim-
uli. If it does, the firm can stop and use the macroseg-
ments as their target markets. Microsegments are based
on key decision-making characteristics such as perceived
importance of the purchase or attitudes toward vendors as
examples. Microsegments are then selected based on
costs and benefits associated with reaching the segment.
Complete profiles of the segments are drawn up.
Wind, Grashof, and Goldhar [61] describe a study that
utilizes conjoint analysis as a technique to define market
segments. Their topic of study is the market for scientific
and technical information services. At the macro level
they use SIC codes to identify those companies in the
industries that are heavily involved in research and devel-
opment and are thus likely to utilize scientific and tech-
nical information transfer services. At the micro level
they define 12 factors and utilize them in a trade-off
analysis to identify five microsegments within the 18-
category, three-size level macrosegments. The authors
profile each of the five utility segments according to sets
of segment descriptors, those being organizational char-
acteristics, research activities of the firms, and re-
spondent characteristics such as education and job re-
sponsibility. They also validate by using four control
stimuli that were not used in the development of the
utility functions and evaluating them in a pairwise man-
ner against all other stimuli. Correct classification on the
order of 74% for each control indicates a high level of
validity.
Wind [58], in a working paper dealing with the same
study, discusses the issue of market segmentation and
proposes a seven-stage research approach. The thrust of
Wind’s argument is that one often encounters interorgan-
izational heterogeneity with respect to benefits or criteria
utilized to make a decision on a particular product or
service. High-consensus organizations can form one seg-
ment, but low-consensus organizations must be dealt
with and in the analysis they form five segments. Wind
concludes that interorganizational heterogeneity is an
important basis for segmentation in firms where such
heterogeneity is expected.
Choffray and Lilien [ 111 have developed a normative
approach to industrial market segmentation based on
Choffray’s [lo] doctoral dissertation and following the
basic Wind and Cardozo [60] conceptual framework.
Webster [54] neatly summarizes their approach as
follows:
Step 1: Develop macrosegments of organizations that are
likely to react to a product offering differently, because of
their industry, geographic location, or other observable
characteristics.
Step 2: Use a sample of firms in the potential market to
determine the structure of decision-making units in each
macrosegment by developing a “decision matrix” in which
the columns correspond to phases of the decision process
and the rows are categories of individuals (buying roles)
involved in the decision process; the entries in the matrix are
percentages of task responsibilities in each buy phase asso-
ciated with each buying role.
Step 3: Develop an index of inter-organizational similarity
using mathematical coefficients of association and remove
from the analysis those firms that are “outliers,” those
significantly different from the large majority of organiza-
tions in the sample in their decision process.
Step 4: Use cluster analysis to develop microsegments,
groups of organizations homogeneous in the composition of
their buying center.
Step 5: The composition of the resulting clusters-micro-
segments is examined to assess qualitatively the relationship
between microsegment membership and other, external and
observable, characteristics of the organizations in the
microsegment.
Choffray and Lilien [ 121 extend on their original work.
They quantitatively examine the relationship between
segment descriptors and segments using four-group dis-
criminant analysis. The decision process involvement
was measured in both cooling systems and intelligent
terminals.
Additional insight into the work of Choffray and Lilien
[ 131 can be gathered by examining their book on new
85
product planning for industrial markets. Especially in-
teresting are chapters six and seven which deal with
individual preferences and choice and group choice be-
havior, respectively. The authors’ product perception
analysis suggests differences in how various members
within an organization may value different attributes and
benefits, a point also made by Plank and Dempsey [ 4 I].
Moriarity 1371 completed a dissertation dealing with
industrial market segmentation which has also been re-
ported by Bonoma and Shapiro (51. Moriarity integrated
individual and decision-making characteristics with mac-
rosegmentation variables. The buying groups responded
to 33 selection criteria which were later reduced to seven
benefits: speed, ease of use, aesthetics, compatibility
with current and future data processing systems, service,
delivery, and price. A contribution with this study deals
not with the findings, but more with the methodology
used to generate the findings.
The final and most recent work utilizing the two-step
method is by Wind, Robertson, and Fraser [62]. They
note the marketing of technological products can be im-
proved by planning and forecasting on a segment by
segment basis. Focusing the adoption of a CT Scanner by
various hospitals, they demonstrate how this is so and
how any factor which leads to different adoption and
diffusion patterns can be a segment descriptor.
Category 3: Multistep Segmentation Notions
In a recent and comprehensive analysis of industrial
market segmentation Bonoma and Shapiro (51 propose
what they view as a new way to think about segmenta-
tion. The authors contend that the major problem facing
the marketer is to know which and how many of the
possible segmentation bases to use and how to interpret
the differences. Toward this end they propose a nested
approach to industrial market segmentation with the user
generally moving from the outer nest to the inner nests.
The five nests or general segmentation bases are demo-
graphics, operating variables, purchasing approaches,
situational factors, and personal characteristics. The out-
er nests contain the more easily observable variables and
as the user moves inward the variables become pro-
gressively more subtle and thus harder to identify and
interpret.
Summary of the Three Notions
A number of people have contributed from a number
of different perspectives with some of the literature con-
ceptual and some empirical. Several articles have fo-
cused mainly on methodological issues. From a historical
86
perspective, the early work mainly dealt with the choice
of a segmentation base in an unordered fashion, with
much of the work suggesting new choices. The Johnson
and Flodhammer [29] model is a recent typical example
of that approach. The work of Frank, Massy, and Wind
1201 and Wind and Cardozo [60] indicate a two-step
approach to segmentation base selection. The most re-
cent approach of Bonoma and Shapiro [S] is also a
multistep approach and is more than just a simple exten-
sion of the two-step model.
Key Issues in Industrial Market Segmentation
In developing a normative theory or model of market
segmentation the author of each model proposes to the
reader that this is what they should do to segment indus-
trial markets. The purpose of a normative industrial mar-
ket segmentation model is to guide the practitioner.
Wind 1591 has developed an evaluative framework that
identifies five major phases of segmentation research
with various subphases. They include problem defini-
tion, research design, data collection, data analysis, and
data interpretation and implementation. A modified ver-
sion of this framework is utilized here. The modification
involves several changes that expand and clarify the issue
of managerial needs. Table 2 outlines this framework.
The overall perspective will be to analyze the field in
general terms and not in terms of each model against one
another.
MAJOR CONSIDERATIONS IN EVALUATING
INDUSTRIAL MARKET SEGMENTATION
Managerial Requirements
Wind 1591 has addressed the issue of managerial re-
quirements from the standpoint of a perceived difference
TABLE 2
Major Considerations in Evaluating Industrial
Market Segmentatiow
A. Managerial requirements
B. Baseline ~crsus ongoing segmentation
C. The segmentation model
D. The unit of analysis
E. Operational definitions
F. Sample design
G. Statistical rellabtlity and validity
H. Segment stability and homogcncity
I. Technical segmentability of the market
J. Primary vcrsu\ sccondq wurces
K. Data analysis
L. Data interpretation and strategy Implementation
~‘Source: adapted from Wind [59].
between normative segmentation models in general and
what is being done by the firm in practice. He states that
normative models of market segmentation do not address
the same question as “real world” segmentation studies
do. To quote:
understanding management’s use of and difficulties in
operationalizing segmentation, . is thus a necessary
first step toward reevaluation of the normative theory of
market segmentation.
It is useful to be more explicit and define in a broader
sense some of the managerial requirements. Three issues
have been chosen-conceptual segmentability, total in-
formation needs of the firm, and budgets and other con-
straints. Although the three chosen are not all encom-
passing, they are certainly important. The conceptual
segmentability of the market asks when is it possible
conceptually to segment a market, meaning under what
Managerial requirements are not
considered in discussions of industrial
market segmentation.
conditions. Most of the work has assumed that markets
can be segmented. Johnson and Flodhammer [29] give
the marketer some idea of when markets can be seg-
mented. The Bonoma and Shapiro [5] work does not
explicitly consider this. Most of the empirical work has
merely assumed that it could be done and has gone on to
demonstrate how. The narrow definition developed in
Kotler [33] appears to have some effect on the lack of a
complete assessment of managerial needs. As an exam-
ple, Bonoma and Shapiro 151 develop an argument for
the importance of market segmentation and state that it is
done with three end results. The first is to analyze the
market and understand it. A second is to select a target
market. A third is to develop marketing strategy. Wind
and Cardozo [60] are not as explicit, but their model
clearly is in the same frame of reference. Issues of
implementation of strategic segmentation plans are ig-
nored. Yet this is clearly a legitimate concern for the
industrial marketer. The issue of the budget has not been
considered in any great detail. Wind and Cardozo [60]
include a consideration of corporate resources and objec-
tives and also discuss the selection of microsegments
based on costs and benefits. Little direction is given in
defining these and the empirical literature does not give
the issue any explicit consideration. In general, it appears
that managerial requirements are not considered in dis-
cussions of industrial market segmentation. A glaring
omission is the issue of the implementation of strategic
segmentation plans.
Baseline Versus Ongoing Segmentation
Wind [59] notes that much of the segmentation prac-
tice is concerned with one-shot baseline studies and that
ongoing research after these baseline studies often ig-
nores the original results. This is reinforced in the discus-
sion of different diffusion rates in different markets by
Wind, Robertson, and Fraser [62]. This problem also
occurs to some extent because of the issue of the defini-
tion of market segmentation. There are no discussions of
feedback loops or other dynamic considerations, with the
exception of Choffray and Lilien [ 121, who eventually tie
their work to the new product development process. Yet
even they do not address the issue of what segmentation
to do as the product moves through the product life cycle.
Tying into total information needs, what is being ad-
dressed is the fit of the segmentation process into the
marketing information system. This has not been ad-
dressed from the perspective of market segmentation at
the industrial level. A review of the marketing informa-
tion systems’ literature as contained in a recent readings
book [44] indicates that this perspective has also not
addressed this issue. This brief discussion clearly again
points out the need for a reconceptualize market segmen-
tation from the standpoint of which definition provides
the best normative direction.
The Segmentation Model
Most of the effort in the area of developing a nor-
mative model of industrial market segmentation has dealt
with the specification of the model, segmentation base
choice, and to some extent descriptor choice. However,
nearly all of the work has been based on some facet of the
a7
industrial buying process. Each effort has had an explicit
formulation based on some model of how organizations
buy, rather than the firm’s requirements. More work has
been done on the bases of customer requirements and less
on how firms buy.
With the exception of the work done by Green [23] all
previous segmentation models are based on u priori or
cluster-based designs. Both the Wind and Cardozo 1601
mode1 and the Bonoma and Shapiro 151 model are exam-
ples of contingency models, but neither model does an
effective job of giving guidance on what to base the
contingencies on. The literature has not developed any
generally accepted guidelines on choosing bases or what
descriptors are going to be truly relevant. Wind I.591
comments that there is probably no one best segmenta-
tion base for all possible situations and Bonoma and
Shapiro [5] agree with this assessment. However, the
industrial marketer has little to base a decision on.
The Unit of Analysis
The unit of analysis in industrial market segmentation
is greatly varied. In some cases it has been a group of
firms or an industry. In other cases it has been the
individual firms. Decision-making units within the firm
and the individual factors have also been used or sug-
gested. Regardless of which unit was being used, the
analysis has always been on an interfirm basis. A major
conceptual weakness is the lack of an intrafirm analysis,
a point certainly apparent when one considers manage-
ment needs in targeting individual firm strategy imple-
mentation. The three categories of models all give some
direction to unit of analysis.
Operational Definitions
As Wind I.591 notes, the choice of operational defini-
tions is critical. The major conceptual models are mixed,
with Bonoma and Shapiro [5] more critical in this area
and Wind and Cardozo (601 and Johnston and Flodham-
mer 1291 giving less attention. The empirical literature
has taken more care in defining what the operational
definitions are. Open-ended interviews of a personal
nature have often been used to ensure adequate opera-
tional definitions. Since no comparisons have been made
of different operational definitions of the same concept,
this issue remains clouded.
Sample Design
The major empirical works appear to carefully follow
good sampling practice. As an example, Wind, Grashof,
and Goldhar (6 1 ] used a stratified random sample among
88
18 SIC codes stratified by size of the firms, in terms of
the number of employees. Care is taken about extending
results based on the nature of the sample. As a matter of
convenience, most sample-based designs have been very
specific and narrow, which limits the applicability of the
findings. Also there has been no reported replication of
any of the empirical works, thus limiting the gener-
alizability of most of the findings.
Statistical Reliability and Validity
Perhaps the major advance in empirical marketing
studies over the last decade has been the development
and use of reliability and validity tests based on the
psychometric literature. It is doubted that commercial
studies go that far, but information is lacking. Of course,
none of the conceptual models give any direction in this
area. Silk and Kalwani [48] have made a recent contribu-
tion to this area by looking at reliability of measures of
influence in organizational purchase of research designs
in this area. Although some significant progress has been
made, a great deal more needs to be done.
Segment Stability and Homogeneity
Segment stability has been ignored both conceptually
and empirically, as there has been no longitudinal work,
nor any suggestions for same. Segment homogeneity is
not a topic that has been addressed by industrial market
segmentation schemes. It is generally treated as a statis-
tical problem in empirical work.
Technical Market Segmentability
Generally it has been assumed that a market can be
segmented by using the research design chosen. The
choice of bases and the arguments for them revolve
around their technical ability to segment the market.
Both the approaches of Wind, Grashof, and Goldhar [6l]
and Choffray and Lilien [ 1 I ] are developed around the
ability of the design to segment the market in a reliable
manner. An advantage of the COSEG procedure is that a
numerical segmentability index can be developed before
application of the mode1 in a large-scale study 1231. A
recent article by Tollefson and Less& 15 II points out the
fact that a great deal more work needs to be done. The
authors note that many of the measures that are used to
form segments, such as differing elasticities, appear to be
erroneous.
Primary Versus Secondary Data
Clearly the choice of data usage generally depends on
the base to be used in segmentation and the nature of the
descriptors desired. Both the Wind and Cardozo [60] and
Bonoma and Shapiro [5] models make a point of first
accessing secondary data to develop segments before
accessing harder to obtain primary data. Bonoma and
Shapiro delineate this issue with the multiple nest system
and explicit cost considerations. Secondary data collec-
tion and analysis has generally been standardized, based,
to a large extent, on the work of Hummel [26, 271.
Empirical studies such as those of Spekman [SO] used
standard procedures.
In industrial market segmentation, most primary data
is collected via personal interviews or mail question-
naires. It is recognized that industrial market collection is
generally more difficult than consumer market for vari-
ous reasons. The major reason is defining decision-mak-
ing groups and learning the customers’ requirements.
There do not appear to be any existing panels, except in
the drug industry, and data collection is much more
expensive in industrial markets than in consumer mar-
kets. Currently some advances are being made. Moriarity
and Bateson [38] look at the issue of data collection. The
authors look at the applicability of using the telephone to
lower the costs of data collection. In the major empirical
works, the data collection techniques are geared to the
statistical technique and not to the accuracy of the
information.
The most difficult aspect of any
segmentation approach is the translation
the study results into a strategy.
Data Analysis
Industrial market segmentation has had far less atten-
tion to data analysis than has consumer market segmenta-
tion. The basic normative models give little prescriptive
advice in this area. The major empirical works are u
priori or cluster-based designs and hence data analysis
techniques are limited to those applicable to that type of
design. Wind, Grashof, and Goldhar [61] utilize conjoint
analysis in a benefit-type segmentation at the micro
level. Choffray and Lilien [ 1 l] utilize cluster analysis.
Green [23] uses a type of conjoint analysis. Spekman
[50] uses factor analysis. Each type of data analysis
appears adequate for the situation it is used in. No com-
parisons among data analysis techniques in similar or
identical situations have been attempted.
Even less work has been done in the area of segment
descriptor discrimination. All of the major empirical
works to date have utilized multiple discriminant analy-
sis. Given the problem at hand and the designs of the
studies, this methodology does appear to be an effective
solution. Nevertheless, there are some obvious weak-
nesses such as trying to compare two sets of alternate
discriminators against one another to see which set might
do the best job of discrimination. Dillon [ 151 has noted
the problems of using linear discriminant analysis on
certain types of data. Bajgier and Hill [4] have developed
an experiment which demonstrates the potential effec-
tiveness of linear programming as an alternative to gener-
al discrimination problems.
Data Interpretation and Strategy
Implementation
Little work has been done in this area. Determining the
number of segments has usually been a function of the
design of the segmentation study or strictly a statistical
problem. It appears to be treated as an “art” in the minds
of the practitioners, and yet it is obviously more than
that. From a conceptual standpoint, Bonoma and Shapiro
[5] look at the economic aspects of industrial market
of
segmentation. Wind and Cardozo [60] note that selection
of segments is a cost-benefit analysis. A great deal more
work needs to be done in this area.
Wind [59] notes that the most difficult aspect of any
segmentation approach is the translation of the study
results into a strategy. A major reason for this appears to
be in the limited definition of market segmentation as
strictly a market analysis tool. A recent article by Wen-
sley [56] notes the confusion in the area of strategy
formulation. On a conceptual level, Bonoma and Shapiro
[5] appear to do the best job of considering this important
issue. The major weakness with their approach is the lack
of the consideration of the operational capabilities of the
marketer. Strategic plans are only as good as their imple-
89
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91