Value analysis, as developed by General Electric, involves a step-by-step procedure

1. Selection. A product that is ripe for improvement is selected for value analysis. 2. Information gathering. Drawings, costs, scrap rates, usage forecasts, and operations sheets are collected by the team coordinator before the team first meets. Team members are asked to send in whatever information they have. 3. Function definition. The team meets and defines each function of the product. A function is defined in two words, a verb and a noun (e.g., a flower pot contains soil). Only essential functions are included. Next the team determines the present cost of each function. This reveals which functions represent major expenditures.


Generation of alternatives. Team members suggest ideas for new and different ways to accomplish the functions. This is known as brainstorming. All ideas are recorded and later culled to a list of manageable size. Evaluation of alternatives. Alternatives are evaluated or various factors, including feasibility and cost. This further reduces the list to one or two good ideas. Presentation. The final alternatives are refined and presented to a management into an analysis change proposals. Implementation. The approved value analysis change proposal is translated into an analysis change order and implemented.




should we focus on companies that are seeking quality? service ? price? Situational Factors • Urgency . light users or non-users? • Customer capabilities : should we focus on customers needing many services or few services? Purchasing Approaches • Purchasing function organization : should we focus on companies with highly centralized or decentralized purchasing organizations? • General purchase policies: should we focus on companies that prefer leasing ? service contracts? systems purchases? sealed bidding? • Purchasing criteria. should we focus on companies that need quick and sudden delivery or service? • Specific application : should we focus on certain applications of our product rather than all applications? • Size of order: should we focus on large or small orders? Personal Characteristics • Buyer-seller similarity: should we focus on companies whose people and values are similar to ours? • Attitudes toward risk: should we focus on risk-taking or risk-avoiding customers? • Loyalty: should we focus on companies that show high loyalty to their suppliers? suruchi@vsnl.Demographic • Industry : which industries that buy this product should we focus on ? • Company size . MAJOR SEGMENTATION VARIABLES FOR INDUSTRIAL MARKETS . what size companies should we focus on ? • Location : what geographical areas should we focus on ? Operating Variables • Technology : what customer technologies should we focus on? • User/non-user status : should we focus on heavy.

SUPPLIERS BUYERS Company Manufacturers FACILITATORS MARKET SEGMENTS Government Users Labor Capital Raw materials Component parts Equipment Distributors Dealers Manufacturer’s representatives distributors/dealers Transportation firms Advertising agencies Marketing research firms Banks and insurance companies Commercial Market Enterprises OEMS Industrial distributors Institutions Competitors .

Develop product/ market positioning for each target market selected. relevant. and operational variable for segmenting the market. Profitability analysis b. Competitive analysis 2. 2. Differentiated c. Evaluate resulting macro/micro segments: a. Define macro profiles of resulting segments. Identify measurable. Undifferentiated b. Select the target segments(s). 1. 3. FIGURE B-1 A Market segmentation and product positioning Model . Decide on market coverage: a. Develop marketing mix for each target market selected. Concentrated 3. Define micro profiles of resulting macrosegments 1. 2.Market Segmentation Target Marketing Product Positioning 1.

age of customers’ plant. transportation. and suburban/ urban/ rural location Plant characteristics Location . state of plant. and number of plants sold Size of customers’ plant. manufacturing. mining. and degree of automation Distance from plant.TABLE 8-1 Some Macro Variables Used to Segment the Industrial Market Variables Industry Organizational characteristics Size characteristic Examples Agriculture. wholesale. size of customers’ business. services Size of customers’ parent company. construction. inventory turnover. retail. finance.

ease of entry in to customers’ industries. federal/ state highway maintenance departments. and airplane manufacturers Competitive forces Purchasing factors End-use markets Product application . banks/ insurance/ brokerage houses Small appliance. television. and number of levels of purchasing authority Residential/ commercial contractors.Economic factors Customers’ industry Cyclicality of customers’ industry Growth rate of industry and customers’ growth stage within the industry. foresters. ultimate customer of customers’ product Degree of competition in customers’ industries. and ease of customer switching Decentralized versus centralized. coal/ore miners. computer.

Segmenting Customers in Mature Industrial Markets : An Application Segment is the art of identifying distinctive customer groups that exhibit homogeneous needs. A Number of bases for segmentation have been offered in the literature. The point of segmentation is to be able tailor the marketing mix to address the unique needs of the various segment. . including.

Customer decision-making style. Customer buying behavior . standard industrial classification code. Product end-use or application.Demographic descriptors such as geography. and Customer benefits . and account size. Buying situation.

Figure 1: Potential Buying Behavior Segment High A Price Low Low B Value Axis C D High Market Power Axis Cost-to-Server .

For industrial plant managers: Kevlar could replace the asbestos used for packing pumps. . For aircraft designers: Kevlar had a high strength-toweight ratio. and the ability to carry fish weight.SEGMENTATION VARIABLE FOR KEVLAR For potential fishing boat owners: Kevler’s lightness promised fuel savings. increased speed.

Relative Price was a measure of the higher of the lower price that an account paid relative to Signode’s other national account. tools. 2.Buying Behavior Variables From In-House Documents 1. Signode’s managers identify three important component in service 1)field sales calls.3%. and repair work and 3) application and engineering service. . 2) unbilled parts. Relative Service was a measure of the higher of the lower service that an account received relation to other national account. Average discount ranged from 0% to as much as 11.

we computed Signode’s market indicator of the buyer’s preference for.3. Account Size: While various aspects of account size have been identify as influencing buying behaviors. as well as reliance on. Market Share: A deferent measure of dependency is a single supplier’s proportion of business in the buyer’s total purchase of a product catalog. Signode’s product. . Knowing Signode’s actual sales to the account. We measured account size simply as the total purchase volume of all Signode products in the most recent 12 month. 4. We measured this as Signode’s share of dollar sales volume for each account .

For decrease in price For increase in price For decrease in service For increase in service Product importance : Depending on the application extent of usage. 8. 6. the importance of steel strapping varied over Signode’s national accounts. 7.Buying Behavior Variables From National Account Reps and NAMs 5. 9. .

. customers very substantially in their knowledge of competitive product and prices. they search for information in varying degrees. Decision-Making Process (DMP): The complexity of the buying decision-making process is a reflection not only of product and vender characteristic but also of the buying organization’s priorities and purchasing strategies.10. Market knowledge: Regardless of the stage of market maturity. Switching potential: Over the years several customers had built a trusting relationship with Signode because of the product of the product or the service or both 11. 12.

8 6. Percentage decrease in sales for 15. 5 22.100.3% 11. Relative service 3. Account size (sales) 4.000 67. 6 Segment 2 # of Accounts =65 -7. 5 price raise 27. 9% 4. 3% 7. 8% 8. Percentage increase in sales for price drop Segment 1 # of Accounts =54 0. 1 $2.7 Segment 4 # of Accounts =11 -11.000 71.000 54. 6 $1. Relative price 2. 2% 5. 0% 3.000 68.100. 9 24. Market share 5. 1% 5. 6 $122. 9% 8. 9 Segment 3 # of Accounts =22 -10. 7 .Mean values of the buying behavior variables are shown for each microsegment in Table 2 Table 2 Group Means Behavior Surrogates 1. 9 $472.

0 3. 5 4. the clustering algorithm omitted nine cases as outliers. 3 8. Switching potential 11. 5 12. 6 3. 5 3. 2 12. 4 Notes: Of the 161 complete data records.Behavior Surrogates 7. 7 3. . Product importance 10. 5 4. 2 3. 0 5. 8 4. 2 7. 5 4. 8 and 9 this is percentage increase or decrease for a unit of service change. 0 4. 6 3. 3 3. 5 and 6: this is percentage increase or decrease in sales for a 7% price change. 6 4. Percentage increase in sales for services raise 1. DMP complexity 2. 3 9. Percentage decrease in sales for services drop Segment 1 # of Accounts =54 Segment 2 # of Accounts =65 Segment 3 # of Accounts =22 Segment 4 # of Accounts =11 5. 2 3. 5 3. Market Knowledge 12. 4 4. 1 9.

Decreasing services is profitable programmed buyer microsegment because the estimated sales drop in 5. It exceeds the break-even of 8% in all other segments (see row 7 in Table 2). It is far below this number for all other microsegments (see row 8 in Table 2) . Increasing price is profitable programmed buyer microsegmentsales decrease of only 15.5% compared with a break-even of 20%.3% compared with a break-even of 8%. It exceeds the break-even number for all other microsegments (see row 6 in Table 2).1%. Decreasing price is unprofitable for Signod because the estimated increase in sales is far below the required 20% for every microsegment in Table 2 (see row 5 in Table 2). and Increasing service is barely profitable in the bargain hunter microsegment-sales increase of 7.

. Compared to those in the other three micro segment. they were more knowledge about competitive offerings. The product it self was moderately important in their operations.Buying Behavior Microsegments 1. Customers in this micro segment were also relatively small. Segment 2 : Relationship Buyers. Segment 1 : Programmed Buyers. Customers in the micro segment were small and viewed the product as a routine purchase item. 2. and unlike the programmed buyers of segment 1. They had the lowest average sales of any group and were not particularly price or service sensitive. these customers had the lowest market share of Signode products.

They received price discounts averaging about 10% and an above-average service level. . Segment 3 : Transaction Buyers.3. Customer in the micro segment were large-volume customers that received the largest price discount (averaging 11. Segment 4 : Bargain Hunters. twice as large as the relationship buyer. Customer in the micro segment were. on average. they had the highest sensitivity to decreases in services. 4.3%) as well as the highest level of services.

3% (discount) Core Product Buyers Segment # 3 Transaction Buyers Sales = $25 million Segment # 4 Bargain Hunters Sales = $ 23 million Market Power Axis 0 2.Figure 2 : Segment Profile Segment ! 0% (discount) Segment # 2 Relationship Buyers Sales = $31 million Augmented Product Buyers Relative Price Value Axis -11.5 10 .5 5 7.

but nevertheless a few variables could provide rich diagnostics for management actions. the segment descriptor variable and dimensions are likely to very across applications. . they are welling to pay higher prices. We hypothesize that the seller’s profit would be roughly equal for accounts located on this axis. the seller’s profit are likely to be higher in the northwest and lower in the southeast quadrant compared with the diagonal axis. Obviously. however represents an axis of product differentiation. As can be seen from the figure.Conclusion Following the analyses at Signode. The cross diagonal. is capable of unearthing a rich subsegment of behaviors in industrial accounts. the diagonal equates the price to cost-to-server for the seller. Clearly. customer who demand and get high level of services for low prices must have alternatives. such as the two-dimensional plot of price versus cost-to-server in Figure 1. we believe that even a simple framework. just as those customer who pay high prices most find the product attractive even though they do not receive the full battery of services.when customers want services (augmented product). Understandably.

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