Business Market Segmentation (P)

Prof. A. K.
Biswas 1
Agenda
 What are the Unique Aspects of
Business Market Segmentation?
 What are the Models of Industrial
Market Segmentation?
 How Business Market Segmentation
Should be Done?
 How to Select Market Segments to
Serve?
Prof. A. K. Biswas 2
What are the Unique Aspects of
 A business firm must define the market
in which it wishes to operate.
 In defining the market, business market
managers choose descriptors (bases)
that characterize and delimit a market,
with the intent pinpointing groups of
firms that are of greater interest to the
supplier firm.
What are the Unique Aspects of
 The difference between consumer and
industrial market segmentation is
generally seen in the specific bases of
segmentation.
 Consumer markets are typically
segmented on the basis demographic or
psychographic variables.
 As the industrial customer is not an
individual but a number of interacting
individuals in a decision making unit
(DMU) of a formal organization, the
bases of segmentation are different.
What are the Models of Business
Market Segmentation?
Wind and Cardozo Model

 Bonoma-Shapiro Model
Wind-Cardozo Model Of Business
Market Segmentation
Given a generic
product/service
Identify macro-segments
based on key organizational/
product characteristics
such as:
•Size
•Usage Rate
•Application of product
•SIC category: market served
•Organization structure
•Location
•New vs. repeat purchase
Wind-Cardozo Model of Business
Market Segmentation
Select a set of acceptable macro-segments
Evaluate each of the selected macro-

segments on whether it exhibits distinct
response to the firm’s marketing stimuli
If it does not, identify within each

acceptable macro-segment the relevant
micro-segments based on key
DMU characteristics.
Select the desired target micro-segments

based on their costs and benefits
associated with reaching the segment
Market Segmentation
DMU may differ with respect to

the composition and position
within a firm.
their decision making behaviour.
Market Segmentation
DMU may differ with respect to:
the importance they attach to the
purchase of a particular item;
the relative weight they attach to
such purchase variables as price,
quality, and service;
their attitudes towards particular
vendors;
the specific rules they employ to seek
out and evaluate alternative
offerings.
Market Segmentation
 The three clusters of segmentation
bases as per Wind-Cardozo are:
 Organizational characteristics
 Product characteristics
 DMU characteristics
 Marketers use two sets of criteria
to evaluate these clusters:
 Difficulty of implementation
 Appropriateness
Market Segmentation
 The difficulty of implementation
criterion consists of a set of three
criteria:
 Cost of identifying segments
 Acceptance of the bases of
segmenting by marketing personnel
 Ease of identifying segments and
differentiating marketing programs
Two-Dimensional Configuration
Of Nine Bases Of Segmentation
Easier to Organizational
Characteristics
Implement 1
Industry type
DMU
Characteristics 2 4
6 Size of Firm Frequency and
Buyer’s Size of Purchase
Identity 3
Geographic Least
Most
Location Appropriate
Appropriate 8 5
Source End Use
Loyalty
9 7
Buyer’s Specification
Personality of Project
Difficult to Product
ImplementProf.Characteristics
A. K. Biswas 12
Wind-Cardozo Model of
Business Market Segmentation
 According to appropriateness
dimension, the DMU characteristics is
the most appropriate followed by
organizational characteristics and
product characteristics perceived as the
least appropriate.
 On the other hand organizational
characteristics are the easiest to
identify though not the most
appropriate.
Wind-Cardozo Model of
 Based on empirical evidence, Wind and
Cardozo argue that marketers often use
inexpensive and acceptable means of
segmentation, which they consider
much less appropriate than what they
would like to use.
 For examples, DMU characteristics are
seen as very appropriate, yet are not
currently used as bases of segmentation.
 Organizational characteristics appear to
be used more widely now than may be
appropriate.
Bonoma And Shapiro Model Of
Organizational demographics:
Industry/ Company size/ Location
Operating variables:
General, observable Technology/User status/Customer
(Macro) capabilities (financial)
Purchasing approaches
Organization of DMU/Purchasing
policies/Purchasing criteria
(Intermediate) Situational factors
Urgency/Applications/Order size
Personal characteristics:
Specific, subtle Motivation/Buyer-seller dyad/
(Micro) Risk perceptions
 A marketer can begin at the
outside nest and work inward
because data are more available
and definitions clearer in outer
nests.
 On the other hand, situational and
personal variables of the inner
nests are often the most useful.
 The outer-nest criteria are generally
inadequate when used by themselves in
all but simple or homogeneous markets
because they ignore buying differences
among customers.
 Over emphasis on the inner-nest
factors, however, can be too expensive
and time-consuming for small markets.
 A balance is to be achieved between the
two nests.
What is the Problem with these
Market Segmentation Models?
 Both the models help us in profiling the
business firms – their emporographic
details, and their behavioral
characteristics.
 However, they do not answer the
question what these customers want.
 The problem is that customers don’t
conform their requirements to match
with those of the average customer in
their emporographic and behavioral
segment.
How Market Segmentation
Should be Done?
 The structure of a market, seen from
the customers’ point of view,
whether a individual or business
firm, is very simple:
 They just need to get things done.
 When people find themselves
needing to get a job done, they
essentially buy products to do that
job for them.
Should be Done?
 When choosing between competing
offers, customers select the offer that
meets their needs (to get things done)
better than any other at the price they
are willing to pay.
 Value or benefits (the ability of getting
the job done) that people seek in
products are the basic reasons for the
heterogeneity in their choice behaviour,
and benefits of the product are thus the
most relevant bases for segmentation.
Should be Done?
 Earlier marketers used to succeed by
providing superior products and other
distinctive functional benefits.
 Today this is no longer enough, for such
benefits can readily be imitated.
 The solution is to emphasize process
benefits (which make transactions
between buyers and sellers easier,
quicker, cheaper, and more pleasant) and
relationship benefits (which reward the
willingness of consumers to identify
themselves and to reveal their purchasing
behavior).
Should be Done?
 However, it is no doubt more difficult for
managers to implement the benefits-
oriented approach of market
segmentation.
 One possible solution to this problem is
to provide opportunities to individual
customers to design their own products
and services by choosing from a menu of
attributes, components, prices, and
delivery options.
Should be Done?
 This facility can be provided through a
choiceboard - an interactive on-line
system.
 Cisco Marketplace is an on-line
configurator that allows corporate
customers to create the precise
combination of data networking gear
they need.
 Dell’s choiceboard allows individual as
well as corporate customers to exercise
their options in the personal computer
realm.
Should be Done?
GE Plastics: The GE Plastics Design
Solutions Center lets customers use
design tools to develop unique,
customized products that then can be
purchased on-line.
 GE Polymerland: The Polymerland Web
site provides customers with digital
tools that make choosing, ordering, and
tracking plastic products easy, fast, and
cost effective.
Should be Done?
 A choice board model of doing business
with individual customers becomes
possible in any industry when a system
of accessible, integrateable components
is available from which customers can
select and combine options based on
their own priorities.
 The choiceboard enables customer self-
segmentation, which is fast, cost-
efficient, and far more precise than
traditional manufacturer-imposed
segmentation.
Should be Done?
 Segmentation in business markets
should, in fact, be increasingly
thought of as a negotiable and
bilateral ‘fit-seeking process’ where
suppliers frame tentative segments
(based on initial research) subject to
exploration with well-placed key
managers in those customer firms.
Should be Done?
This would encourage the development
of evolutionary segmentation that
focuses not only on customer needs, but
also on supplier needs.
The process would also help to develop
the sort of long-term relationships
between supplier and customer that
help to ensure that suppler offerings are
developed in line with customer
expectations and needs.
Should be Done?
 There are also instances where
customers select suppliers that meet
particular criteria (e.g., quality, financial
stability, delivery reputation,
collaborative product development
strategies, etc.).
 By implication, a supplier able to exhibit
appropriate ‘reverse segmentation’
criteria to a customer can become
significantly more attractive.
How to Select Market
Segments To Serve?
Selection of market segment to serve
has to be on the basis of the fit
between:
the attractiveness of the segment,
the key success factors for operating
in the segment, and
the company’s relative ability to
compete in the segment.
The company also needs to consider
the competitive reactions it might face
if it decides to compete for a segment.
Segments To Serve?
Segment attractiveness depends
on:
Size and Growth of the segment
Structural Characteristics of the
segment such as competition,
segment saturation, profitability,
protectability, environmental risk
etc.
Segments To Serve?
 Key Success Factors (KSF) for a
segment could be
 Product Quality
 Brand Reputation
 Technology Requirement
 Cost Structure
 Distribution System
 Quality of Service
 Financial Capacity
Segments To Serve?
Company Objectives
Compatibility with company goals
Relationships with other segments
Profitability
Resources and Capabilities of the
Company and Competitors
Ability to conceive and design
R & D Capability
Existing Patents and Copyrights
Access to new technologies through
third parties
Segments To Serve?
Ability to Produce (Quality &
Quantity)
Production Technology
Production Capacity
Flexibility in Production
Cost Competitiveness
Ability to Market
Brand Reputation
Distribution Strength
Service Strength
Segments To Serve?
Ability to Finance
Access to Capital from Operations
Ability to Use Debt & Equity Finance
Parent’s Willingness to Finance
Ability to Manage/Execute
Quality of Management
Quality of Decision Making
Innovativeness
Organization Culture
Segments To Serve?
 In consumer markets, choice of
customers whose needs the organization
will satisfy with products involves
selection of only horizontal market
segments as this is the final transaction
stage and is fixed.
 But in business markets, because
intermediate transactions are involved, a
firm must first choose the stage in the
value-adding chain before selecting the
horizontal market segments.
A Value Adding Chain
Involving Isopropanol
Acetone
Coatings
Chemical
Propylene Isopropanal Plastics
Intermediates
Agricultural
& Biological
Chemicals
Other
Segments To Serve?
 Consider the value-adding chain
schematically shown in the previous
diagram.
 An organization would have to decide
whether to sell propylene, isopropanol,
isopropyl acetate (chemical
intermediates), and/or plastics.
 The stage in the value-adding chain
where it decides to sell its output
represents its choice of output markets.
Segments To Serve?
 Suppose the organization chooses to
sell isopropanal.
 It must now decide whether to sell to
producers of acetone, chemical
intermediates, coatings, agricultural and
biological chemicals.
 The latter decision reflects the
organization’s choice of macro-
segments and represent one aspect of
horizontal market choice.
Segments To Serve?
 In addition, micro-segments, which
consist of organizations similar in their
buying behaviour, must be selected to
complete the horizontal market choice
decision.
 Given customer needs in the output
markets selected, the organization must
decide the form of product required to
satisfy these needs and the process
used to make it.
Segments To Serve?
 These choices determine the
organization’s make/buy decisions
concerning the value-adding activity to
be performed internally within the
organization and supplies to be bought
in the input markets.
 Choice of output markets, the value
adding performed by the organization,
and input markets constitute the
vertical market decision.
Segments To Serve?
 Vertical market choice is consequently
an important element of firm strategy
and may be examined in terms of
organizational strengths and
weaknesses versus environmental or
market opportunities and threats.
 The opportunities and threats may take
the form of changes in supply markets,
changes in competition, and changes in
output markets.

Business Market Segmentation (P)

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Prof. A. K.

Wind and Cardozo Model

Evaluate each of the selected macro-

If it does not, identify within each

Select the desired target micro-segments

DMU may differ with respect to

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