market segmentation

MARKET SEGMENTATION

E.ANANDLECTURER

BIET - MBA PROGRAMME, DAVANGERE

NATURE OF MARKET SEGMENTATION

BASIC CRITERIA: Market and its specific segments must be

Measurable: Information on location and other characteristics of buyers must be available.

Substantial / Significant: The given market or the market under study must be sufficiently large in size and should have like future potential too.

Stable:This means that customers have staying power and that a relationship can be established between supplier and clients.

NATURE OF MARKET SEGMENTATION

Accessible: This means that supplier can retain old customers and pinpoint new ones.

Compatible: It is the degree of similarity between buyer and seller in terms of risk taking, service standards and corporate style.

Ex: Tata Automobiles (Tata buses)

Private SectorBy type of Organization

• Companies• Proprietors• Partnership Companies

By type of Sector• Manufacturing• Service • Primary - Ex. Mining

Public SectorBy levels

•Central Government Departments

•State Government Departments

•Central Government Controlled Organizations

•State Government run organizations

Institutions

•Non Governmental Organizations

•Social Welfare Organizations

•Educational Institutions•Research Centres•Associations

Large Medium & Small Large Medium

& Small Large Medium & Small

Civil Defence

Size of Operation

Sector or Industry

Global Presence of Tata Automobiles

BASES FOR SEGMENTATION“THE FIRST STEP IN ANALYZING INDUSTRIAL MARKET IS TO DIVIDE IT....”

Is there a single route for segmentation like (location wise) or dual bases (location and sector) or multiple bases (industry, size and order etc.)

Is there a ideal or fixed selection of base for segmentation?

Most of the organizations segment on two bases: Location & Sector as it is easy to segment on these two bases.

NESTED LOOP APPROACH TO SEGMENTATION

Personal Characteristics

• Motivation• Buyer/Seller Relationship• Risk Perceptions

Situational Factors

• Urgency• Application • Size of Order

Purchasing Approaches

• Organization of Decision-making unit• Purchasing Policies• Purchasing Criteria

Emporographics

• Industy• Size of the Company• Location

Operating Variables

• User-Nonuser Status• Customer Capabilities (Financial)• Technology

General, Observable,

Objective (MACRO)

Specific, Subtle, Subjective (MICRO)

Intermediate

MACRO BASES (EMPOROGRAPHICS)Emporographics is to Industrial markets as Demographics is to Consumer markets. Emporographics encompasses macro bases - Size of buying unit, Type of industry and Location.

SIZE OF BUYING UNIT

- Which companies get maximum coverage in newspapers, BW 500, BT 500

- Globally Fortune 500 companies

- Turnover exceeding 50 crores are considered as Large companies in India

- Turnover not exceeding 50 crores are considered as Small & Medium size companies

- Giant companies are recognized by their huge employee population, physical assets and sales

- Medium & small size companies always try to supply wide variety of goods and services to Large companies

- These finally divest or else get merged into large ones or bought by large companies

- Small vendors supply to large and medium size companies even though there is less compatibility

- Small companies usually prefer business deals with companies of similar size

- These small companies usually can be referred to Business directory of the city

TYPE OF INDUSTRY

CONFEDERATION OF INDIAN INDUSTRY (CII)

TYPE OF INDUSTRYSECTORS AS MENTIONED BY FICCI - FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTY

! Advertising & Marketing, ! Apparel, ! Agriculture, ! Art and Business of Art, ! Aviation, ! Banking &

Financial Institutions, ! Biotechnology, ! Brand Protection, ! Capital Goods, ! Capital Market,

Communication & Digital Economy, ! Chemicals, ! Corporate Laws & Governance, ! Convergence, ! CSR &

Community Development, Defence, E-Business, Education, !Electronics Hardware, !Entertainment, ! E n v i r o n m e n t , !

Food Processing, ! Foreign Trade, ! FICCI Boating Forum, ! FICCI Trade Facilitation Forum, FICCI Young Leaders

Forum, ! Financial Inclusion, ! FMCG, ! Food Processing, ! Foreign Trade, ! Gems and Jewellery, ! H e a l t h , !

HRD, ! Hydrocarbons, ! Health Services, !Higher Education, Information Technology, ! Infrastructure, ! Insurance &

Pensions, ! Intellectual Property Rights, !Innovation, ! Labour, Employment, Skill Developments, ! Lifestyle

Forum, Logistics, ! Manufacturing, ! Mining & Minerals, ! Non-conventional Energy, ! Pharmaceuticals, !

Power, ! Real Estate, ! Resource Conservation & Management Group, Retail, Rural Development, ! Renewable

Energy, ! Science &Technology / Innovation, ! Small and Medium Enterprises (SME), ! Sports, ! Taxation, !

Telecom, ! Tourism, ! Urban Development, ! Working Group on Civil Nuclear, Water Resources

TYPE OF INDUSTRYNIC INDUSTRY CODE - 1998 & http://mospi.nic.in/nic_1998.htm

TYPE OF INDUSTRYNIC INDUSTRY CODE - 1998 & http://mospi.nic.in/nic_1998.htm

TYPE OF INDUSTRYNIC INDUSTRY CODE - 1998 & http://mospi.nic.in/nic_1998.htm

GEOGRAPHIC LOCATIONPinpoint the resources or facilities of a given industry. Like identify where are mills, mines, offices etc. where your product can be sold.

Location of industries would vary from resource(raw materials)-centric industries to customer-centric industries. Location of industry depends on which stage the material is in the processing of it?

ADB or WB sites give lot of information - region-wise (best sources for identifying regions of your interest). Knowing which mineral is mined in which area would be useful data.

COMBINING SIZE, LOCATION & INDUSTRYIBM has identified several small businesses which might use their products and services.For textiles - which area would you target?

Can you do segmentation for:

i) Asian Paints ii) HP productsiii) Helicopter company which is planning to start selling in India.

THE INTERMEDIATE BASES FOR SEGMENTATIONOPERATING VARIABLES

USAGE RATE

Segmentation of clients on the bases of usage occurs along the following lines: Heavy, Moderate and Light users.

Challenge is to retain heavy users while targeting light users

OEMs or After-market?

Predict the future scenario too - software or hardware?

CUSTOMER CAPABILITY Develop long-trusting bond - Will lead to future straight buys But never forget that modified rebuys and New task gives you a chance to become first-time suppliers Tenders are notified to all the preferred buyers. So trust becomes important to establish

TECHNOLOGY

Be the first to understand the technical requirements of your client Americans - breakthrough technologies while Japanese - steady improvement in technologies Intel Vs AMD

PURCHASING APPROACHESPURCHASING POLICIES AND PRACTICES

While some buyers plan their purchase, why do others postpone till last minute? Which departments are actually interested in investigating the specifications, bid invitations, supplier selection? Purchasing policies differ according to industry, according to countries, regions. Agricultural industry’s purchasing policies would be different from manufacturing industry’s policies. Vendor must obtain documentation than oral understanding regarding gift giving, the way in which bids are processed etc. Do they believe centralized purchasing or decentralized ? Do they believe system solution or part solution (assembly line)

PURCHASING CRITERIA

Whether it is prompt delivery, price, follow-up service or quality products? For prompt delivery which delivery service the client is using FedEx., United Parcel Service, DHL, TNT etc.? The criteria varies according to the country too. Canadians like prompt quotation, delivery reliability while Brits like having testing facilities near them, delivery reliability. Few companies in the same industry look for technical support while few companies look for service support

SERVICE LEVEL

Although price is major consideration, many companies also require services issues like reliability, ability to obtain emergency deliveries, quality of technical assistance More the service sought by companies, more is the necessity that you have to stay near your clients placeEx: Tata nano.

SITUATIONAL VARIABLES

Three important situational considerations are

Urgency Application Size of the order

Whether client needs standardized solution or a customized solution? Ex. Biometric solutions

MICRO BASES FOR SEGMENTATIONWhy Business Clients Switch Vendors?

Various circumstances why business buyers switch vendors:

Dissatisfaction with existing vendor’s quality, service or price Retirement, transfer, resignation or death of a key contact Changes in requirement - now requires totally different material In times of turbulence - Ex. recession, inflation, shortages etc. because of pressure of cost cutting, corporate downsizing, outsourcing etc.

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Types of Buyers

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse

Types of Buyers

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

Not good for new products and new concepts

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

Not good for new products and new concepts They tend to avoid untested

vendors

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

Not good for new products and new concepts They tend to avoid untested

vendors They can rely on old friends and

colleagues to be vendor

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

Not good for new products and new concepts They tend to avoid untested

vendors They can rely on old friends and

colleagues to be vendor

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

Not good for new products and new concepts They tend to avoid untested

vendors They can rely on old friends and

colleagues to be vendor

Shop around for vendors

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

Not good for new products and new concepts They tend to avoid untested

vendors They can rely on old friends and

colleagues to be vendor

Shop around for vendors A t t e n d m a n y t r a d e s a n d

exhibitions to catch good vendors

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

Not good for new products and new concepts They tend to avoid untested

vendors They can rely on old friends and

colleagues to be vendor

Shop around for vendors A t t e n d m a n y t r a d e s a n d

exhibitions to catch good vendors Look for good vendors

INDIVIDUAL CHARACTERISTICSBACKGROUND, FUNCTION & RESPONSIBILITY LEVEL

Risk Averse Risk Receptive

Types of Buyers

Not good for new products and new concepts They tend to avoid untested

vendors They can rely on old friends and

colleagues to be vendor

Shop around for vendors A t t e n d m a n y t r a d e s a n d

exhibitions to catch good vendors Look for good vendors Initially split up orders between

vendors and then select few

REASSEMBLING THE NEST

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITY PERMANENCE INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITY

PERMANENCE INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITY

PERMANENCE INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITY

PERMANENCE INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITY

PERMANENCE

INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITYPERMANENCE

INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITYPERMANENCE

INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITYPERMANENCE

INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITYPERMANENCE

INTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITYPERMANENCEINTIMACY

REASSEMBLING THE NEST

Situationalfactors

Personal Character

istics

Company VariablesDemographics

Purchasing Approaches

PurchaseProcess

PurchaseDecision

VISIBILITYPERMANENCEINTIMACY

FOUR OUTCOMES OF SEGMENTATION

NO SEGMENTATION

SUPERFICIAL SEGMENTATION

OBTUSE, CONVOLUTED AND DISORGANIZED SEGMENTATION

AFTER-THE-FACT SEGMENTATION

MISAPPLICATIONS OF SEGMENTATION

Over concern with demand level - paying attention only to large scale industries and less to small scale industries. Similarly paying attention to current users and neglecting potential users

Needless searching for identification - Searching for proper classification of location, industry or size of the organization

Myopic views of product forms - Do think beyond the actual use of your product (Ex.Washing machines for Punjabi Dhabas)