nested approach to the segmentation of b2b markets

managers can determine the best segmentation method

Course: Industrial MarketingPresented By: Shah Rukh (12485)

Sana Sadiq (12877) Hur Hussain Syed (12479)

Faculty: Amir A. Khan

How to segment Industrial Markets

nested approach

2

INTRODUCTION Very little information available

Much difficult then consumer segmentationSeveral Products, same applications

Customer differ greatly

Which differences are important OR trivial?

Most industrial marketers use segmentation as a way to explain results rather than as a way to plan.

IM assist companies in many ways : Analysis, Selection of key markets & Management of Marketing

Business markets vs. consumer markets

Consumer markets Business markets

Many customers, geographically dispersed

Fewer customers, often geographically concentrated, with a small number accounting for most of the company’s sales

Smaller amounts of money involved Larger amounts of money involved

Shorter decision cycles Longer decision cycles

More reliance on mass marketing via advertising, Web sites, and retailing

More reliance on personal selling

Less-rigid product standards More-rigid product standards

Focus complex grouping of purchase situations, events, and personalities

5 general segmentation Criteria

Not necessary or desirable that every Industrial marketer use each 5 criteria's

Marketer completely Understand the process & may skip some criteria

NEW ANALYTICAL TOOL TO SEGMENT THE MARKET…

Anal

ytica

l Too

l- N

ESTE

D A

PPRO

ACH

…

• Picture explains how criteria relates to one another in a nest• Marketer to move from general to specific segmentation criteria• Largest and Generic = Demographics• Smallest and Specific = Personal Characteristics

6

Criteria 1: DEMOGRAPHICS

7

• Most general segmentation criteria

• Broad description of company

• Relate to General Customer Need

• Can be determined w/o visiting customer

Basics of DEMOGRAPHICS Segmentation

8

•Industry

•Company Size

•Customer Location

Parameters…

9

Eg.: Segmentation in various Industries for CAT

• Textile • Oil & Gas• Institutes• Hotels and Resorts• Shopping Malls• Hospitals• Automotives• Beverages

Regional Market Share of CAT gensets

Geographical Market Share

1%5%1%

1%2%

61%

29%

Karachi

Faisalabad

Multan

Lahore

Muzafargarh

Islamabad

Kotri

Eg.: Geographical Segmentation

11

Criteria 2: OPERATING VARIABLES

12

•Company Technology

•Product & Brand-Use Status

•Customer Capabilities

Parameters…

13

Criteria 3: Purchasing Approach

14

•Purchasing Function Organization

• Power Structure

•Buyer Seller Relation ships

•General Purchasing policies

•Purchasing criteria

Purchasing function organization:

Centralized versus De-Centralized Approach

Global Key Accounts

Shell Pakistan was trying its best to tap KCA Deutag Pakistan, a drilling company, however could not close the deal as all decisions were made by their regional offices.

Examples of Purchasing Approaches:

Power Structure:

Identifying the right D.M.U

Dominance of Procurement / Engineering / Finance Dept over purchase of a particular product

Uch Power needs 100,000 Litres of Turbine Oil for their newly built plant. The power to decide would rest in a cross functional decision making team, consisting of engineering as well as finance dept.


Buyer Seller Relationship Relationship plays key role in purchase decisions. This includes

partners, joint venture establishments and industrial alliances also.

A successful B2B marketer is the one who can build his relationship with his customers.

Out of the office relationships can also play a role if there are no conflict of interests.

Some marketers also end up developing friendships and informal relationships with their buyers as well.


General Purchasing Policies The organizations general purchasing terms also plays an

important role for segmentation.

One can differentiate between credit and cash customers.

Long term / Short Term Policies.

Purchase patterns, safety stocks policies, contractual requirements.

Govt owned entities have very stringent purchase policies.


Purchase Criteria A mix of all the criterias mentioned in the previous slides.


Criteria 4: SITUATIONAL FACTORS

One of the most important segmentation criteria.

As from situation factors, you find problem areas for the customers. From problem areas , you understand the marketing implications!

Urgency of order fulfillment

IoBM procures diesel fuels for their standby generators every month. Chevron usually takes 3 working days to deliver the fuel to them. On the convocation day – due to an unfortunate spillage in their storage area – all the diesel became contaminated and could not be used. Mr. Talib Karim calls Mr. Amir Khan and speaks about the problem. How, in your opinion, will the sales person respond to the customer in this situation?

Difference between routine replacements and emergency replacements

Hot-Order Shop – A factory for urgent orders only

Most companies are willing to pay an extra charge to get the job done more quickly.

Examples of Situational Factors:

Product Application

Linde Pakistan (Formerly British Oxygen Company) is a company that captures, compresses and supplies Oxygen. Ever wondered – the marketing implication for a sales person for two different types of customers. – A Hospital and A Mechanical Welding Shop?

Standby Machinery V/s Critical Machinery

Routine V/s Special Scenarios


Size of Order

You are a Mitchells Ketchup Sales Person, How would you differentiate between receiving a call from the Procurement Lead of McDonalds Pakistan & a call from the local Aslam Kiryana Store?

Volume Does Matter

Minimum Order Quantities

Implication for suppliers having multiple manufacturing facilities


Criteria 5: PERSONAL CHARACTERISTICS

Always remember, People, not companies, make purchase decisions!

Buyer – Seller Similarities

As humans we have a natural tendency towards bias.

The most successful sellers are the ones who can find the most similarities in their buyers.

Synergy in place – Sharing best practices

Examples of Personal Characteristics:

Individual Behaviors

Some people base their decisions on past experiences, some base it on their knowledge. (eg. :3 Global suppliers, good experience with 1 Only- MHE’s)

Relationships can play a major role. Especially in Pakistani markets.

Descon is an engineering giant. A few years ago – some key persons moved out of the company and formed Etimad Engineering. Taking along with them a major chunk of business.


Risk Management Strategies

Some buyers are risk averse, others are risk receptive.

The bad news is that majority of the buyers are risk averse.

Risk Receptive Buyers can be targeted by highlighting the positive outcomes.

Risk averse buyers need to be proof of performance. Testimonials, Recommendations, OEM Approvals, Field Test Results and what not !


30

Reassembling the Nest

1.) No Segmentation

2.)After the fact Segmentation

3.)Superficial Segmentation

4.) Obtuse, Convoluted and disorganized segmentation Outer nest data: Inner nest data:

Highly Visible Less visible

more or less permanent more transient

Require little intimate knowledge of customers

Require extensive vendor research

• 3 outer nests = Company Variables

• Criteria change when move from Outer to inner nest in terms of: 1.) Visibility 2.) Permanence 3.) Intimacy

4 other possibilities of Segmentation

32

SUMMARY• Easy approach to use HIERARCHICAL STRUCTURE

• Marketer balance b/w “Easily acquired data from Outer nests” & “Detailed analysis of Inner nests”

• Outer nests = More data , clear definitions

• Inner nests = detailed, more useful

•“ Data Availability” and “Analysis of available data” are two separate approaches

•Any approach can not be neglected ONLY b/c the data is unavailable

• Cost = stay in outer nests, cost = gain useful data of inner nests

• Inner nests not considered Ignoring buying differences b/w customers

• Small Markets Emphasis on inner nest factors is EXPENSIVE & TIME CONSUMING

33

CLEAR & DISCIPLINED PROCESS

SIMPLICITY + LOW COST from OUTER NESTSRICHNESS + EXPENSES from INNER NESTS

CONCLUSION

34

THANK YOU