Segmentation of Industrial Markets - Nested Approach

How to segment Industrial Markets
nested approach
managers can determine the best segmentation method
Course: Industrial Marketing Presented By: Shah Rukh (12485) Sana Sadiq (12877) Hur Hussain Syed (12479) Faculty: Amir A. Khan
INTRODUCTION
Very little information available Much difficult then consumer segmentation
Several 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 & Segmentation of market
Business markets vs. consumer markets

Consumer markets
Many customers, geographically dispersed Smaller amounts of money involved Shorter decision cycles More reliance on mass marketing via advertising, Web sites, and retailing Less-rigid product standards
Business markets
Fewer customers, often geographically concentrated, with a small number accounting for most of the companys sales Larger amounts of money involved Longer decision cycles
More reliance on personal selling

More-rigid product standards
NEW ANALYTICAL TOOL TO SEGMENT THE MARKET 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 4
Analytical Tool- NESTED APPROACH
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 5
Criteria 1: DEMOGRAPHICS
Basics of DEMOGRAPHICS Segmentation
Most general segmentation criteria Broad description of company
Relate to General Customer Need

Can be determined w/o visiting customer
Parameters
Industry
Company Size Customer Location
Eg.: Segmentation in various Industries for CAT
Textile Oil & Gas Institutes Hotels and Resorts Shopping Malls Hospitals Automotives Beverages
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Regional Market Share of CAT gensets Eg.: Geographical Segmentation

Geographical Market Share
1% 5% 1%
29%
61% 2% 1%
Karachi Faisalabad Multan Lahore Muzafargarh Islamabad Kotri
Criteria 2: OPERATING VARIABLES
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Company Technology
Product & Brand-Use Status Customer Capabilities
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Eg.: Product Use status
Product Population
Model
3406NA 3406TA 3412TA
kVA
156 200 350
kW
125 160 280
Engine Population
3412LE
3508 3512LE 3512E 3516A 3516B 3516C 3520C
450
600 906 1250 1220 1430 1945 2450
360
480 725 1000 975 1350 1550 1950
21%
14% 9%
20% 14% 3% 3% 1%
15%
3306 3406 3412 3508 3512 3516 3516B 3516C 3520
Criteria 3: Purchasing Approach
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Purchasing Function Organization
Power Structure
Buyer Seller Relation ships General Purchasing policies Purchasing criteria
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Examples of Purchasing Approaches:

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.

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, requirements. safety stocks policies, contractual
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!
Examples of Situational Factors:

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.

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!
Examples of Personal Characteristics:

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

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- MHEs) 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 !
Reassembling the Nest 4 other possibilities of Segmentation

1.) No Segmentation 2.)After the fact Segmentation 3.)Superficial Segmentation 4.) Obtuse, Convoluted and disorganized segmentation
Outer nest data: Highly Visible more or less permanent Require little intimate knowledge of customers Inner nest data: Less visible more transient Require extensive vendor research
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3 outer nests = Company Variables

Criteria change when move from Outer to inner nest in terms of: 1.) Visibility 2.) Permanence 3.) Intimacy
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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
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THANK YOU
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How to segment Industrial Markets

Customer differ greatly

Business markets vs. consumer markets

More reliance on personal selling

Analytical Tool- NESTED APPROACH

Basics of DEMOGRAPHICS Segmentation

Most general segmentation criteria Broad description of company

Relate to General Customer Need

Eg.: Segmentation in various Industries for CAT

Regional Market Share of CAT gensets Eg.: Geographical Segmentation

Karachi Faisalabad Multan Lahore Muzafargarh Islamabad Kotri

Criteria 2: OPERATING VARIABLES

Eg.: Product Use status

3306 3406 3412 3508 3512 3516 3516B 3516C 3520

Criteria 3: Purchasing Approach

Purchasing Function Organization

Examples of Purchasing Approaches:

Examples of Purchasing Approaches:

Examples of Purchasing Approaches:

Examples of Purchasing Approaches:

Long term / Short Term Policies.

Govt owned entities have very stringent purchase policies.

Examples of Purchasing Approaches:

Criteria 4: SITUATIONAL FACTORS

Examples of Situational Factors:

Examples of Situational Factors:

Routine V/s Special Scenarios

Examples of Situational Factors:

Criteria 5: PERSONAL CHARACTERISTICS

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

Examples of Personal Characteristics:

Examples of Personal Characteristics:

Examples of Personal Characteristics:

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

Reassembling the Nest 4 other possibilities of Segmentation

3 outer nests = Company Variables

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