Industrial, or business to business (B2B) marketing

Examples of a B2B selling process:

An organization seeks to b organization decides to split the work between the two firms based on an evaluation of each firm's capabilities.

A sales representative makes an appointment with an organization that employs 22 people. He demonstrates a photocopier/fax/printer to the office administrator. After discussing a proposal, the business owner signs a contract to obtain the machine on a fully maintained rental and consumables basis, with an upgrade after 2 years.

Main features of the B2B selling process are:

Marketing is one-to-one in nature. It is relatively easy for the seller to identify a prospective customer and build a face-to-face relationship.

Highly professional and trained people in buying processes are involved. In many cases, two or three decision makers must approve a purchase plan.

Often the buying or selling process is complex, and includes many stages (for example, request for proposal, request for tender, selection process, awarding of tender, contract negotiations, and signing of final contract).

Selling activities involve long processes of prospecting, qualifying, wooing, making representations, preparing tenders, developing strategies, and contract negotiations.

See also B2B definition.

Blurring between B2B and B2C

Industrial marketing can cross the border into consumer marketing. For example, an electronic component seller may distribute its products through industrial marketing channels (see channel (marketing)), but also support consumer sales. Many products are equally desired by business and consumers—such as audio products, furniture, paint, hardware, etc. Nonetheless, manufactures and service providers frequently maintain separate industrial and consumer marketing operations to reflect the different needs of the two channels.

Competitive tendering

Industrial marketing often involves competitive tendering (see tender, tendering). This is a process where a purchasing organization undertakes to procure goods and services from suitable suppliers. Due to the high value of some purchases (for example buying a new computer system, manufacturing machinery, or outsourcing a maintenance contract) and the complexity of such purchases, the purchasing organization will seek to obtain a number of bids from competing suppliers and choose the best offering. An entire profession (strategic procurement) that includes

tertiary training and qualifications has been built around the process of making important purchases. The key requirement in any competitive tender is to ensure that...

The business case for the purchase has been completed and approved. The purchasing organization's objectives for the purchase are clearly defined. The procurement process is agreed upon and it conforms with fiscal guidelines and

organizational policies. The selection criteria have been established. A budget has been estimated and the financial resources are available. A buying team (or committee) has been assembled. A specification has been written. A preliminary scan of the market place has determined that enough potential suppliers are

available to make the process viable (this can sometimes be achieved using an expression of interest process).

It has been clearly established that a competitive tendering process is the best method for meeting the objectives of this purchasing project. If (for example) it was known that there was only one organisation capable of supplying; best to get on with talking to them and negotiating a contract.

Because of the significant value of many purchases, issues of probity arise. Organisations seek to ensure that awarding a contract is based on "best fit" to the agreed criteria, and not bribery, corruption, or incompetence.

Bidding process

Suppliers who are seeking to win a competitive tender go through a bidding process. At its most primitive, this would consist of evaluating the specification (issued by the purchasing organization), designing a suitable proposal, and working out a price. This is a "primitive" approach because...

There is an old saying in industrial marketing; "if the first time you have heard about a tender is when you are invited to submit, then you have already lost it."

While flippant, the previous point illustrates a basic requirement for being successful in competitive tendering; it is important to develop a strong relationship with a prospective customer organization well before they have started the formal part of their procurement process.

(more needed)

Non-tender purchasing

Not all industrial sales involve competitive tendering. Tender processes are time consuming and expensive, particularly when executed with the aim of ensuring probity. Government agencies are particularly likely to utilise elaborate competitive tendering processes due to the expectation that they should be seen at all times to be responsibly and accountably spending public monies.

Private companies are able to avoid the complexity of a fully transparent tender process but are still able to run the procurement process with some rigour.

Developing a sales strategy/solution selling/technical selling

The "art" of technical selling (solution selling) follows a three stage process...

Stage 1: Sell the appointment: Never sell over the telephone. The aim of the first contact with a prospective purchaser is to sell the appointment. The reason is simple; industrial sales are complex, any attempt to sell over the phone will trivialise your product or service and run the risk of not fully understanding the customer's need.

Stage 2: Understand their needs: The best method of selling is to minimise the information about your goods or services until you have fully understood your customer's requirements.

Stage 3: Develop and propose a solution: The solution is (of course) developed from your (or the firm's) product or service offerings.

In solution selling, it is essential not to sell the solution before you understand the customer's requirements. Otherwise you may unwittingly sell him on how ill-suited your solution is to his requirements. To illustrate, imagine a couple tells an architect, "We want to build a house." If the architect immediately responds with a design without learning the details of the clients' desires and requirements, he will likely alienate them. If he patiently learns what the clients need, he has a much greater chance of successfully selling his services.

Marketing supports solution selling through methods like account-based marketing—understanding a specific target organization's requirements as the foundation of a marketing program. As research shows, sales success is heavily weighted towards suppliers who understand the customer. In UK research, 77 per cent of senior decision-makers believe new suppliers' marketing approaches are poorly targeted and make it easy to justify staying with current suppliers).

Sales force management has a critical function in industrial selling, where it assumes a greater role than other parts of the marketing mix. Typical industrial organisations depend on the ability of their sales people to build relationships with customers. During periods of high demand (economic boom), sales forces often become mere order takers and struggle to respond to customer requests for quotations and information. However, when economic downturn hits it becomes critical to direct the sales force outward to sell.

From cannon fodder to preferred tenderer

The term "cannon fodder" derives from the World Wars and refers to the massing of undertrained and recently recruited troops sent to the fronts to face the enemy. Such troops invariably had a poor survival rate but provided the tactical advantage of distracting the enemy while professional soldiers mounted more effective operations. In adopting the term to Industrial

Marketing it means those bids being submitted that have no chance of winning but are involved to make up the numbers (you can't have only one bid in a "competitive" tender process; that wouldn't satisfy the requirements of probity) (for example in government tenders, or for private enterprise the requirement to "truly test the market" and to "keep them honest"). The reader might be wondering why anybody would go to all of the work of submitting a tender when they had no chance of winning; for the same reason that troops were sent in to battle to die; they thought they had a real chance.

The key features of a successful industrial sales organisation

In industrial marketing personal selling is still very effective because many products must be customized to suit the requirements of the individual customer. Indicators such as the sales tunnel give information on the expected sales in the near future, the hit rate indicates whether the sales organization is busy with promising sales leads or it is spending too much effort on projects that are eventually lost to the competition or that are abandoned by the prospect.

The internet and B2B marketing

The dot com boom and bust of the late 90's saw significant attempts to develop on-line shopping. Many entrepreneurs (and their investors) discovered that merely having a website (no matter how innovative) was insufficient to generate sales. The amount of conventional media advertising required to promote the sites burnt cash at a faster rate than on-line sales generated. They also presumed that consumers would eschew the conventional shopping experience (driving, parking, poor service etc.) for the convenience of shopping on-line. Some did, but for many companies, not in sufficient numbers. There were many unforeseen problems, and apart from some notable exceptions (Amazon.com and others) the business to consumer online failed for many companies. B2B selling, however, more frequently achieved impressive results.

industrial market

Consumer group composed of companies or organizations that purchase goods and services for use in the production of other goods and services that are sold, rented, or supplied to others. For example, the clothing manufacturing industry purchases fabric that is used in the production of dresses and other apparel. Fabric manufacturers are also members of the industrial market because they purchase other raw materials for use in the production of the fabric. The industrial market is the largest and most diverse organizational market, consisting of more than 13 million organizations that buy more than $3 trillion worth of products each year. Some of the major industries represented in the industrial market are construction, agriculture, mining, manufacturing, communication, public utilities, transportation, and finance.

Industrial market segmentationFrom Wikipedia, the free encyclopedia

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Industrial market segmentation is a scheme for categorizing industrial and business customers to guide strategic and tactical decision-making, especially in sales and marketing. While government agencies and industry associations use standardized segmentation schemes for statistical surveys, most businesses create their own segmentation scheme to meet their particular needs.

While similar to consumer market segmentation, segmenting industrial markets is different and more challenging because of greater complexity in buying processes, buying criteria, and the complexity of industrial products and services themselves. Further complications include role of financing, contracting, and complementary products/services.

The goal for every industrial market segmentation scheme is to identify the most significant differences among current and potential customers that will influence their purchase decisions or buying behavior, while keeping the scheme as simple as possible (Occam's Razor). This will allow the industrial marketer to differentiate their prices, programs, or solutions for maximum competitive advantage.

Contents

1 Segmentation Variables 2 A Generic Principle 3 Two-Stage Market Segmentation (Wind & Cardozo Model) 4 Nested Approach to Segmentation (Bonoma & Shapiro Model) 5 Bottom-up Approach (Kotler Model) 6 Targeting and Positioning 7 Supplier Segmentation 8 See also 9 References

Segmentation Variables

Webster describes segmentation variables as “customer characteristics that relate to some important difference in customer response to marketing effort”. (Webster, 2003)[1] He recommends the following three criteria:

1. Measurability, “otherwise the scheme will not be operational” according to Webster. While this would be an absolute ideal, its implementation can be next to impossible in some markets. The first barrier is, it often necessitates field research, which is expensive and time-consuming. Second, it is impossible to get accurate strategic data on a large number of customers. Third, if gathered, the analysis of the data can be daunting task. These barriers lead most companies to use more qualitative and intuitive methods in measuring customer data, and more persuasive methods while selling, hoping to compensate for the gap of accurate data measurement.

2. Substantiality, i.e. “the variable should be relevant to a substantial group of customers”. The challenge here is finding the right size or balance. If the group gets too large, there is a risk of diluting effectiveness; and if the group becomes too small, the company will lose the benefits of

economies of scale. Also, as Webster rightly states, there are often very large customers that provide a large portion of a suppliers business. These single customers are sometimes distinctive enough to justify constituting a segment on their own. This scenario is often observed in industries which are dominated by a small number of large companies, e.g. aircraft manufacturing, automotive, turbines, printing machines and paper machines.

3. Operational relevance to marketing strategy. Segmentation should enable a company to offer the suitable operational offering to the chosen segment, e.g. faster delivery service, credit-card payment facility, 24-hour technical service, etc. This can only be applied by companies with sufficient operational resources. For example, just-in-time delivery requires highly efficient and sizeable logistics operations, whereas supply-on-demand would need large inventories, tying down the supplier’s capital. Combining the two within the same company - e.g. for two different segments - would stretch the company’s resources.

Nevertheless, academics as well as practitioners use various segmentation principals and models in their attempt to bring some sort of structure. Here, we discuss a few of the most common approaches:

A Generic Principle

One of the recommended approaches in segmentation is for a company to decide whether it wants to have a limited number of products offered to many segments or many products offered to a limited number of segments. Some people recommend against businesses offering many product lines to many segments, as this can sometimes soften their focus and stretch their resources too thinly. See figure 1.

Figure 1

The advantage in attempting the above approach is that although it may not work at all times, it is a force for as much focus as practicable. The one-to-many model ensures – in theory – that a business keeps its focus sharp and makes use of economies of scale at the supply end of the chain. It “kills many birds with one stone”.

Examples are Coca Cola and some of the General Electric businesses. The drawback is that the business would risk losing business as soon as a weakness in its supply chain or in its marketing forces it to withdraw from the market. Coca Cola’s attempt to sell its Dasani bottled water in the UK turned out to be a flop mainly because it tries to position this “purified tap water” alongside mineral water of other brands. The trigger was a contamination scandal reported in the media.

The many-to-one model also has its benefits and drawbacks. The problem is that a business would stretch its resources too thinly in order to serve just one or a few markets. It can be fatal if the company’s image is ruined in its chosen segment. However, there are many companies that have dedicated themselves to only one market segment, e.g. Flowserve is a US-based supplier of many different types of pumps, valves, seals and other components – all dedicated to fluid motion and control.

Among the above models, the most popular is the many-to-many version. As companies constantly try to balance their risk in different technologies and markets, they are left with no choice but to enter into new markets with existing products or introduce new products into existing markets or even develop new products and launch them into new markets (see figure 2).

The problem with the many-to-many model is that it can stretch a company’s resources too thinly and soften its focus. One reason for the current financial problems of the world’s largest car maker, General Motors, is that it has tried to be everything to everybody, launching model after model with no clear segmenting, targeting or branding strategy.

Two-Stage Market Segmentation (Wind & Cardozo Model)

Yoram Wind and Richard Cardozo (1974) suggested industrial market segmentation based on broad two-step classifications of macro-segmentation and micro-segmentation. This model is one of the most common methods applied in industrial markets today. It is sometimes extended into more complex models to include multi-step and three- and four-dimensional models.

Macro-segmentation centres on the characteristics of the buying organisation [as whole companies or institutions], thus dividing the market by:

Company / organization size: one of the most practical and easily identifiable criteria, it can also be good rough indicator of the potential business for a company. However, it needs to be combined with other factors to draw a realistic picture.

Geographic location is equally as feasible as company size. It tells a company a lot about culture and communication requirements. For example a company would adopt a different bidding strategy with an Asian customer than with an American customer. Geographic location also relates to culture, language and business attitudes. For example, Middle Eastern, European, North American, South American and Asian companies will all have different sets of business standards and communication requirements.

SIC code (standard industry classification), which originated in the US, can be a good indicator for application-based segmentation. However it is based only on relatively standard and basic industries, and product or service classifications such as sheet metal production, springs manufacturing, construction machinery, legal services, cinema’s etc. Many industries that use a number of different technologies or have innovative products are classified under the ‘other’ category, which does not bring much benefit if these form the customer base. Examples are access control equipment, thermal spray coatings and uninterruptible power supply systems, non of which have been classified under the SIC.

Purchasing situation, i.e. new task, modified re-buy or straight re-buy. This is another relatively theoretical and unused criteria in real life. As a result of increased competition and globalisation in most established industries, companies tend to find focus in a small number of markets, get to know the market well and establish long-term relationship with customers. The general belief is, it is cheaper to keep an existing customer than to find a new one. When this happens, the purchase criteria are more based on relationship, trust, technology and overall cost of purchase, which dilutes the importance of this criteria.

Decision-making stage. This criterion can only apply to newcomers. In cases of long-term relationship, which is usually the objective of most industrial businesses, the qualified supplier is normally aware of the purchase requirement, i.e. they always get into the bidding process right at the beginning. Sheth and Sharma are quoted to have suggested “with increasing turbulence in the marketplace, it is clear that firms have to move away from transaction-oriented marketing strategies and move towards relationship-oriented marketing for enhanced performance”. (Freytag & Clarke, 2001)

Benefit segmentation: The product’s economic value to the customer (Hutt & Speh, 2001), which is one of the more helpful criteria in some industries. It “recognises that customers buy the same products for different reasons, and place different values on particular product features. (Webster, 1991) For example, the access control industry markets the same products for two different value sets: Banks, factories and airports install them for security reasons, i.e. to protect their assets against. However, sports stadiums, concert arenas and the London Underground installs similar equipment in order to generate revenue and/or cut costs by eliminating manual ticket-handling.

Type of institution, (Webster, 2003) e.g. banks would require designer furniture for their customers while government departments would suffice with functional and durable sets.

Hospitals would require higher hygiene criteria while buying office equipment than utilities. And airport terminals would need different degrees of access control and security monitoring than shopping centres.

However, type of buying institution and the decision-making stage can only work on paper. As institutional buyers cut procurement costs, they are forced to reduce the number of suppliers, with whom they develop long-term relationships. This makes the buying institution already a highly experienced one and the suppliers are normally involved at the beginning of the decision-making process. This eliminates the need to apply these two items as segmentation criteria.

Customers’ business potential assuming supply can be guaranteed and prices are acceptable by a particular segment. For example, ‘global accounts’ would buy high quantities and are prepared to sign long-term agreements; ‘key accounts’ medium-sized regional customers that can be the source of 30% of a company’s revenue as long as competitive offering is in place for them; ‘direct accounts’ form many thousands of small companies that buy mainly ob price but in return are willing to forego service.

Purchasing strategies, e.g. global vs. local decision-making structure, decision-making power of purchasing officers vs. engineers or technical specifiers.

Supply Chain Position: A customer’ business model affects where and how they buy. If he pursues a cost leadership strategy, then the company is more likely to be committed to high-volume manufacturing, thus requiring high-volume purchasing. To the supplier, this means constant price pressure and precise delivery but relatively long-term business security, e.g. in the commodities markets. But if the company follows a differentiation strategy, then it is bound to offer customised products and services to its customers. This would necessitate specialised high-quality products from the supplier, which are often purchased in low volumes, which mostly eliminates stark price competition, emphasises on functionality and requires relationship-based marketing mix. (Sudharshan, 1998)

Micro-segmentation on the other hand requires a higher degree of knowledge. While macro-segmentation put the business into broad categories, helping a general product strategy, micro-segmentation is essential for the implementation of the concept. “Micro-segments are homogenous groups of buyers within the macro-segments” (Webster, 2003). Macro-segmentation without micro-segmentation cannot provide the expected benefits to the organisation. Micro-segmentation focuses on factors that matter in the daily business; this is where “the rubber hits the road”. The most common criteria include the characteristics of the decision-making units within each macro-segment, (Hutt & Speh, 2001) e.g.:

Buying decision criteria (product quality, delivery, technical support, price, supply continuity). “The marketer might divide the market based on supplier profiles that appear to be preferred by decision-makers, e.g. high quality – prompt delivery – premium price vs. standard quality – less-prompt delivery – low price”. (Hutt & Speh, 2001)

Purchasing strategy, which falls into two categories, according to Hutt and Speh: First, there are companies who contact familiar suppliers (some have vendor lists) and place the order with the first supplier that fulfils the buying criteria. These tend to include more OEM’s than public sector

buyers. Second, organisations that consider a larger number of familiar and unfamiliar suppliers, solicit bids, examine all proposals and place the order with the best offer. Experience has shown that considering this criterion as part of the segmentation principles can be highly beneficial, as the supplier can avoid unnecessary costs by, for example not spending time and resources unless officially approved in the buyer’s vendor list.

Structure of the decision-making unit can be one of the most effective criteria. Knowing the decision-making process has been shown to make the difference between winning and losing a contract. If this is the case, the supplier can develop a suitable relationship with the person / people that has / have real decision-making power. For example, the medical equipment market can be segmented on the basis of the type of institution and the responsibilities of the decision makers, according to Hutt and Speh. A company that sells protective coatings for human implants would adapt a totally different communication strategy for doctors than hip-joint manufacturers.

Perceived importance of the product to the customer’s business (e.g. automotive transmission, or peripheral equipment, e.g. manufacturing tool)

Attitudes towards the supplier: Personal characteristics of buyers (age, education, job title and decision style) play a major role in forming the customers purchasing attitude as whole. Is the decision-maker a partner, supporter, neutral, adversarial or an opponent? Industrial power systems are best “sold” to engineering executive than purchasing managers; industrial coatings are sold almost exclusively to engineers; matrix and raw materials are sold normally to purchasing managers or even via web auctions.

The above criteria can be highly beneficial depending on the type of business. However, they may be feasible to measure only in high-capital, high-expense businesses such as corporate banking or aircraft business due to high cost associated with compiling the desired data. “There are serious concerns in practice regarding the cost and difficulty of collecting measurements of these micro-segmentation characteristics and using them”. (Sudharshan, 1998)

The prerequisite to implementing a full-scale macro- and micro-segmentation concept is the company’s size and the organisational set-up. A company needs to have beyond the certain number of customers for a segmentation model to work. Smaller companies would not need a formal segmentation model as they know their customers in person, so they can apply Hunter’s n=1 model.

Ironically, Webster states that “the strategic implications of micro-segmentation lie primarily in promotional strategy. ….. Decisions influenced by micro-segments include selecting individuals for the sales call, design of sales presentations and selecting the advertising media” (Webster, 2003). However, promotion should not be seen in isolation, as it cannot facilitate log-lasting success, unless supported on all the relevant functions such as product, price and place. One only needs to consider that purchasing criteria (part of micro-segmentation) includes factors such as product quality, price and delivery, which are directly relevant to product, price and place.

Nested Approach to Segmentation (Bonoma & Shapiro Model)

Taking the Wind & Cardozo model, Bonoma & Shapiro[2] extended this into a multi-step approach in 1984. As the application of all the criteria recommended by Wind and Cardozo and subsequent scholars who expanded upon their two-stage theory became increasingly difficult due to the complexity of modern businesses, Bonoma and Shapiro suggest that the same / similar criteria be applied in multi-process manner to allow flexibility to marketers in selecting or avoiding the criteria as suited to their businesses. “They proposed the use of the following five general segmentation criteria which they arranged in a nested hierarchy:

1. Demographics: industry, company size, customer location2. Operating variables: company technology, product/brand use status, customer capabilities3. Purchasing approaches: purchasing function, power structure, buyer-seller relationships,

purchasing policies, purchasing criteria4. Situational factors: urgency of order, product application, size of order5. Buyers’ personal characteristics: character, approach

The idea was that the marketers would move from the outer nest toward the inner, using as many nests as necessary”. (Kalafatis & Cheston, 1997).[3] As a result this model has become one of the most adapted in the market, rivalling the Wind & Cardozo model head-on. One of the problems with the nested approach “is that there is no clear-cut distinction between purchasing approaches, situational factors and demographics". Bonoma and Shapiro are aware of these overlaps and argue that the nested approach is intended to be used flexibly with a good deal of managerial judgment” (Webster, 2003).

Bottom-up Approach (Kotler Model)

Kotler suggests a “build-up” approach, where masses of customer data are studied and similarities searched to make up segments that have similar needs, i.e. "assessing the customer base quantitatively and grouping them – i.e. building up – the segments based on similarities in purchasing attitude" (Kotler, 2001).

When starting the segmentation process, instead of seeing customers as identical, the build-up approach begins by viewing customer as different and then proceed to identify possible similarities between them. "In a turbulence market (pretty much all markets today), using a build-up approach is more suitable than a breakdown approach” (Freytag & Clarke, 2001).

Targeting and Positioning

One of the most significant uses of industrial market segmentation schemes is to make targeting and product positioning decisions. Companies chose to target some segments and downplay or avoid other segments in order to maximize their competitive advantage and the likelihood of success.

“There is a critical difference in emphasis between target market and [target] audience. The term audience is probably most useful in marketing communication”. (Croft, 1999) Target markets can include end user companies, procurement managers, company bosses, contracting companies and external sales agents. Audiences, however, can include individuals that have influence over purchasing decision, but may not necessarily buy a product themselves, e.g. design engineers, architects, project managers and operations managers, plus those in target markets.

Croft quotes Friestad, Write, Boush and Rose (1994) as stating that because the purpose of advertising is to persuade, consumers become sceptical of its methods and approaches [and indeed intentions]. However, while this may be entirely true in consumer marketing, the level of trust and reliance on marketing communication by industrial customers is fairly high due to the professional experience and knowledge of the industrial buyer. Some even appreciate advertising because it keeps them informed of the products and services available in the market.

Supplier Segmentation

In the area of marketing, industrial market segmentation usually refers to the demand side of the market, the goal being for companies to segment groups of potential customers with similar wants and demands that may respond to a particular marketing mix. When companies also work with potentially different suppliers, segmenting the supply side of the market can be very valuable as well. There are many supplier segmentation approaches in the literature: Parasuraman (1980)[4], Kraljic (1983)[5], Dyer et al. (1998)[6], Olsen and Ellram (1997)[7], Bensaou (1999)[8], Kaufman et al. (2000)[9], van Weele (2000)[10],Hallikas et al. (2005)[11], Rezaei and Ortt (2012)[12].

Parasuraman (1980) proposed a stepwise procedure to implement this approach: Step 1: Identify the key features of customer segments Step 2: Identify the critical supplier characteristics Step 3: Select the relevant variables for supplier segmentation, and Step 4: Identify the supplier segments.

Kraljic (1983) considered two variables: profit impact and supply risk. The profit impact of a given supply item can be defined in terms of the volume purchased, the percentage of total purchase cost or the impact on product quality or business growth. Supply risk is assessed in terms of the availability and number of suppliers, competitive demand, make-or-buy opportunities, storage risks and substitution possibilities. Based on these two variables, materials or components can be divided into four supply categories: (1) non-critical items (supply risk: low; profit impact: low), (2) leverage items, (supply risk: low; profit impact: high), (3) bottleneck items (supply risk: high; profit impact: low), and (4) strategic items (supply risk: high; profit impact: high). Each category requires a specific supplier strategy.

To see the theoretical bases of, and to review, different supplier segmentation approaches see Day et al. (2010)[13], and Rezaei and Ortt (2012).

Rezaei and Ortt (2012) considering two dimensions "supplier willingness" and "supplier capabilities" defined supplier segmentation as follows.

"Supplier segmentation is the identification of the capabilities and willingness of suppliers by a particular buyer in order for the buyer to engage in a strategic and effective partnership with the suppliers with regard to a set of evolving business functions and activities in the supply chain management". Considering two levels low and high for the two dimensions, suppliers are segmented to four segments.

Market Segmentation

The division of a market into different homogeneous groups of consumers is known as market segmentation.

Rather than offer the same marketing mix to vastly different customers, market segmentation makes it possible for firms to tailor the marketing mix for specific target markets, thus better satisfying customer needs. Not all elements of the marketing mix are necessarily changed from one segment to the next. For example, in some cases only the promotional campaigns would differ.

A market segment should be:

measurable accessible by communication and distribution channels different in its response to a marketing mix durable (not changing too quickly) substantial enough to be profitable

A market can be segmented by various bases, and industrial markets are segmented somewhat differently from consumer markets, as described below.

Consumer Market Segmentation

A basis for segmentation is a factor that varies among groups within a market, but that is consistent within groups. One can identify four primary bases on which to segment a consumer market:

Geographic segmentation is based on regional variables such as region, climate, population density, and population growth rate.

Demographic segmentation is based on variables such as age, gender, ethnicity, education, occupation, income, and family status.

Psychographic segmentation is based on variables such as values, attitudes, and lifestyle.

Behavioral segmentation is based on variables such as usage rate and patterns, price sensitivity, brand loyalty, and benefits sought.

The optimal bases on which to segment the market depend on the particular situation and are determined by marketing research, market trends, and managerial judgment.

Business Market Segmentation

While many of the consumer market segmentation bases can be applied to businesses and organizations, the different nature of business markets often leads to segmentation on the following bases:

Geographic segmentation - based on regional variables such as customer concentration, regional industrial growth rate, and international macroeconomic factors.

Customer type - based on factors such as the size of the organization, its industry, position in the value chain, etc.

Buyer behavior - based on factors such as loyalty to suppliers, usage patterns, and order size.

Profiling the Segments

The identified market segments are summarized by profiles, often given a descriptive name. From these profiles, the attractiveness of each segment can be evaluated and a target market segment selected.

Market segmentationFrom Wikipedia, the free encyclopedia

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It has been suggested that Cluster analysis (in marketing) be merged into this article or section. (Discuss) Proposed since September 2011.

Marketing

Key concepts

Product marketing

Pricing

Distribution

Service

Retail

Brand management

Account-based marketing

Ethics

Effectiveness

Research

Segmentation

Strategy

Activation

Management

Dominance

Marketing operations

Promotional contents

Advertising

Branding

Underwriting spot

Direct marketing

Personal sales

Product placement

Publicity

Sales promotion

Sex in advertising

Loyalty marketing

Mobile marketing

Premiums

Prizes

Promotional media

Printing

Publication

Broadcasting

Out-of-home advertising

Internet

Point of sale

Merchandise

Digital marketing

In-game advertising

Product demonstration

Word-of-mouth

Brand ambassador

Drip marketing

Visual merchandising

v

t

e

Gender Price Interests Location Religion Income Size of Household Age Education Occupation Social Class Ethnicity Nationality End use (Example work or leisure)

While there may be theoretically 'ideal' market segments, in reality every organization engaged in a market will develop different ways of imagining market segments, and create Product differentiation strategies to exploit these segments. The market segmentation and corresponding product differentiation strategy can give a firm a temporary commercial advantage.

Contents

1 Criteria for Segmenting 2 Basis for segmenting consumer markets

o 2.1 Geographic segmentation o 2.2 Demographic Segmentation o 2.3 Psychographic Segmentation o 2.4 "Positive" market segmentation o 2.5 Behavioral Segmentation o 2.6 Occasions

o 2.7 Benefits 3 Using Segmentation in Customer Retention

o 3.1 Process for tagging customers o 3.2 Niche Marketing o 3.3 Local Marketing

4 Price Discrimination 5 Algorithms and Approaches 6 References

Criteria for Segmenting

An ideal market segment meets all of the following criteria:

It is possible to measure. It has to be large enough to earn profit. It has to be stable enough that it does not vanish after some time. It is possible to reach potential customer via organization's promotion and distribution channel. It is internally homogeneous (potential customers in the same segment prefer the same product

qualities). It is externally heterogeneous that is Heterogeneity between segments (potential customers

from different segments have basically different quality preferences). It responds similarly to a market stimulus. It can be cost-efficiently reached by market intervention. useful in deciding on marketing mix

Basis for segmenting consumer markets

Geographic segmentation

The market is segmented according to geographic criteria- nations, states, regions, countries, cities, neighborhoods, or zip codes. Geo-cluster approach combines demographic data with geographic data to create a more accurate profile of specific [1]

Demographic Segmentation

Demographic segmentation consists of dividing the market into groups based on variables such as age, gender, family size, income, occupation, education, religion, race and nationality.

As you might expect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups.

This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available to help with the demographic segmentation process.

Psychographic Segmentation

Psychographics is the science of using psychology and demographics to better understand consumers. Psychographic segmentation: consumer are divided according to their lifestyle, personality, values. People within the same demographic group can exhibit very different psychographic profiles.[2]

"Positive" market segmentation

Market segmenting is dividing the market into groups of individual markets with similar wants or needs that a company divides into distinct groups which have distinct needs, wants, behavior or which might want different products & services. Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private. Although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives. All of these methods of segmentation are merely proxies for true segments, which don't always fit into convenient demographic boundaries.

Consumer-based market segmentation can be performed on a product specific basis, to provide a close match between specific products and individuals. However, a number of generic market segment systems also exist, e.g. the system provides a broad segmentation of the population of the United States based on the statistical analysis of household and geodemographic data.

The process of segmentation is distinct from positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behavior; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved.

Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness

Once a market segment has been identified (via segmentation), and targeted (in which the viability of servicing the market intended), the segment is then subject to positioning. Positioning involves ascertaining how a product or a company is perceived in the minds of consumers.

This part of the segmentation process consists of drawing up a perceptual map, which highlights rival goods within one's industry according to perceived quality and price. After the perceptual map has been devised, a firm would consider the marketing communications mix best suited to the product in question.

Behavioral Segmentation

In behavioral segmentation, consumers are divided into groups according to their knowledge of, attitude towards, use of or response to a product. It is actually based on the behavior of the consumer.

Occasions

Segmentation according to occasions. We segment the market according to the occasions.

Benefits

Segmentations according to benefits sought by the consumer.

Using Segmentation in Customer Retention

The basic approach to retention-based segmentation is that a company tags each of its active customers with 3 values:

Tag #1: Is this customer at high risk of canceling the company's service? One of the most common indicators of high-risk customers is a drop off in usage of the company's service. For example, in the credit card industry this could be signaled through a customer's decline in spending on his or her card.

Tag #2: Is this customer worth retaining? This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer. Managing Customers as Investments.[3][4]

Tag #3: What retention tactics should be used to retain this customer? For customers who are deemed “save-worthy”, it’s essential for the company to know which save tactics are most likely to be successful. Tactics commonly used range from providing “special” customer discounts to sending customers communications that reinforce the value proposition of the given service.

Process for tagging customers

The basic approach to tagging customers is to utilize historical retention data to make predictions about active customers regarding:

Whether they are at high risk of canceling their service Whether they are profitable to retain What retention tactics are likely to be most effective

The idea is to match up active customers with customers from historic retention data who share similar attributes. Using the theory that “birds of a feather flock together”, the approach is based on the assumption that active customers will have similar retention outcomes as those of their comparable predecessor.

Niche Marketing

A niche is a more narrowly defined customer group who seek a distinct set of benefits. İdentified by dividing a segment into subsegments,distinct and unique set of needs,requires specialization, and is not likely to attract too many competitors.

Local Marketing

Marketing programs tailored to the needs of local customer groups.

Price Discrimination

Where a monopoly exists, the price of a product is likely to be higher than in a competitive market and the quantity sold less, generating monopoly profits for the seller. These profits can be increased further if the market can be segmented with different prices charged to different segments charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic. The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices available to members of a lower price segment. This behavior is rational on the part of the monopolist, but is often seen by competition authorities as an abuse of a monopoly position, whether or not the monopoly itself is sanctioned. Examples of this exist in the transport industry (a plane or train journey to a particular destination at a particular time is a practical monopoly) where business class customers who can afford to pay may be charged prices many times higher than economy class customers for essentially the same service.

Algorithms and Approaches

Any discrete variable is a segmentation. For instance, customers might be segmented by gender ('Male' or 'Female') or attitudes ('progressive' or 'conservative'). Numeric variables may be discretized to become segmentations, such as age ("<30" or ">=30") or income ("The 99% (AGI<US $300,000)" vs "The 1% (AGI >= US $300,000)").

Segmentations can be obtained by any number of approaches. Minimally, an existing discrete variable may be chosen as a segmentation, also called "a priori" segmentation. At the other extreme, a research project may be commissioned to collect data on many attributes and use statistical analyses to derive a segmentation, also called "post-hoc" segmentation. In between, qualitative knowledge of the market based on experience may be used to identify divisions that are likely to be useful.

Common statistical techniques for segmentation analysis include:

Clustering algorithms such as K-means or other Cluster analysis Statistical mixture models such as Latent Class Analysis Ensemble approaches such as Random Forests

Latent class analysis and k-means analysis may be viewed as identifying new variables that maximize the sum of mutual information between the segmentation variable and a set of basis variables.[5]

What is the difference between market and industry?We are presently writing a business plan to sell Web based sports training courses to young people, their parents and coaches. However, I am having difficulty in differentiating between what is our “market” and what is our “industry.” I know that “market” is who you are selling to and “industry” is what you’re selling. However, after reading multiple business plans including one of your samples, I’m not sure if Web based training (which is part of distance learning), is our market or industry. And if it is our industry, what is our market? I know our customers are primarily affluent young people who use the Web.

Read more: http://www.bplans.com/ask-bplans/2785/what-is-the-difference-between-market-and-industry#ixzz1vbsh50At

Business Marketing is the practice of individuals, or organizations, including commercial businesses, governments and institutions, facilitating the sale of their products or services to other companies or organizations that in turn resell them, use them as components in products or services they offer, or use them to support their operations. Also known as industrial marketing, business marketing is also called business-to-business marketing, or B2B marketing, for short. (Note that while marketing to government entities shares some of the same dynamics of organizational marketing, B2G Marketing is meaningfully different.) Business marketing vs. consumer marketingAlthough on the surface the differences between business and consumer marketing may seem obvious, there are more subtle distinctions between the two with substantial ramifications. Dwyer and Tanner (2006) note that business marketing generally entails shorter and more direct channels of distribution. While consumer marketing is aimed at large demographic groups through mass media and retailers, the negotiation process between the buyer and seller is more personal in business marketing. According to Hutt and Speh (2001), most business marketers commit only a small part of their promotional budgets to advertising, and that is usually through direct mail efforts and trade journals. While that advertising is limited, it often helps the business marketer set up successful sales calls. Marketing to a business trying to make a profit (Business-to-Business marketing) as opposed to an individual for personal use (Business-to-Consumer, or B2C marketing) is similar in terms of the fundamental principals of marketing. In B2C, B2B and B2G marketing situations, the marketer must always:

successfully match the product/service strengths with the needs of a definable target market;

position and price to align the product/service with its market, often an intricate balance; and

communicate and sell it in the fashion that demonstrates its value effectively to the target market.

Read more: http://wiki.answers.com/Q/What_is_the_difference_between_a_consumer_market_and_a_business-to-business_market#ixzz1vbtGOTme

1. eHow 2. Business 3. Marketing 4. Marketing Analysis 5. Difference Between Industry & Market Analysis

Difference Between Industry & Market AnalysisBy Renee O'Farrell, eHow Contributor , last updated March 18, 2012

Industry analysis and market analysis are two different ways to look at the environment in which a company competes. Although related, these two types of analysis differ in their scope.

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1. Industry analysis

o Industry analysis looks at long-term trends and economic forces that affect the overall industry. Industry analysis is commonly performed within the framework of Michael Porter’s "Five Forces," a theory used to assess the structure of an industry.

Five Forces

o Porter identified the following forces that affect an industry: bargaining power of suppliers; bargaining power of buyers; threat of new entrants; threat of substitutes (products or services that may be used instead of those in question; also called replacement products); and rivalry among competitors.

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Market Analysis

o Market analysis considers the “market” the company operates in. It asks questions like, “ What features are important to the target customer?” “How can I cause the target customer to buy this company’s product, instead of another’s?” “What marketing vehicles will attract and engage the target customer?”

Finding a Niche

o An integral part of market analysis is identifying “who” the target customer is, meaning the sort of person the product or service appeals to most. Also called a “niche”, it is typically expressed as a demographic. For example, the niche market for iPads could be young professional urbanites in two-income homes.

Competition

o Competition is examined in both industry and market analysis, and both types of analysis are important in understanding the competition a company faces. However, the scopes differ. In industry analysis, competition is examined at the industry level in terms of all the possible competition out there: companies that make the same product (i.e., candles), or make a product that fills the same need (i.e., gifts). Market analysis looks specifically at the competition that exists relative to the target market (i.e., designer candles, Yankee candles and scented candles).

Read more: Difference Between Industry & Market Analysis | eHow.com http://www.ehow.com/facts_6018322_difference-between-industry-market-analysis.html#ixzz1vbtdCy7O

The Difference Between Industrial and Consumer Marketing

By Michael Collins, President, MPC ManagementManageSmarter.com - September 1, 2009

Original Article

The majority of college marketing graduates are simply unprepared to go to work for industrial companies. So attests Jack McNally, dealer sales manager of Columbia Steel, a crusher wear parts manufacturer.

"The methods for marketing industrial products are substantially different from consumer marketing," explains McNally. Our industry has to invest considerable time in on-the-job training to teach these people industrial sales and marketing. It would be helpful if college professors went out into the manufacturing sectors to see for themselves how industrial products are bought and sold."

McNally's experience mirrors my own in training salespeople to sell industrial equipment. For years, we took people who were very familiar with the equipment (like engineers and technicians) and tried to make them salespeople. This only worked part of the time, and because these people never had any education or training in industrial marketing, the on-the-job training was very extensive.

I would much rather have had a non-engineering college graduate who was people-oriented…provided, of course, they had some education in industrial marketing and sales.

This problem has been around for years. It costs industrial corporations a great deal of time and money to train salespeople, and even after they have become good at sales, they still don't know anything about industrial marketing. In short, we need to develop college courses that teach industrial marketing, as well as industrial sales.

To provide you with a better understanding of the problem, let me explain some of the fundamental differences between consumer and industrial marketing:

Product complexity. First and foremost, industrial products are very complicated and require a lot of technical knowledge to sell. Industrial and technical products range from off-the-shelf bearings to custom-engineered machines of incredible complexity. The more custom the product, the more custom the marketing strategy.

Industrial buyers. Consumer marketing presupposes powerful sellers and passive, inexpert buyers who can be influenced to purchase by a variety of advertising techniques. In contrast, industrial markets consist of very knowledgeable buyers (and often buyer teams) who analyze products and purchases in terms of user benefits often measured in dollars or as ROI.

Bids and quotations. Consumers either buy or don't buy from listed prices. On the other hand, industrial products are often sold by request for quotes that may require a quotation with elaborate specifications to define the product.

Advertising and promotion. Developing a newspaper ad for impulsive shoe buyers is relatively straightforward, but it is very difficult to even identify the buying influences of dragline machines or material-handling robots. Inquiries produced by industrial advertising are only the beginning of a long, expensive selling process—sometimes lasting years before the sale occurs.

Market information. There is a lot of database information available on consumer products and an enormous amount of consumer demographic information, making consumer market research relatively easy to accomplish. On the other hand, information on industrial market niches is very difficult to acquire and is generally qualitative. This requires considerable industrial experience to gather.

Case studies. Cases showing how large consumer products companies market hairspray have little relevance to a small company marketing dragline shovel teeth. In fact, marketing strategies used by large companies aren't even practical for small companies that must market with limited staff, money, and time.

Product range. Marketing strategies change drastically with the type of product, length of the sales cycle, product size, and the number of decision makers. For example, the selling, promotion, and pricing strategies used to sell low-unit-price, standard motors to known accounts are fairly straightforward. In contrast, capital equipment designed for production lines is usually large, complex in design, and has high unit prices that must be justified in terms of returns to the company and approved by the board of directors.

Fundamentally, as the industrial products become more complex with higher prices and longer sales cycles, the advertising, selling, pricing, and product development strategies are more complex and more specific to the situation.

Manufacturers of industrial products, large and small, need help with industrial marketing. Therefore, large companies have to train new employees on the job, and small companies hope to hire people with industrial marketing experience.

As mentioned earlier, there is definitely a need for college courses, seminars, and training on industrial marketing. Of the 2,500 business schools in the U.S., I believe less then 10 percent teach an industrial marketing course. I'd be very curious to hear from marketing professors and get their take on this problem.

What is the difference between industrial markets and consumer markets?

5 years ago Report Abuse

Tuesday H

Best Answer - Chosen by Voters

Hi There,

Good question. Generally these two market are diferenciated by the type of product they require. Major differences can be categorised into 2 main area.

1. Finished products and Partially finished product.

Industrial market usually require very specific products that the purchaser can specify and usually the producer custom manufacturers for the industry.

For example a computer manufacturer may purchase computer chips from Intel or AMD. They are usually packed in bulk packing and come without instructions or additional packaging. When a consumer purchase a processor chip, it comes with consumer packing, instructions and warranty.

In short industrial market wants best products in bulk and no frills. Whereas consumer market gets the full packaging and warranty and user guide but pays more for it.

2. Catering for higher volume and higher usage

Industrial products like the example above are meant to produce products or benefits that is transfered or sold to their customer. Consumer products are for localised benefit or consumption.

For Example lets take a can of beans. When the normal consumer buys a can of beans it can be used for a single meal. But a single meal for the food industry for example inflight catering, a can to them is probably 50 times more than the average consumer.

Industrial cleaning chemical is another example, not only it is designed for a specific purpose but it also requires knowledge and skill to use it but for the average consumer it is already pre-mixed for use.

I hope from the examples given you can differenciate industrial and consumer market.

a. Problem recognition: The first stage of the business buying process in which someone in the company recognizes a problem or need that can be met by acquiring a good or a service.

b. General need description: At this stage of business buying process company describes the general characteristics and quantity of a needed item.

c. Product specification: At this stage of the business buying process buying organization decide on the product and specifies the best technical product characteristics for a needed item.d. Value analysis: An approach to cost reduction, in which components are studied carefully to determine if they can be redesigned, standardized or made by less costly methods of production.e. Supplier search: At this stage of the business buying process buyer tries to find the best vendors.

f. Proposal solicitation: The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals.

g. Supplier Selection: The stage of the business buying process in which the buyer reviews proposal & selects a supplier or suppliers

h. Order-routine specification: The stage of the business buying process in which the buyer writes the final order with the chosen supplier(s), listing the technical specifications, quantity needed, expected time of delivery, return policies, & warranties.i. Performance review: The stage of the business buying process in which the buyer rates its satisfaction with suppliers, deciding whether to continue, modifies, or drops them.