Segmenting Business Markets free essay sample

In this lesson, we will discuss concepts and applications related to Business to Business (B2B) market segmentation. Market segmentation involves breaking down a large heterogeneous market into smaller homogeneous markets. Separate marketing programs – the marketing mix can then be developed to meet the needs of each segment. Concentration of marketing solutions is the key component of all marketing plans, and market segmentation is the tool that allows marketers to achieve this focus. Segmentation also helps marketers to satisfy customers while meeting their organization’s objectives. A segmentation base is a characteristic or variable of individuals, groups, or organizations that is used to divide a total market into segments. Markets can be segmented using a single or multiple variables. The five bases of segmentation commonly used in the B2C marketplace we learned are: 1. Geographic is based on region, size, density, and climate characteristics. 2. Demographic is based on age, gender, income level, ethnicity, and family life-cycle characteristics. We will write a custom essay sample on Segmenting Business Markets or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page . Psychographic includes personality, motives, and lifestyle characteristics. 4. Benefits segmentation identifies customers according to the benefits they seek in a product. 5. Usage segmentation divides a market by the amount of product purchased or consumed. Bases for Segmenting Business Markets: We know that the business market consists of four broad segments described as producers, resellers, institutions, and governments. However, just as with consumer markets, further segmentation can help B2B marketers to better refine their marketing mix. Company characteristics, such as geographic location, type of company, company size, and product can be used as segmentation variables. Customer type allows business marketers to customize their programs to the unique needs of particular types of organizations or industries. Information from sources such as Statistics Canada , U. S. Census Bureau and the North American Industry Classification System (NAICS) are used by many marketers to tailor programs to specific business sectors. Firmographics is a term often used to describe this segmentation based on various characteristics of an organization. What demographics are to consumer markets, Firmographics are to organizations. Commonly-used firmographics include employee size, revenue size, industry, number of locations and location of headquarters. Marketers typically combine several variables to define a Firmographics profile of their target market customers. Food for thought: Jeffrey Henning, Founder VP, Strategy at Vovici (Voice of the Customer technology solutions) provides historical notes on the introduction of the concept of Firmographics and its uses in B2B marketing including a template that you might find useful! How they buy segmentation is another variable that can be very useful to marketers developing programs for the business buyer. The descriptors of these high level attributes are: a. ) Satisficers usually contact familiar suppliers and place an order with the first to satisfy product, delivery requirements or other purchase criteria the organization might establish. b. ) Optimizers consider numerous suppliers, both familiar and unfamiliar, and then solicit bids and analyze options. Governments and Non profit organizations generally utilize this approach. Size of the order or cost will also factor in to whether the buying organization will be a satisficer or an optimizer. For this reason marketers must be careful not to oversimplify when assigning this segmentation base. A growing trend in business marketing is the development of market segments based on the characteristics of the individual buying influencers found in the target customer organizations that have been identified through Firmographics. The Buyers personal characteristics or psychographics can influence their buying behavior and therefore offer a viable basis for segmenting in many business markets. These characteristics include: * Demographic characteristics * Decision style * Tolerance for risk * Confidence level * Job responsibilities Psychographics are extremely useful data to gather, but not essential for all businesses. Obviously more critical in the consumer space it can also help in B2B businesses by defining potential customer attitudes to the products/services offered. Many marketer’s have taken this concept further with the development of buyer personas to facilitate and fine tune the marketing messages directed at their most sought after customers. Adelle Revella, a thought leader on product and marketing strategies delivers further insights on this topic in her Buyer Persona Blog. Other B2C market segmentation bases such as Benefits sought and Usage rate may also be applied in business markets. The aim of market segmentation is to arrive at clusters of like-minded companies to allow marketing programs to focus on the subset of prospects that are most likely to purchase. There is a very strong pressure to use segmentation in B2B markets to win a competitive advantage where there is little to differentiate one product offering from another. Segmentation therefore links strongly with a firm’s marketing strategy to achieve a sustainable differentiated position. Market Strategies for Business Market segmentation is the first step in determining whom to approach about buying a product. The next task is to choose one or more target markets – the group of people or the organizations for which the firm will design, implement and maintain a marketing mix. This stage is the Target Market strategy or Targeting strategy and is characterized by the marketer’s decision about market approach. There are three distinct strategies that may be elected. Let’s refresh our memories. A. Undifferentiated Marketing Strategy This means the market is treated as if it were one similar market segment. It focuses on the common needs of the group rather than the differences. Its advantage is that it keeps costs down for marketing and similar related efforts. It works best with organizations that offer stable type products such as gasoline. An undifferentiated targeting strategy is essentially a mass-market philosophy—viewing the market as one big market and using one marketing mix. It is the least successful B2B targeting strategy a marketer can adopt. B. Multisegment Marketing Strategy Is a strategy that chooses two or more well defined market segments for which the organization will develop and maintain a unique marketing mix. Often the core product will remain the same but the firm develops separate marketing messages, pricing, promotion material and so forth. An example of this strategy is found at Halogen Software, the human resources or talent management solution providers. Halogen has developed core software components. By packaging the core software with additional resources Halogen can appeal to different B2B market segments. Halogen Software has â€Å" optimized† solutions (product/services) for human resource professionals in healthcare, financial services, education, and manufacturing and maybe more. C. Concentrated Marketing Strategy The concentrated targeting strategy is a marketing approach based on appealing to a single segment of a market. It focuses a firms marketing efforts on a single segment or market niche. A firm can concentrate on understanding the needs, motives, and satisfactions of the members of one segment and on developing and maintaining a highly specialized marketing mix.