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How to segment
Industrial Markets
nested approach
managers can determine the best segmentation method

Course: Industrial ...
INTRODUCTION
Very little information available
Much difficult then consumer segmentation
Several Products, same applicatio...
Business markets vs. consumer markets
Consumer markets

Business markets

Many customers, geographically
dispersed

Fewer ...
NEW ANALYTICAL TOOL TO SEGMENT THE MARKET…
 Focus complex grouping of purchase situations, events,
and personalities
 5 ...
Analytical Tool- NESTED APPROACH…

• Picture explains how criteria relates to one another in a nest
• Marketer to move fro...
Criteria 1: DEMOGRAPHICS

6
Basics of DEMOGRAPHICS Segmentation

• Most general segmentation
criteria
• Broad description of company

• Relate to Gene...
Parameters…

•Industry
•Company Size
•Customer Location

8
Eg.: Segmentation in various Industries for CAT

•
•
•
•
•
•
•
•

Textile
Oil & Gas
Institutes
Hotels and Resorts
Shopping...
Regional Market Share of CAT gensets
Eg.: Geographical Segmentation
Geographical Market Share
1%

5% 1%

29%

61%
2%
1%

K...
Criteria 2: OPERATING VARIABLES

11
Parameters…

•Company Technology
•Product & Brand-Use
Status
•Customer Capabilities

12
Criteria 3: Purchasing Approach

13
•Purchasing Function Organization

• Power Structure
•Buyer Seller Relation ships

•General Purchasing policies
•Purchasin...
Examples of Purchasing Approaches:
 Purchasing function organization:
 Centralized versus De-Centralized Approach
 Glob...
Examples of Purchasing Approaches:
 Power Structure:
 Identifying the right D.M.U
Dominance of Procurement / Engineerin...
Examples of Purchasing Approaches:
 Buyer Seller Relationship
 Relationship plays key role in purchase decisions. This i...
Examples of Purchasing Approaches:
 General Purchasing Policies
 The organizations general purchasing terms also plays a...
Examples of Purchasing Approaches:
 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...
Examples of Situational Factors:
 Urgency of order fulfillment
 IoBM procures diesel fuels for their standby generators ...
Examples of Situational Factors:
 Product Application
 Linde Pakistan (Formerly British Oxygen Company) is a
company tha...
Examples of Situational Factors:
 Size of Order
 You are a Mitchells Ketchup Sales Person, How would you
differentiate b...
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.
...
Examples of Personal Characteristics:
 Individual Behaviors
Some people base their decisions on past experiences, some
b...
Examples of Personal Characteristics:
 Risk Management Strategies
 Some buyers are risk averse, others are risk receptiv...
Reassembling the Nest
4 other possibilities
of Segmentation
1.) No Segmentation
2.)After the fact Segmentation

• 3 outer ...
31
SUMMARY
• Easy approach to use HIERARCHICAL STRUCTURE
• Marketer  balance b/w “Easily acquired data from Outer nests” & “...
33
THANK YOU 

34
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Nested approach to the segmentation of B2B markets

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Based on Havrard business review article about how to segment a B2B market, what are the challenges and how to over come those challenges

Published in: Marketing, Business
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Nested approach to the segmentation of B2B markets

  1. 1. 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
  2. 2. 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 of key markets & Management of Marketing 2
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. Criteria 1: DEMOGRAPHICS 6
  7. 7. Basics of DEMOGRAPHICS Segmentation • Most general segmentation criteria • Broad description of company • Relate to General Customer Need • Can be determined w/o visiting customer 7
  8. 8. Parameters… •Industry •Company Size •Customer Location 8
  9. 9. Eg.: Segmentation in various Industries for CAT • • • • • • • • Textile Oil & Gas Institutes Hotels and Resorts Shopping Malls Hospitals Automotives Beverages 9
  10. 10. 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
  11. 11. Criteria 2: OPERATING VARIABLES 11
  12. 12. Parameters… •Company Technology •Product & Brand-Use Status •Customer Capabilities 12
  13. 13. Criteria 3: Purchasing Approach 13
  14. 14. •Purchasing Function Organization • Power Structure •Buyer Seller Relation ships •General Purchasing policies •Purchasing criteria 14
  15. 15. 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.
  16. 16. 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.
  17. 17. Examples of Purchasing Approaches:  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.
  18. 18. Examples of Purchasing Approaches:  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.
  19. 19. Examples of Purchasing Approaches:  Purchase Criteria  A mix of all the criterias mentioned in the previous slides.
  20. 20. Criteria 4: SITUATIONAL FACTORS
  21. 21. 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!
  22. 22. 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.
  23. 23. 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
  24. 24. Examples of Situational Factors:  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
  25. 25. Criteria 5: PERSONAL CHARACTERISTICS
  26. 26. Always remember, People, not companies, make purchase decisions!
  27. 27. 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
  28. 28. 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.
  29. 29. Examples of Personal Characteristics:  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. 30. Reassembling the Nest 4 other possibilities of Segmentation 1.) No Segmentation 2.)After the fact Segmentation • 3 outer nests = Company Variables • Criteria change when move from Outer to inner nest in terms of: 1.) Visibility 2.) Permanence 3.) Intimacy 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 30
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  32. 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 32
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  34. 34. THANK YOU  34

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