Bases for Market Segmentation in industrial markets.

 Q. Explain in detail various bases for market segmentation. 

Ans. Division of market into several segments is called market segmentation. Two broad classification of segmenting market are macro segmentation and micro segmentation. This is the one of the most common methods applied in industrial markets.

Bases for Market Segmentation in industrial markets.

1. Macro Segmentation: The macro bases of segmentation are based on the industry and organizational characteristics. Organizational characteristics include demographics, end-use markets, product applications, etc. This information can easily be collected by the industrial marketer from the secondary sources and also from the marketer’s information system. These macro variables are :

I. Industry Characteristics: An industrial marketer must list down industries, the product or service can be sold to. An industry has a unique requirements of products, purchase in a particular manner and requires certain level of quality of the product. Therefore, it is important that a company makes an in-depth study of the requirements of the industry before it starts to woo companies of that industry.

II. Organizational variables: Following features are included in this part:

(a) Organization size: The organization size is one of the most practical and easily identifiable criteria. 

(b) Geographic Location: Geographic location informs a company in detail about the culture as well as the communication requirements. It also relates to culture, language and business attitudes. For example, a company would adopt a different bidding strategy for an Asian customer with an American customer. 

III. Customer Variables: These includes the following:

(a) Level of Competition: The level of competition in the customer’s industry plays an important role in the segmentation of the industrial markets. If the market competition is higher, then it will not attract the newcomers. 

(b) Purchasing Decision: This criterion can only be applied 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.

IV. Application Variables: Following variables are included in this:

(a) Product Application: Various products are used in different ways. For example, the small electrical switches are used in the production of small household appliances, computers, televisions, etc. Hence, markets can segmented on the basis of product application.

(b) Purchasing Situation: Another real life criterion for the market segmentation is the purchasing situation. The purchasing situations can be classified as new task, modified re-buy or straight re-buy. Due to increased competition and globalization in most of the established industries, companies are focusing on small number of markets, analyze them and then establish long-term relationship with the customers. This is because they believe that it is cheaper to keep an existing customer than to find a new one. Analyzing purchase situation helps the companies to maintain good relations with their customers.

Purchase Situation Variables: The following are the different purchase situation variables:

(i) Purchasing Policies: Market segmentation may also be based on the purchasing process of the customers. While some customers prefer agreement based on supplier’s cost, other purchasers negotiate from a market based price. Some also use bids or prefer to take on lease.

(ii) Purchasing Criteria: Market can be further segmented on the basis of the purchasing criteria employed by the buyers across organizations. This criteria can be performance, economic, integrate, adaptive or legalistic criteria. This criteria vary in their degree of importance, depending on the purchase situation.

(iii) Organization of Purchasing Function: The organization of the purchasing function to some extent determine the size and operation of a company’s purchasing unit. While in some buying, centers plant managers and top managers would be involved, in some others, the external sources of expertse would be depended upon for making purchase decisions.

(iv) Inventory Requirements: Segmentation can also be made on the basis of inventory requirements of the various firms. Organizations can be segmented so as to avoid targeting those customers whose inventory requirements cannot be met. However, if the supplies are capable enough, then markets that use MRP and JIT systems can be targeted. Search targets are required to be highly competent.Suppliers who can deliver defect free products,  on time and on a regular schedule basis. 

2. Micro Segmentation: Micro segmentation include the understanding of markets, market information, decision making unit, etc. This type of segmentation requires the collection of large amount of primary data. “Micro segments are homogeneous groups of buyers within the macro segments” (Webster, 2003). Following are the basis of micro segmentation:

I. Purchasing Objectives: The objectives of purchasing are different from organization to organization. Companies have different purchasing philosophies. Large organisation stresses upon quality as well as service, on the other hand, the small organization look for better bargain and discounts. Further, the order supply, quality and servicing are also essential variables. If marketers are not able to meet the requirements of buyers, they should avoid such customers. 

II. Choice criteria: A company’s choice criteria will depend on how it has decided to compete in its own market. Therefore, a buyer will not Budge on quality because it is making a premium product and another will not budge (change one’s position, opinion or demand, especially unwillingly / compromise on price) on price because it is making a value for money product. A seller needs to understand what each of its buyer is trying to achieve. The buyer who is buying premium products will be willing to pay a higher price if the seller offers ti increase the quality of its products, and the buyer who is buying value for money products will be willing to buy products of lower quality if the seller offers to reduce its price. Therefore, a seller needs to have different marketing mix when its buyers have different choice criteria, and salespeople will need to emphasize on different benefits with different clients.

III. Buying Decision Criteria: It includes product quality, delivery,  technical support, price, supply continuity. The marketer miĝht 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, prompt delivery, low price.

IV. Structure of the Decision-Making Unit: It can be one of the most effective criteria. Buying in an individual unit is done by the group of members and is not the task of an individual. There are multiple factors which affect the buying as the members can be different from different departments like marketing, production, engineering, research and development and also purchase. So, when marketer understands the members involved in purchase, it can lead to the identification of meaningful segment.

V. Personal Characteristics: Decision-making is done by the human beings and the personal characteristics of the decision maker play a great role in this process. So, it is also possible to segment the market on the basis of the personal characteristics of the individuals involved in purchasing. For example, segmentation can be done on the basis of demographics, personality, non-task motives, individual perceptions and risk management strategies. But the problem in this basis is that data would be literally impossible to obtain.

VI. Evaĺuating Potential Segments: Industrial markete has an array of segmentation variables to choose from. Research may be worthwhile to identify the most appropriate of those variables. Moreover, since customer’s need and competitor’s activities are constantly changing, a marketer must review his segmentation strategy periodically. After identifying target segments, the marketer must access their profitability by differentiating the marketing program to each multiple target segments.  Hence, a first approximation of cost benefit analysis is necessary before a detailed segment issue analysis is begun. The potential profit and competitive situation of various segments may then be evaluated. 

VII. Market Profitability Analysis: Four primary elements are involved in analyzing the profitability of any potential segments:

• Market potential, the most optimistic estimate of the amount of product that an entire market will purchase in a given period of time.

• Sales potential, the most optimistic estimate of company's share of market potential in a given time period.

• Sales forecast, the estimate of a company's expected sales in a given time period.

• Profitability, the differences between potential renew and the cost of serving and manufacturing customers.