Bases for Segmenting Business Markets

Business markets can be segmented with some variables that are employed in consumer market segmentation, such as geography, benefits sought, and usage rate. Yet business marketers can also use several other variables. Bonoma and Shapiro proposed segmenting the business market with the variables shown in Table 3.6. The demographic variables are the most important, followed by the operating variables— down to the personal characteristics of the buyer.

Segmenting Consumer and Business Markets 153 Table 3.6 Major Segmentation Variables for Business Markets


1. Industry:Which industries should we serve?

2. Company size: What size companies should we serve?

3. Location:What geographical areas should we serve?

Operating Variables

4. Technology:What customer technologies should we focus on?

5. User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?

6. Customer capabilities: Should we serve customers needing many or fewer services?

Purchasing Approaches

7. Purchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations?

8. Power structure: Should we serve companies that are engineering dominated,financially dominated, and so on?

9. Nature of existing relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?

10. General purchase policies: Should we serve companies that prefer leasing? Service contracts? Systems purchases? Sealed bidding?

11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

Situational Factors

12. Urgency: Should we serve companies that need quick and sudden delivery or service?

13. Specific application: Should we focus on certain applications of our product rather than all applications?

14. Size of order: Should we focus on large or small orders?

Personal Characteristics

15. Buyer-seller similarity: Should we serve companies whose people and values are similar to ours?

16. Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers?

17. Loyalty: Should we serve companies that show high loyalty to their suppliers?

Source: Adapted from Thomas V. Bonoma and Benson P. Shapiro, Segmenting the Industrial Market (Lexington, MA: Lexington Books, 1983).

A company should first decide which industries it wants to serve. Then, within a chosen target industry, the company can further segment by company size, possibly setting up separate operations for selling to large and small customers. Small businesses, in particular, have become a Holy Grail for business marketers, both on and off the Internet.27 Small businesses are now responsible for 50 percent of the U.S. gross domestic product, according to the Small Business Administration—and this segment is growing even faster than the large company segment.

IBM, already successful in marketing to corporate giants, is one of many companies targeting small businesses. Within the segment of U.S. firms with 1,000 or fewer employees, IBM is further targeting the segment of minority-owned businesses. IBM's strategy is to devote some field salespeople exclusively to small and medium-size businesses, hire executives responsible for targeting subsegments, become more involved in professional associations frequented by minority small-business owners, and offer more flexible contact options such as telesales and service.28

Looking beyond small businesses, marketers can be more effective even within mature commodity industries if they use segmentation for better targeting. For example, Rangan, Moriarty, and Swartz found these four business segments within the steel strapping industry:29

1. Programmed buyers: Buyers who see the product as not very important to their operation. This is a very profitable segment: The buyers view the product as a routine purchase item, usually paying full price and receiving below-average service.

2. Relationship buyers: Buyers who regard the product as moderately important and are knowledgeable about competitive offerings. They get a small discount and a modest amount of service and prefer the vendor as long as the price is not far out of line. This is the second most profitable segment.

3. Transaction buyers: Buyers who see the product as very important to their operations. They are price and service sensitive and receive some discounts, but they know the competition and will switch for a better price, even at the sacrifice of some service.

4. Bargain hunters: Buyers who see the product as very important and demand low prices and top service. They know the alternative suppliers, bargain hard, and are ready to switch if dissatisfied. The company needs these buyers for volume purposes, but they are not very profitable.

Clearly, developing a segmentation scheme for this kind of industry will help a business marketer determine where to increase or decrease price and service, since each segment reacts differently.30

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