Methods of Segmenting Industrial and Business Markets (Market Segmentation)

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Methods of Segmenting Industrial and Business Markets

You might assume that the bases for segmentation will differ between industrial and consumer markets. However, they have much in common. Industrial markets can be segmented with many of the same variables used in consumer market segmentation.

For instance, segmenting markets on the basis of end-user application is essentially benefit segmentation; a demographic basis is a geographical location; while a behavior basis is a way the company buys. 

As knowledge of industrial customers advances, segmentation can take account of the buying criteria, technical, economic, etc. 

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Methods of Segment Selection

Before selecting a basis, you must have substantial knowledge about the buyer. The basis chosen should be such that it evokes a sufficient purchase response to justify cultivating that segment. 

If it were easy to identify the various mixes of benefits sought by the different groups in the market, segmentation would hardly present any problem. But the major problem lies in determining what benefits the prospective buyers actually need, and what the relative ranking of these benefits distinguishes various buyer groups in the market.

For instance, how does one discover that consumers discriminate among, say, different brands of toilet soap on the basis of price, image, cosmetics power, size, packaging, hygiene effect, smoothness, freshness, etc? Also, what relative weights do they assign to these variables?

Another problem is that consumers do not actively seek what they would buy if it were available. As such, there is no standard answer to what basis is the best in a particular case, and companies resort to one or more of the following:

Intuition and Experience 

Many marketers try to segment their market on the basis of their empathetic understanding of the situation. But they must not forget to check such intuitive thinking against the evidence which may be there in support of the such hypothesis.

Trial and Error 

Trial and error is another method used to divide a market into different groups based on product attributes, and subsequently checking such groups is proving meaningful in terms of market response.

Research on Consumption Systems 

Observing and studying the total consumption system associated with the product in use helps generate new ideas for segmentation. 

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Research on Attitude and Perceptions 

This is an area that currently arouses adamant interest.

This type of research is used for consumer products that are introduced by big companies. Perceptual mapping is one technique that is used for such research.

Methods of Selection of Segments

Before we conclude this unit, let us examine how companies select their segments. 

(1) General Factors

Company Thrust

The company that segments its market needs to identify the requirements for success in the target market. Also, it must determine what business system consisting of marketing, production, finance, personnel, etc. will be needed to meet the requirements for success in that segment. 

As far as possible, the firm’s thrust should be such that it gives the company a critical advantage in that segment.

Size and Growth Potential 

Not only the present size but also the future growth potential of the concerned target market must be considered. The current market demand by itself may prove misleading.

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Investment Needed 

Investment needed for tapping that particular target market is another factor, and you must be meticulous enough to see that both entry costs and costs associated with building market share are included.

Profitability 

The question of profitability is associated with investment decisions. To calculate it, we must estimate future sales and costs in the concerned segment. What must also be considered is value-added to the product that is to be marketed in that target segment.

Risk 

There are risks associated with the extent to which a particular target market would respond. 

Competition 

The selection of the target market also underlies selecting the competitors with whom the company will compete.

Another crucial point to note in this context is that the segment may be large but may be well served already by several well-entrenched competitors. The question naturally would be whether one would like to enter such a segment.

(2) Specific Factors

  • Segment durability
  • Mobility
  • Visibility
  • Accessibility.

In conclusion, a good marketing program starts with the identification and analysis of the market for a product or service. A market is people with money to spend and the willingness to spend it. 

For most products, the total market is too broad and heterogeneous for a strategy of market aggregation. A more effective strategy is market segmentation, in which the total market is viewed as several smaller but more uniform sub-markets.

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