Edition Vitale, Giglierano and Pförtsch Chapter 7 Segmenting, Targeting, and Positioning

2 3 Basic Concepts in B2B Marketing SegmentingTargetingPositioning

3 Basic Ideas of Segmentation Marketers seek to create market segments that have the characteristics of Measureability Accessibility Substantiality Actionability

4 Measureability Can we understand the size and needs of the market segment? Accessibility Can we communicate with the segment so that serving the segment is possible? Substantiality Does the segment desire that values that an offering presents? Actionability Can we create a competitive advantage with respect to the needs of the segment?

5 Common Bases for Segmentation By product offered By industry in which the customer participates By size of the customer’s company By buying behavior By technology used by the customer By size of account By geographic region

6 Value-Based Segmentation Value: the sum of the benefits minus the sum of the costs Companies should try to choose and address segments that are homogenous in the kinds of value sought. Homogenous Segments Heterogenous Segments

7 Analytic Approach to Segmentation Analytic approaches need two sets of data: 1)Information about segment size and growth Standard Industrial Classification (SIC) and North American Industrial Classification System (NAICS) codes are useful. 2)Information about each targeted segments needs and buying behavior.

8 Hypothetical Segmentation Data From secondary data (US Census data) –Number of business with employees375,000 From quick survey of consultants –Seg 1: Major turnaround10% –Seg 2: Stopping deterioration20% –Seg 3: Competitive improvement30% –Seg 4: Specific area improvement 1 50% From Delphi estimate of small business consultants: –Seg 1: Change in major turnaround by % –Seg 2: Change in stopping deterioration by % –Seg 3: Change in competitive improvement by % –Seg 4: Change in specific area improvement by % 1 – can overlap with other categories

9 Hypothetical Sizes of Market Segments Segment# of Small Businesses in 2000 # of Small Businesses in 2002 Change, 2000 to 2002 Segment 1 – Major turnaround 37,50075,000100% Segment 2 - Stopping deterioration 75,000150,000100% Segment 3 - Competitive improvement 112,50056,250(50%) Segment 4 – Specific area improvement 112,500281,250150% This shows how an analytic approach can be used to estimate segment size and growth. To complete the analysis, data is also needed on the needs and buying behavior for each segment. Go to Exhibit 7-6

10 Segmentation by Discovery Sometimes, a business starts serving only 1-2 large customers. Over time, additional customers who seek something similar to the original offering are recruited/attracted. In this way, a new segment is “discovered.” Field marketing personnel must be coached to recognize such discovery opportunities. Proprietary information of different customers must be respected.

11 Factors in Assessing Segment Attractiveness Size of segment Growth rate of segment Intensity of unmet needs Reachability of segment through communication channels Readiness of segment to reach and adopt a solution Likelihood of competitive intensity Sufficiency of channel reach Likely value contribution by channel(s) Match between segment needs and supplier’s strengths Differentiability of supplier’s offering Opportunity to achieve strategic goal by addressing segment Opportunity to achieve learning goal by addressing segments

12 Attractiveness of Segments Market Attractiveness Competitive Attractiveness Channel Attractiveness Internal Attractiveness Attractiveness – Other Considerations

13 Market Attractiveness Market Attractiveness Competitive Attractiveness Channel Attractiveness Internal Attractiveness Attractiveness – Other Considerations Large and fast growing segments are more attractive than smaller and slow-growing segments This necessitates accurately predicting future growth. Other issues include Adaptability of market segments, Existing relationships with the buying center members, and Available customer’s budget

14 Competitive Attractiveness Market Attractiveness Competitive Attractiveness Channel Attractiveness Internal Attractiveness Attractiveness – Other Considerations What is the likely existence or emergence of competition in the market segment? Are there barriers to entry facing competitors? Does being first to market provide an advantage?

15 Channel Attractiveness Market Attractiveness Competitive Attractiveness Channel Attractiveness Internal Attractiveness Attractiveness – Other Considerations It is preferable to target customers already served by well-established marketing channels, or if an existing channel can be adapted, it may serve the segment. When there is no suitable existing channel, a market view of competition may be necessary. How is the existing need being met? Will customers switch?

16 Internal Attractiveness Market Attractiveness Competitive Attractiveness Channel Attractiveness Internal Attractiveness Attractiveness – Other Considerations A segment is more attractive when the segment’s needs can be met by the firm’s core competencies. This is identified through environmental analysis.

17 Segment Attractiveness Segment 1 Major Turnaround Segment 2: Stopping Deterioration Segment 3: Competitive Improvement Segment 4: Specific Area Improvement Potential Size in 2000 (in millions) 2 $ $ $ $562.5 Growth, % by % % 1 -50% % Need strength543.5 Competitive strength3343 Channel reach5555 Communications reach 4444 Capability fit2552 Price sensitivity2343 Overall attractiveness (sum of attribute scores)

18 Attractiveness – Other Considerations Market Attractiveness Competitive Attractiveness Channel Attractiveness Internal Attractiveness Attractiveness – Other Considerations Other factors that might cause a segment to rated higher or lower include: Public policy (excessive government regulation can cause a segment to be downgraded) Organizational goals (market share goals may make firms more aggressive in targeting)