Slide 13 Basic Concepts in B2B MarketingBasic Ideas of SegmentationSlide 4Common Bases for SegmentationValue-Based SegmentationAnalytic Approach to SegmentationExhibit 7-3: Hypothetical Segmentation DataExhibit 7-4: Hypothetical Sizes of Market SegmentsSegmentation by DiscoveryExhibit 7-5 Factors in Assessing Segment AttractivenessAttractiveness of SegmentsMarket AttractivenessCompetitive AttractivenessChannel AttractivenessInternal AttractivenessExhibit 7-6 Segment AttractivenessAttractiveness – Other ConsiderationsSlide 19StandardizationStandardsBack Office IntegrationSlide 23Real TimeSlide 25XMLEmerging StandardsEDIEvolution Will ContinueSlide 302002 EditionVitale and GiglieranoChapter 7Segmenting, Targeting, and PositioningPrepared by John T. Drea, Western Illinois University3 Basic Concepts in B2B MarketingSegmenting Targeting PositioningBasic Ideas of SegmentationMarketers seek to create market segments that have the characteristics ofMeasureabilityAccessibilitySubstantialityActionabilityMeasureabilityCan we understand the size and needs of the market segment?AccessibilityCan we communicate with the segment so that serving the segment is possible?SubstantialityDoes the segment desire that values that an offering presents?ActionabilityCan we create a competitive advantage with respect to the needs of the segment?Common Bases for SegmentationBy product offeredBy industry in which the customerparticipatesBy size of the customer’s companyBy buying behaviorBy technologyused by thecustomerBy size of accountBy geographicregionValue-Based SegmentationValue: the sum of the benefits minus the sum of the costsCompanies should try to choose and address segments that are homogenous in the kinds of value sought.HomogenousSegmentsHeterogenousSegmentsAnalytic Approach to SegmentationAnalytic 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.Exhibit 7-3: Hypothetical Segmentation Data•From secondary data (US Census data)–Number of business with 50-500 employees 375,000•From quick survey of consultants–Seg 1: Major turnaround 10%–Seg 2: Stopping deterioration 20%–Seg 3: Competitive improvement 30%–Seg 4: Specific area improvement150%•From Delphi estimate of small business consultants:–Seg 1: Change in major turnaround by 2002 +100%–Seg 2: Change in stopping deterioration by 2002 +100%–Seg 3: Change in competitive improvement by 2002 -50%–Seg 4: Change in specific area improvement by 2002 +150%1 – can overlap with other categoriesExhibit 7-4: Hypothetical Sizes of Market SegmentsSegment # of Small Businesses in 2000# of Small Businesses in 2002Change, 2000 to 2002Segment 1 – Major turnaround37,500 75,000 100%Segment 2 - Stopping deterioration75,000 150,000 100%Segment 3 - Competitive improvement112,500 56,250 (50%)Segment 4 – Specific area improvement112,500 281,250 150%•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 7-6Segmentation 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.Exhibit 7-5 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 segmentsAttractiveness of SegmentsMarket AttractivenessCompetitive AttractivenessChannel AttractivenessInternal AttractivenessAttractiveness – OtherConsiderationsMarket AttractivenessMarket AttractivenessCompetitive AttractivenessChannel AttractivenessInternal AttractivenessAttractiveness – OtherConsiderations•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 budgetCompetitive AttractivenessMarket AttractivenessCompetitive AttractivenessChannel AttractivenessInternal AttractivenessAttractiveness – OtherConsiderations•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?Channel AttractivenessMarket AttractivenessCompetitive AttractivenessChannel AttractivenessInternal AttractivenessAttractiveness – OtherConsiderations•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?Internal AttractivenessMarket AttractivenessCompetitive AttractivenessChannel AttractivenessInternal AttractivenessAttractiveness – OtherConsiderations•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.Exhibit 7-6 Segment AttractivenessSegment 1 Major TurnaroundSegment 2: Stopping DeteriorationSegment 3: Competitive ImprovementSegment 4: Specific Area ImprovementPotential Size in 2000 (in millions)2$187.53 $375.04$562.54$562.5Growth, % by 2002 4+100%4 +100%1-50%5+150%Need strength 5 4 3.5 3.5Competitive strength 3 3 4 3Channel reach 5 5 5 5Communications reach4 4 4 4Capability fit 2 5 5 2Price sensitivity 2 3 4 3Overall attractiveness (sum of attribute scores)27 31 30.5 29.5Attractiveness – Other