Segmenting The Business Market and Estimating Segment Demand

Chapter 4
Segmenting the
Business Market and
Estimating Segment
Demand
Developed by Cool Pictures and MultiMedia Presentations
Copyright 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
High-Growth
Companies
Succeed By
Selecting a
well-defined
group of
potentially
profitable
customers.
Developing a
distinctive
value
proposition.
Focusing
marketing
resources on
acquiring,
developing,
and retaining
profitable
customers.
Four Criteria for Evaluating Potential

Market Segments
1. Measurability
2. Accessibility
3. Substantiality
4. Responsiveness
Segmentation Benefits
First, the marketer to become more attuned
to the unique needs of customer segments.
Second, focus product development efforts,
develop profitable pricing strategies, select
appropriate channels of distribution.
Third, provides guidelines that are of
significant value in allocating marketing
resources.
Bases for Segmenting Business Markets

Macrosegmentation
Centers pm characteristics of buying organisation and the buying situation thus divides market organisational
characteristics, ie size, geographic location, NAICS
Microsegmentation.
Higher degree of market knowledge, characteristic such as decision making units with each macrosegment including
buying decision criteria, perceived importance of the purchase, and attitudes towards vendors.
NAICS Classification System
Selected Macrolevel Bases of Segmentation
Macrolevel bases of segmentation are concerned with

general characteristics of the buying organization, the
nature of the product application, and the characteristics
of the buying situation.
Selected Microlevel Bases of Segmentation
The marketer often finds it useful to divide each

macrosegment into smaller microsegments on the
basis of the similarities and differences between
decision-making units.
Illustration: Price vs Service

Four segments uncovered:
Programmed buyers
Customers who are not particularly price or service sensitive
Relationship buyers
Knowledgeable customers who valued partnership, did not
push for price / service concessions product moderately
important to firms operations
Transaction buyers
Large and very knowledgeable customers who actively
considered the price vs service trade offs but often place price
over service
Bargain buyers
Large volume buyers who were very sensitive to changes in
price or service product is very important to their operations.
Value Based Strategies

Innovation-focused customers committed to being first
to the market with new technologies & seek new product
development expertise and innovative solutions
Customers in fast-growing markets pressured by
competitive battles over market growth & seek proven
performance in technology, manufacturing, and supply
chain management.
Customers in highly competitive markets who produce
mature product, center on process efficiency and
effectiveness in manufacturing and seek cost-effective
solutions.
Purchasing Strategies Classifications

1. Satisficers approach a given purchasing requirement
by contacting familiar suppliers and placing the order
with the first supplier to satisfy product and delivery
requirements.
2. Optimizers consider numerous suppliers, familiar and
unfamiliar, solicit bids, and examine all alternative
proposals carefully before selecting a supplier.
Segment Structure of Decision-Making

Unit
Medical equipment segment: Groups that select a single supplier that all
member hospitals must use, such as investorowned hospital chains
Groups that select a small set of suppliers from
which hospitals may select needed products
Private groups practices and the non-hospital
segment.
Meaningful Microsegments
Importance of Purchase -- appropriate when the product is
applied in various ways by various customers.
Attitudes toward Vendors an analysis of how various
clusters of buyers view alternative sources of supply often
uncovers opportunities.
Organizational Innovativeness some organizations are
more innovative and willing to purchase new industrial
products than others.
Personal Characteristics although some interesting
studies have shown the viability of segmentation on the basis
of individual characteristics, further research is needed to
explore its potential as a firm base for microsegmentation.
An Approach to
Segmentation of
Business Markets
This figure combines

these macrosegment
bases and outlines and
steps required for effective
segmentation.
Source: Adapted by permission of

the publisher from Yoram Wind
and Richard Cardozo, Industrial
Market Segmentation, Industrial
Marketing Management 3 (March
1971): p. 156. Copyright 1974 by
Elsevier Science Publishing Co.,
Inc.
Implementing a segmentation strategy

Successful implementation requires attention to the
following issues: How should the sales force by organised?
What special technical or customer service requirements
will organisations in the new segment have?
Who will provide these services?
Which media outlets can be used to target advertising at
the new segment?
Has a comprehensive online strategy been developed to
provide continuous service support to customers in this
segment?
What adaptations will be needed to serve selected
international market segment?
Organizational Demand Perspectives

First, what is the highest possible level of
market demand that may accrue to all
producers in this industry in a particular time
period?
Second, what level of sales can be reasonably
expect to be achieved, given a particular level
and type of marketing effort?
The Relationship Between Potential and the Forecast
The sales forecast answers the question:

What level of sales do we expect next year, given a
particular level and type of marketing effort?
Developed by
Developed
byCool
CoolPictures
Pictures
andand
MultiMedia
MultiMedia
Presentations
Presentations
Copyright Copyright
2004 bySouth-Western,
a division
of Thomson
Learning,
Inc. Inc.
All rights
reserved.
2004 by South-Western,
a division
of Thomson
Learning,
All rights
reserved.
Estimates of Absolute Market Potential

1. Select a statistical series that appears to be related to
demand for the product.
2. For each target NAICS industry, determine the
relationship of the series to the demand for the
product whose potential is being estimated.
3. Forecast the statistical series and its relationship to
demand for the desired time frame.
4. Determine market potential by relating demand to
future values of the statistical series.
Estimating Market Potential

Depends On:
How well the demand or usage factor represents
underlying demand?
The quality of the data used.
The ability to estimate future values of the series and
usage factors.
The extent of distortion caused by using averages and
gross estimates.
Two Primary Approaches

to Sales Forecasting
1. Qualitative techniques
Rely on informed judgment and rating schemes.
Include the executive judgment method, the sales force composite

method, and the Delphi method.
Effectiveness of qualitative approaches depends on the close

relationships between customers and suppliers.
2. Executive Judgment
Enjoys a high level of usage.
Collective expertise, experience, and opinions are used.
Primary limitation does not systematically analyze cause-andeffect relationships.
There is no established formula for deriving estimates.
Developed by
Developed
byCool
CoolPictures
Pictures
andand
MultiMedia
MultiMedia
Presentations
Presentations
Copyright Copyright
a division
of Thomson
Learning,
Inc. Inc.
All rights
reserved.
a division
of Thomson
Learning,
All rights
reserved.
Important Criteria in Selecting a

Statistical Series
1. Data on the series must be available.
2. Future estimates of the series should be
easier to predict than product demand
would be.
Summary of Qualitative Forecasting Techniques
Typically, qualitative estimates will be merged with those

developed quantitatively.
Developed by
Developed
byCool
CoolPictures
Pictures
andand
MultiMedia
MultiMedia
Presentations
Presentations
Copyright Copyright
a division
of Thomson
Learning,
Inc. Inc.
All rights
reserved.
a division
of Thomson
Learning,
All rights
reserved.
Delphi Application
Usually applied to long-range forecasting.
Well suited to:
New product forecasts.
Estimation of future events for which
historical data are limited.
Situations that are not suited to quantitative
analysis.
Quantitative Forecasting Offers Two

Primary Methodoligists
Time series techniques use historical data ordered in time to
project the trend and growth rate of sales.
Regression or casual analysis, uses factors that have affected
sales in the past and implements them in a mathematical
model.

Segmenting The Business Market and Estimating Segment Demand

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Segmenting The Business Market and Estimating Segment Demand

Uploaded by

Copyright:

Available Formats

Chapter 4

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

Four Criteria for Evaluating Potential

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

Bases for Segmenting Business Markets

Developed by Cool Pictures and MultiMedia Presentations

NAICS Classification System

Developed by Cool Pictures and MultiMedia Presentations

Selected Macrolevel Bases of Segmentation

Macrolevel bases of segmentation are concerned with

Developed by Cool Pictures and MultiMedia Presentations

Selected Microlevel Bases of Segmentation

The marketer often finds it useful to divide each

Illustration: Price vs Service

Value Based Strategies

Developed by Cool Pictures and MultiMedia Presentations

Purchasing Strategies Classifications

Developed by Cool Pictures and MultiMedia Presentations

Segment Structure of Decision-Making

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

This figure combines

Source: Adapted by permission of

Developed by Cool Pictures and MultiMedia Presentations

Implementing a segmentation strategy

Organizational Demand Perspectives

Developed by Cool Pictures and MultiMedia Presentations

The Relationship Between Potential and the Forecast

The sales forecast answers the question:

Estimates of Absolute Market Potential

Developed by Cool Pictures and MultiMedia Presentations

Estimating Market Potential

Developed by Cool Pictures and MultiMedia Presentations

Two Primary Approaches

Rely on informed judgment and rating schemes.

Include the executive judgment method, the sales force composite

Effectiveness of qualitative approaches depends on the close

Enjoys a high level of usage.

Collective expertise, experience, and opinions are used.

Primary limitation does not systematically analyze cause-andeffect relationships.

There is no established formula for deriving estimates.

Important Criteria in Selecting a

Developed by Cool Pictures and MultiMedia Presentations

Summary of Qualitative Forecasting Techniques

Typically, qualitative estimates will be merged with those

Quantitative Forecasting Offers Two

Developed by Cool Pictures and MultiMedia Presentations

You might also like