Bases for Segmenting Business Markets

We can segment business markets with some of the same variables we use in consumer markets,
such as geography, benefits sought, and usage rate, but business marketers also use other variables.
Table 8.5 shows one set of these. The demographic variables are the most important, followed
by the operating variables—down to the personal characteristics of the buyer.
The table lists major questions that business marketers should ask in determining which
segments and customers to serve. A rubber-tire company can sell tires to manufacturers of
automobiles, trucks, farm tractors, forklift trucks, or aircraft.Within a chosen target industry,
it can further segment by company size and set up separate operations for selling to large and
small customers.
A company can segment further by purchase criteria. Government laboratories need low prices
and service contracts for scientific equipment, university laboratories need equipment that requires
little service, and industrial labs need equipment that is highly reliable and accurate.
Business marketers generally identify segments through a sequential process. Consider an aluminum
company: The company first undertook macrosegmentation. It looked at which end-use
market to serve: automobile, residential, or beverage containers. It chose the residential market, and it
needed to determine the most attractive product application: semifinished material, building components,
or aluminum mobile homes. Deciding to focus on building components, it considered the best
customer size and chose large customers. The second stage consisted of microsegmentation. Thecompany distinguished among customers buying on price, service, or quality. Because
it had a high-service profile, the firm decided to concentrate on the service-motivated
segment of the market.
Business-to-business marketing experts James C.Anderson and James A.Narus have
urged marketers to present flexible market offerings to all members of a segment.52 A
flexible market offering consists of two parts: a naked solution containing the product
and service elements that all segment members value, and discretionary options that
some segment members value. Each option might carry an additional charge. Siemens
Electrical Apparatus Division sells metal-clad boxes to small manufacturers at prices that
include free delivery and a warranty, but it also offers installation, tests, and communication
peripherals as extra-cost options. Delta Airlines offers all economy passengers a seat,
small snack and soft drinks and charges extra for alcoholic beverages and meals.
Market Targeting
There are many statistical techniques for developing market segments.53 Once the firm has identified
its market-segment opportunities, it must decide how many and which ones to target.Marketers are
increasingly combining several variables in an effort to identify smaller, better-defined target groups.
Thus, a bank may not only identify a group of wealthy retired adults but within that group distinguish
several segments depending on current income, assets, savings, and risk preferences. This has led
some market researchers to advocate a needs-based market segmentation approach, as introduced
previously. Roger Best proposed the seven-step approach shown in Table 8.6.
Effective Segmentation Criteria
Not all segmentation schemes are useful. We could divide buyers of table salt into blond and
brunette customers, but hair color is undoubtedly irrelevant to the purchase of salt. Furthermore, if
all salt buyers buy the same amount of salt each month, believe all salt is the same, and would pay
only one price for salt, this market is minimally segmentable from a marketing point of view.
To be useful, market segments must rate favorably on five key criteria:
• Measurable. The size, purchasing power, and characteristics of the segments can be measured.
• Substantial. The segments are large and profitable enough to serve. A segment should be the
largest possible homogeneous group worth going after with a tailored marketing program. It
would not pay, for example, for an automobile manufacturer to develop cars for people who
are less than four feet tall.