4MD3 Business to Business Marketing

Steve Howse

February 2, 2009

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PREVIEW OF THEORIES

• the buy-grid model• switch “triggers”• how customers evaluate bids• theories of business buyer motivation• the buying team (AKA buying centre)

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Segmentation

Targeting

Positioning

The 4 Ps

 

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DEFINITION OF A BUSINESS SEGMENT

• Organizations…

• with similar needs, expectations and preferences (NEPs)…

• i.e. seeking similar benefits…• i.e. that respond similarly to a given

4P mix   

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MORE ON SEGMENTATION

• first marketing reference in 1956• segments are identified, not

created• the size of segments

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WHY SEGMENT MARKETS?

• purpose of segmentation is creation of a unique 4P mix for each segment

• benefits of segmentation are…o a competitive advantage  o higher margins 

• but there’s a problem…

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THE GULF BETWEEN SEGMENTATION THEORY

AND PRACTICE

• “the task is simply avoided because managers do not understand how to approach segmentation”

• “managers find the practice of segmentation difficult and confusing”

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YOUR SEGMENT CHOICE DETERMINES YOUR…

• customers• competitors• external environments • positioning• 4Ps • firm's skills and resources• firm's growth rate  i.e. just about everything, so choose wisely!!

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THE MARKETING PROCESS (STP + P)  

• S: choose your segmentation variable(s) • T1: gather data on the resulting

"candidate segments" • T2: select your target markets (TMs)  • Po: choose a unique product position for

each TM• Pr: create a unique 4P mix for each

TM/position  

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THE BEST VARIABLESTO CHOOSE IN THEORY

• the NEPs themselves• that’s called "benefit segmentation“• or "customer-back segmentation" • but it's often too difficult in practice 

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SO IN PRACTICE…

• "predictor variables“ often used insteado customer attributeso customer behaviours o i.e. CABso usually in combination

• discrimination is the test of their validity

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MACROSEGMENTATION VARIABLES

Observed outside the customer organization•  geographic location• customer size • customer existing or new?(cont’d)• commercial enterprise, government or NPI?• customer’s NAICS classification• econometric foot-printing• business clustering

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MICROSEGMENTATION VARIABLES

Inside the Customer organization• price sensitivity  • business culture• purchase orientation• purchasing centralized or

decentralized? • criticality of on-time delivery  

(cont’d)

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MICROSEGMENTATION VARIABLES (CONT’D)

• criticality of product use• intensity of product use  • level of loyalty of existing

customers• customer’s innovativeness• degree of product value-added

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COMBINATION METHODS

 • two-stage segmentation • nested approach

 

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USING A CUSTOMER DATABASE

CRM• definition: the business marketer's repository for all relevant customer information

• great for segmentation • and for account management • and for targeting promotion • what your database should contain

 

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TARGETING CRITERIA – A WISH LIST

o high unit volume o high volume

growtho high unit priceo low segment-

specific costso low segment risk

•easy accessibility

•good fit with your firm’s objectives, resources and values

•high awareness of your firm and products

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SEGMENT-SPECIFIC COSTS

• product• promotion• distribution • pricing

• research, analysis and planning

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CHOOSING THE NUMBER OF SEGMENTS TO SERVE

• i.e. the number of target markets

• the benefits of segmentation…• must exceed segment-specific costs

• under-segmentation• over-segmentation

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POSITIONING

• deciding the customer benefits you want your offering to be known for

• becomes your promotional message

• don’t use technical features

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BM/CM DIFFERENCES - MARKET RESEARCH

• usually identified before contact • personal interviews done in R's office   • harder to contact  • more wary when contacted• higher interviewer skills required• not as much formal research  needed• sample and population are smaller

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BM/CM DIFFERENCES - MARKET RESEARCH

(CONT’D)• research is less formal and structured  • more effort for secondary research• primary research mostly surveys• surveys mostly ‘phone or face-to-face  • response rate higher for mail surveys• must research more customer layers  

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Steve’s Tips• You decide….