industrial - unext.in 5th session cons beh.pdf · segmentation, targeting, and positioning . ......

Segmentation

Industrial

Definition

• Market Segmentation: – Dividing a market into distinct groups

with distinct needs, characteristics, or behavior who might require separate products or marketing mixes.

Steps in Market Segmentation, Targeting,

and Positioning

Market Segmentation

• Segmenting Consumer Markets

• Segmenting Business Markets

• Segmenting International Markets

• Requirements for Effective Segmentation

• Geographical segmentation – Marketing mixes are

customized geographically

• Demographic segmentation

• Psychographic segmentation

• Behavioral segmentation

• Using multiple segmentation variables

Key Topics

Market Segmentation

Geographic Segmentation Variables

City or

Metro Size

Neighborhood

Density

Climate

World Region

or Country

Country

Region

City

Market Segmentation





• Geographical segments

• Demographic segmentation – Most popular type

– Demographics are closely related to needs, wants and usage rates




Key Topics

Market Segmentation

Demographic Segmentation Variables

• Age

• Gender

• Family size

• Family life cycle

• Income

• Ethnicity

Occupation

Education

Religion

Generation

Nationality

Market Segmentation





• Geographic segments


• Psychographic segmentation – Lifestyle, social class, and

personality-based segmentation



Key Topics

Market Segmentation








• Behavioral segmentation – Typically done first


Key Topics

Market Segmentation

Behavioral Segmentation Variables

• Occasions

• Benefits

• User Status

• User Rates

Loyalty Status

Readiness Stage

Attitude Toward

the Product

Market Segmentation










Key Topics

Market Segmentation






– Industry, company size, location

• Operating variables

– Technology, usage status, customer capabilities

• Purchasing approaches

• Situational factors

– Urgency, specific application, size of order

• Personal characteristics

– Buyer-seller similarity, attitudes toward risk, loyalty

Key Topics

Market Segmentation





• Geographic segmentation

– Location or region

• Economic factors

– Population income or level of economic development

• Political and legal factors

– Type / stability of government, monetary regulations, amount of bureaucracy, etc.

• Cultural factors

– Language, religion, values, attitudes, customs, behavioral patterns

Key Topics

Market Segmentation





• Measurable

– Size, purchasing power, and profile of segment

• Accessible

– Can be reached and served

• Substantial

– Large and profitable enough to serve

• Differentiable

– Respond differently

• Actionable

– Effective programs can be developed

Key Topics

Agenda

What are the Unique Aspects of Business

Market Segmentation?

What are the Models of Industrial Market

Segmentation?

How Business Market Segmentation Should

be Done?

How to Select Market Segments to Serve?

• A business firm must define the market in which it wishes to operate.

• In defining the market, business market managers choose descriptors (bases) that characterize and define a market.

What are the Unique Aspects of Business Market Segmentation?

What are the Unique Aspects of

Business Market Segmentation?

• The difference between consumer and industrial market segmentation is generally seen in the specific bases of segmentation.

• Consumer markets are typically segmented on the basis demographic or psychographic variables.

• As the industrial customer is not an individual but a number of interacting individuals in a decision making unit (DMU) of a formal organization, the bases of segmentation are different.

Prof. A. K. Biswas 18

Organizational demographics:

Industry/ Company size/ Location

Operating variables:

Technology/User status/Customer

capabilities (financial)

Purchasing approaches

Organization of DMU/Purchasing

policies/Purchasing criteria

Situational factors

Urgency/Applications/Order size

Personal characteristics:

Motivation/Buyer-seller /

Risk perceptions

General, observable

(Macro)

Specific, subtle

(Micro)

(Intermediate)

Bonoma And Shapiro Model Of Business Market Segmentation

• A marketer can begin at the outside nest and work inward because data are more available and definitions clearer in outer nests.

• On the other hand, situational and personal variables of the inner nests are often the most useful.


• The outer-nest criteria are generally inadequate when used by themselves in all but simple or homogeneous markets because they ignore buying differences among customers.

• Over emphasis on the inner-nest factors, however, can be too expensive and time-consuming for small markets.

• A balance is to be achieved between the two nests.


• The models help us in profiling the business firms – their details, and their behavioral characteristics.

• However, they do not answer the question what these customers want.

• The problem is that customers don’t conform their requirements to match with those of the average customer in their behavioral segment.

What is the Problem with these Market Segmentation Models?

How Market Segmentation

Should be Done?

The structure of a market, seen from the customers’ point of view, whether a individual or business firm, is very simple:

They just need to get things done.

When people find themselves needing to get a job done, they essentially buy products to do that job for them.

When choosing between competing offers, customers select the offer that meets their needs (to get things done) better than any other at the price they are willing to pay.

Value or benefits (the ability of getting the job done) that people seek in products are the basic reasons for the heterogeneity in their choice behaviour, and benefits of the product are thus the most relevant bases for segmentation.


Should be Done?

Earlier marketers used to succeed by providing superior products and other distinctive functional benefits.

Today this is no longer enough, for such benefits can readily be imitated.

The solution is to emphasize process benefits (which make transactions between buyers and sellers easier, quicker, cheaper, and more pleasant) and relationship benefits (which reward the willingness of consumers to identify themselves and to reveal their purchasing behavior).


Should be Done?

However, it is no doubt more difficult for

managers to implement the benefits-oriented

approach of market segmentation.

One possible solution to this problem is to

provide opportunities to individual customers

to design their own products and services by

choosing from a menu of attributes,

components, prices, and delivery options.


Should be Done?

• This facility can be provided through a choiceboard - an interactive on-line system.

• Cisco Marketplace is an on-line configurator that allows corporate customers to create the precise combination of data networking gear they need.

• Dell’s choiceboard allows individual as well as corporate customers to exercise their options in the personal computer realm.


Should be Done?

• A choice board model of doing business with individual customers becomes possible in any industry when a system of accessible, integrateable components is available from which customers can select and combine options based on their own priorities.

• The choiceboard enables customer self-segmentation, which is fast, cost-efficient, and far more precise than traditional manufacturer-imposed segmentation.


Should be Done?

Segmentation in business markets should, in fact, be increasingly thought of as a negotiable and bilateral ‘fit-seeking process’ where suppliers frame tentative segments (based on initial research) subject to exploration with well-placed key managers in those customer firms.


Should be Done?

This would encourage the development of

evolutionary segmentation that focuses not

only on customer needs, but also on supplier

needs.

The process would also help to develop the sort

of long-term relationships between supplier

and customer that help to ensure that suppler

offerings are developed in line with customer

expectations and needs.


Should be Done?

There are also instances where customers

select suppliers that meet particular criteria

(e.g., quality, financial stability, delivery

reputation, collaborative product development

strategies, etc.).

By implication, a supplier able to exhibit

appropriate ‘reverse segmentation’ criteria to

a customer can become significantly more

attractive.


Should be Done?

• Selection of market segment to serve has to be on the basis of the fit between: • the attractiveness of the segment, • the key success factors for operating in the

segment, and • the company’s relative ability to compete in

the segment. • The company also needs to consider the

competitive reactions it might face if it decides to compete for a segment.

How to Select Market

Segments To Serve?

• Segment attractiveness depends on: – Size and Growth of the segment – Structural Characteristics of the segment

such as competition, segment saturation, profitability, protectability, environmental risk etc.


Segments To Serve?

• Key Success Factors (KSF) for a segment could be

• Product Quality • Brand Reputation • Technology Requirement • Cost Structure • Distribution System • Quality of Service • Financial Capacity


Segments To Serve?

• Company Objectives – Compatibility with company goals – Relationships with other segments – Profitability

• Resources and Capabilities of the Company and Competitors – Ability to conceive and design

• R & D Capability • Existing Patents and Copyrights • Access to new technologies through third

parties


Segments To Serve?

– Ability to Produce (Quality & Quantity) • Production Technology • Production Capacity • Flexibility in Production • Cost Competitiveness

– Ability to Market

• Brand Reputation • Distribution Strength • Service Strength


Segments To Serve?

– Ability to Finance • Access to Capital from Operations • Ability to Use Debt & Equity Finance • Parent’s Willingness to Finance

– Ability to Manage/Execute

• Quality of Management • Quality of Decision Making • Innovativeness • Organization Culture


Segments To Serve?

Consumer Behaviour

Introduction

Consumer Buying Behavior refers to the buying behavior of final consumers (individuals & households) who buy goods and services for personal consumption.

Consumer Behavior

Based on concepts from

• Psychology

• Sociology

• Anthropology

• Marketing

• Economics

Why do we need to study Consumer Behaviour?

Because no longer can we take the customer/consumer for granted.

Failure rates of new products introduced

• Out of 11000 new products introduced by 77 companies, only 56% are present 5 years later.

• Only 8% of new product concepts offered by 112 leading companies reached the market. Out of that 83% failed to meet marketing objectives.

Can Marketing be standardised?

No.

Because cross - cultural styles, habits, tastes, prevents such standardisation.

Buyer Behaviour

Consumer

4Ps Marketing

Environment

Buyer

Characteristics

Buyer

Decision Process

Buyer

Decision

Marketing Stimuli

4 Ps

Product Price Place Promotion

Other Stimuli

Marketing

Environment

Economic Technological Political Cultural

Marketing and Other Stimuli

Buyer’s Black Box

Buyer’s Response

Product

Price

Place

Promotion

Economic

Technological

Political

Cultural

Characteristics Affecting Consumer Behavior

Buyer’s Decision Process

Product Choice

Brand Choice

Dealer Choice

Purchase Timing

Purchase Amount

Model of Consumer Behavior

Complex

Buying

Behavior

Dissonance-

Reducing Buying

Behavior

Variety-

Seeking

Behavior

Habitual

Buying

Behavior

High Involvement

Significant differences

between brands

Few differences

between brands

Low Involvement

Types of Buying Decisions

Hierarchy

Of Needs

MASLOW’S

Safety Needs

Belongingness & Love

Needs

Physiological Needs

Esteem Needs

Self-

Actualization

The hierarchy has five levels:

• Physiological Needs: oxygen, water, protein, salt, sugar, calcium and other minerals and vitamins, shelter and sleep etc.

• Safety Needs: security, stability, protection from physical and emotional harm

• Belongingness & Love Needs: affection, belonging, acceptance, friendship, community

• Esteem Needs: (Internal ones are need for self-respect, confidence, autonomy, and achievement. External ones are need for respect of others, status, fame, glory, recognition and attention.) Maslow feels these are the roots to many, if not most of our psychological problems.

• Self-actualization: (doing that which maximizes one’s potential and fulfills one’s innate aspirations)

Hierarchy of Needs

Buyer characteristics

• Cultural

• Social

• Personal

• Psychological

Buyer

Psychological

Personal

Social

Culture

Characteristics Affecting Consumer Behavior

Intentions

Buyer’s Decision Process

• Problem Recognition

• Information Search

• Evaluation of Alternatives

• Purchase Decision

• Consumption

• Postpurchase behaviour

Need Recognition

Information Search

Evaluation of Alternatives

Purchase Decision

Postpurchase Behavior

The Buyer Decision Process

External Stimuli

• TV advertising

• Magazine ad

• Radio slogan

•Stimuli in the

environment

Internal Stimuli • Hunger • Thirst • A person’s normal

needs

Need Recognition Difference between an actual state and a desired state


Step 1. Need Recognition

•Family, friends, neighbors •Most influential source of information

•Advertising, salespeople •Receives most information

from these sources

•Mass Media •Consumer-rating groups

•Handling the product •Examining the product •Using the product

Personal Sources

Commercial Sources

Public Sources

Experiential Sources


Step 2. Information Search

Product Attributes Evaluation of Quality, Price, & Features

Degree of Importance Which attributes matter most to me?

Brand Beliefs What do I believe about each available brand?

Total Product Satisfaction Based on what I’m looking for, how satisfied

would I be with each product?

Evaluation Procedures Choosing a product (and brand) based on one

or more attributes.


Step 3.Evaluation of Alternatives

Purchase Intention Desire to buy the most preferred brand

Purchase Decision

Attitudes

of others

Unexpected

situational

factors


Step 4. Purchase Decision

Buyer’s Decision

• Product Choice

• Brand Choice

• Dealer Choice

• Purchase Timing

• Purchase Amount

Awareness

Interest

Evaluation

Trial

Adoption

Stages in the Adoption Process

Adoption of Innovations P

erc

en

tag

e o

f A

do

pte

rs

Time of Adoption

Early Late

Inn

ovato

rs

Early Adopters

Early Majority

2.5%

13.5%

34% 34%

16%

Laggards

Late Majority

Influences on the Rate of Adoption of New Products

Divisibility Can the innovation

be used on a trial basis?

Compatibility Does the innovation

fit the values and experience of the

target market? Complexity Is the innovation

difficult to understand or use?

Relative Advantage Is the innovation

superior to existing products?

Communicability Can results be easily

observed or described to others?

Product Characteristics

Cultural factors

• Culture

• Sub - culture

• Social Class

Factors Affecting Consumer Behavior: Culture

• Most basic cause of a person's wants and behavior.

• Values • Perceptions

Social Class

• People within a social class tend to exhibit similar buying behavior.

• Occupation

• Income

• Education

• Wealth

Subculture

• Groups of people with shared value systems based on common life experiences.

• Hispanic Consumers

• African American Consumers

• Asian American Consumers

• Mature Consumers

Social factors

• Reference Groups

• Family

• Roles and Status

Factors Affecting Consumer Behavior: Social

Groups

•Membership

•Reference

Family

•Husband, wife, kids

•Influencer, buyer, user

Roles and Status

Social Factors

Personal Factors

• Family Life Cycle

• Occupation and Economic circumstances

• Lifestyle

• Personality and self - concept

Factors Affecting Consumer Behavior: Personal

Personal Influences

Age and Family Life Cycle Stage

Occupation

Economic Situation

Lifestyle Identification

Activities Opinions

Interests

Personality & Self-Concept

The Family Life Cycle

Psychological Factors

• Motivation

• Perception

• Learning

• Beliefs and Attitudes

Buying Roles

• Initiator

• Influencer

• Decider

• Buyer

• User

Buying Behaviour

• Complex

• Dissonance - Reducing

• Habitual

• Variety seeking

Buying Process

• Problem Recognition

• Information Search

• Evaluation Alternatives

• Purchase Decision

Post - Purchase Behaviour

• Satisfaction

• Actions

• Use and Disposal

The Buyer Decision Process Step 5. Postpurchase Behavior

Consumer’s Expectations of

Product’s Performance

Dissatisfied

Customer Satisfied

Customer!

Product’s Perceived

Performance

Cognitive Dissonance

Consumer Behavior - II

Need Recognition

Information Search

Evaluation of Alternatives

Purchase Decision

Postpurchase Behavior


B2B Defined

• The management process responsible for the facilitation of exchange between producers of goods and services and their organisational customers.

• B2B marketing and purchasing is a complex and risky business involving a number of different parties.

Flows within a B2B market

B2B customers

• Commercial enterprises - profit making organisations that produce and/or resell goods and services for a profit. Can be subdivided into users, original equipment manufacturers (OEMs), resellers.

• Government bodies.

• Institutions - largely non-profit making organisations, e.g. universities, churches, etc.

Characteristics of B2B markets

• Nature of demand - derived, joint, inelastic.

• Structure of demand - industrial and geographic concentration.

• Buying process complexity.

• Buyer-seller relationships.

Influences on a B2B purchasing chain

Roles in the buying process

• Purchasing - handle relationships with suppliers.

• Production/operations - meeting targets for the end product in both quantity and quality terms.

• Engineering - the specification and design.

• R&D.

• Finance - devolve budgets to appropriate managers.

• Marketing - outputs of the production process.

Consumer vs. Organizational buying behavior

• Decisions made by consumers are quite simple

• Organizational buying processes are more complicated, there are several phases and steps

• Different buying behavior for different products and target groups

• Simple consumer goods like food and beverages are bought very spontaneously – influenced by advertising and product presentation

• For premium consumer goods (expensive clothes, computers) – buying behavior is getting more rational – comparison

• Private investment goods – price bargaining

84

B2B products – organizational procurement starts

• More than one person involved

• Buying process follows certain rules

• Price comparison, standardisation, tenders, qoutations etc)

B2B systems

• involve more capabilities and greater workloads

• From the buyer‘s and the supplier‘s side decision has more extensive consequences

B2B facilities

• Industrial plants

• Manufacturing installations

• Office buildings

Main types of buying situations in B2B

• Straigtht rebuy – routine decision, repetitive process (energy, office supplies, raw materials, wood), component suppliers for the automotive industry – little or no new information

• Modified rebuy – more complicated but less sophisticated: cars, trucks, computers, consulting – modified rebuys are often treated too uncautious

• New task – calls for thorough research – industrial plant – highest level of uncertainty. Strategic new tasks are of extreme strategic and financial importance (aircrafts, military equipment, infrastructure) – re-evaluation of alternatives and search for new information and new alternatives

Buying phases

• Problem recognition

• General need description

• Product specification

• Supplier search

• Proposal solicitation

• Supplier selection

• Order routine specification

• Performance review

Stages of decision in B2B procurement

• Backhaus developed a widely usable model to distinguish between 5 phases of procurement

• Preliminary application (initiation phase)

• Tender proposal

• Negotiation

• Processing of order

• Warranty and services

Preliminary application

• Recognition of a problem (need) and a general solution

• Released by top management = operating department or external consultants

• Result request for an offer addressed to a number of potential suppliers

Tender preparation phase

• Determination of characteristics and quantity of needed items

• Search for and qualification of potential sources

• Supplier has to provide an offer

• Tries to be incomparable with his competitors

• Customer tries to make the offer best comparable

Negotiation phase

• = core selling process

• Comprises acquisition and analysis of proposals, evaluation of proposals and selection of suppliers

Processing phase/warranty/ service phase

• Contains selection of an order routine

• Realisation of the transaction along with the fixation of after sales service tasks

Roles in B2B procurement – buying center concept

• Group of people involved in the buying process – buying center

• This causes problem in identifying and targeting the right people within the decision process

Buying center

• Role keepers have different tasks – not mandatory

• Buyer

• User

• Initiator

• Gatekeeper

• Influencer

Buyer

• Formal authority to sign contracts

• Member of purchasing department

• Influences the vendor selection

• Not in technical details

• Main criteria: price + terms and conditions of the contract

User

• Person working with the product

• Interested in benefits and unobstructed function of the product to buy

• Large knowhow and preconceived opinion

Influencer

• A person with high technical knowledge and practical experience

definition of minimum requirements on technical or company standards

Gatekeeper

• Controls the flow of information within the buying center

• Assistant of decision maker

• Influence by preparing the decision and the relevant documents

Decider

• Right to say yes or no

• Mightiest person

Initiator

• Person who brings new ideas and solutions into the company

Specific marketing considerations in the industrial facilities business

• Long decision taking process

• High risk

• Complex buying center

• The specific competitive situation

Product policy

• Focuses on innovation

• Has to care for high flexibility in research and development

• And manufacturing and assembling

Price

• Strict bid and tender rules

• High transparency

• Add value with service offering to achieve a differentiating position

• Another aspect: financing and sourcing models

Distribution policy

• Focus on negotiation phase

• Provide excellent people in the selling center

• High technical knowledge

Communication

• Problem solver!

• Proving success with comparable tasks

• Reference projects!

Consumer Behavior in a

Services Context

• Consumer Decision Making:

The Three-Stage Model

– Pre-purchase Stage

– Service Encounter Stage

– Post-purchase Stage

Pre-purchase Stage

Pre-purchase Stage

Service Encounter Stage

Post-purchase Stage

Pre-purchase Stage - Overview

• Customers seek solutions to aroused needs

• Evaluating a service may be difficult

• Uncertainty about outcomes Increases perceived risk

• What risk reduction strategies can service suppliers develop?

• Understanding customers’ service expectations

• Components of customer expectations

• Making a service purchase decision

Pre-purchase Stage Overview

• Need awareness • Information search • Evaluation of alternatives

– Service attributes – Perceived risk – Service expectations

• Purchase decision

Pre-purchase Stage – Need Awareness

• A service purchase is triggered by an underlying need

• Needs may be due to:

– People’s unconscious minds (e.g., aspirations) – Physical conditions (e.g., chronic back pain) – External sources (e.g., marketing activities)

• When a need is recognized, people are likely take action to resolve it

Pre-purchase Stage – Information Search

• When a need is recognized, people will search for solutions.

• Several alternatives may come to mind and these form the evoked set

– Evoked set – set of possible services or brands that a customer may consider in the decision process

• When there is an evoked set, the different alternatives need to be evaluated before a final choice is made

Pre-purchase Stage – Evaluation of Alternatives

• Search attributes help customers evaluate a product before purchase – Style, color, texture, taste, sound

• Experience attributes cannot be evaluated before purchase—must “experience” product to know it – Vacations, sporting events, medical procedures

• Credence attributes are product characteristics that customers find impossible to evaluate confidently even after purchase and consumption – Quality of repair and maintenance work


Perceived Risks • Functional – unsatisfactory performance

outcomes • Financial – monetary loss, unexpected extra

costs • Temporal – wasted time, delays leading to

problems • Physical – personal injury, damage to possessions • Psychological – fears and negative emotions • Social – how others may think and react • Sensory – unwanted impact on any of five senses


Perceived Risks - How Do Consumers Handle Them? • Seeking information from respected personal

sources • Using Internet to compare service offerings and

search for independent reviews and ratings • Relying on a firm that has a good reputation • Looking for guarantees and warranties • Visiting service facilities or trying aspects of service

before purchasing • Asking knowledgeable employees about competing

services


• Free trial (for services with high experience attributes)

• Advertise (helps to visualize) • Display credentials • Use evidence management (e.g., furnishing,

equipment etc.) • Offer guarantees • Encourage visit to service facilities • Give customers online access to information about

order status

Perceived Risks – Strategies for Firms to Manage

Consume Perceptions of Risk


Service Expectations • Customers evaluate service quality by comparing

what they expect against what they perceive – Situational and personal factors also considered

• Expectations of good service vary from one business to another, and differently positioned service providers in same industry

• Expectations change over time – Example

• Parents wish to participate in decisions relating to their children’s education medium and method

• Media coverage, education, Internet has made this possible


Factors Influencing Consumer Expectations of Service

Source:Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of Service,” Journal of the Academy of Marketing Science 21, no. 1 (1993): 1-12


• Desired Service Level: – Wished-for level of service quality that customer believes

can and should be delivered

• Adequate Service Level:

– Minimum acceptable level of service

• Predicted Service Level:

– Service level that customer believes firm will actually deliver

• Zone of Tolerance:

– Range within which customers are willing to accept variations in service delivery

Service Expectations – Components of Custom Expectations

Pre-purchase Stage – Purchase Decision

• When possible alternatives have been compared and evaluated, the best option is selected

• Can be quite simple if perceived risks are low and alternatives are clear

• Very often, trade-offs are involved. The more complex the decision, the more trade-offs need to be made

• Price is often a key factor in the purchase decision

Service Encounter Stage - Overview

Pre-purchase Stage


Post-purchase Stage

● Service encounters range from

high- to low-contact

● Understanding the servuction

system

● Theater as a metaphor for

service delivery: An integrative

perspective

Service facilities

Personnel

Role and script theories

Service Encounters Range from High-contact to Low-contact (Fig 2.20)

Distinctions between High-contact and Low-contact Services

• High-contact Services –Customers visit service facility and remain

throughout service delivery –Active contact between customers and service

personnel – Includes most people-processing services

• Low-contact Services – Little or no physical contact with service personnel –Contact usually at arm’s length through electronic or

physical distribution channels –New technologies (e.g. Web) help reduce contact

levels • Medium-contact Services Lie in between These

Two

Post-purchase Stage

Post-encounter Stage - Overview

Pre-purchase Stage


Post-purchase Stage

Evaluation of service performance

Future intentions

Customer Satisfaction Is Central to the Marketing Concept

• Satisfaction defined as attitude-like judgment following a service purchase or series of service interactions

• Customers have expectations prior to consumption, observe service performance, compare it to expectations

• Satisfaction judgments are based on this comparison – Positive disconfirmation if better than expected – Confirmation if same as expected – Negative disconfirmation if worse than expected

Customer Delight: Going Beyond Satisfaction

• Research shows that delight is a function of 3 components – Unexpectedly high levels of performance – Arousal (e.g., surprise, excitement) – Positive affect (e.g., pleasure, joy, or happiness)

• Once customers are delighted, their expectations are raised

• If service levels return to previous levels, this may lead to dissatisfaction and it will be more difficult to “delight” customers in future

• Progressive Insurance seeks to delight customers through exceptional customer service

industrial - unext.in 5th session cons beh.pdf · segmentation, targeting, and positioning . ......

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