Segmenting a business market means dividing the market into different homogenous groups of companies. Such organizations are considered as one segment and are catered according to their needs. The organization has to make sure that the segment they identify is measurable not too big that cannot be catered, it should be accessible to the distribution channels that mean not out of reach, the segment should have sustainability it must not be changing very quickly so that the strategies made for that group do not go in vain and most importantly the segment should not be too small and should be made keeping in mind catering such group will be profitable for the organization. (lamb, Pg 546, 2008)
The aim of segmentation in business-to-business market is to gather a cluster of people who have similar pattern in purchase decision or buying behavior. When such groups are identified having some similarity among them then it is easy for the company to understand their needs and keep them satisfied by offering them what they actually expect. Through market segmentation the companies find a way to have a competitive advantage which is difficult in business-to-business market where differentiation among products is difficult. (lamb, Pg 546, 2008)
Business-to-business markets can be divided on the following basis:
Characteristics of the buying organization:
1. Geographical Location: Companies situated in same region most probably have similar environment or culture as well as they speak similar languages. People living in America will have different resources and culture as compared to the people living in Middle East. Moreover, the growth rate may differ in different regions like Middle East, America, England, and Asia etc.
2. Company size (small, medium, large): there can be segments on the basis of the company size as it can be prominently noticed that the companies that are larger in size have different goals as compared to the companies that are small. Large organizations need more volume of product as the consumption pattern of the large organizations is different from the small ones. An organization that makes a product that can be used in different industries can make segments in the basis of the industries as there are many differences in the consumption and behavioral patterns industry wise. A segment based on purchase criteria of the firm can be made. The purchase criteria may be based on trust, reliability, relationship, commitment and the purchasing cost. The purchase criterion of some firms is the product differentiation.
3. Usage Rate (non-user, light user, moderate user, and heavy user): In business-to-business market there can be segment based on the consumption of the product; the companies that give continuous order for the product can be grouped as the frequent buyers who are actually the regular customers. There can be a segment of potential customers so that they can be targeted in a way that they get attracted towards that product and order it. Similarly there can be light users and moderate users as well.
1. End user Application: The product that are used in the formation of another product without undergoing any further processing. For example Intel processors are used in laptops etc.
Characteristics of Purchasing Situation:
1. Type of buying situation (straight re-buy, modified re-buy, and new task) there can be segments on the basis of buying situation as in straight re-buy it is a routine purchase order, in modified re-buy there a need of some research when the buyer wants some changes in size, color, price etc and in new task there is a lot of research required to come up with a new product. As the world is now a global village there is a lot of competition in the market, the seller need to retain its existing customers by catering them according to their needs and wants.
2. Stage in purchase decision process (Early stage, late stage): the organization need to be relationship oriented so that they can have long term relationship. The supplier should be aware of the purchase requirements so that in the early stage the supplier should get into the bidding process.
• Purchasing Strategies: Organizations follow two different purchasing strategies in first strategy the organizations give orders to the vendors they know well who fulfils the buying criteria. In the second strategy the organization look for all the available vendors in the market and ask them to give proposal and solicit bid and then choose the one with the best package. In this way two different segments can be made.
• Structure of decision making unit: segments can be made on the basis of the type of organization and the responsibilities of the decision maker.
• Importance of purchase: there can be segments based on the degree of importance of the product to the customer’s business.
• Attitude towards vendors: The customer purchasing attitude is usually formed by the age, qualification, job position and decision making skill of the buyer. The decision maker can be a partner, supporter, neutral, adversarial or an opponent. (lamb, Pg 546, 2008)
Charles W. Lamb, (2008), Essentials of Marketing, Cengage Learning, page 546