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B2B MARKET SEGMENTATION 5 KEY SEGMENTATION DIMENSIONS WRITTEN BY:

ART WEINSTEIN PHD PROFESSOR OF MARKETING NOVA SOUTHEASTERN UNIVERSITY ART@HUIZENGA.NOVA.EDU 954‐262‐5097

FRANK JAMIESON MBA PRESIDENT APPLIED DM RESEARCH INC FRANK@APPLIEDDMRESEARCH.COM 415 884 9902

B2B SEGMENTATION STRATEGY DEVELOPMENT VITAL INGREDIENTS + CREATIVE COOKING Effective b2b segmentation is like gourmet cooking – you need a nice variety of ingredients to create a delicious balance of flavors and a certain unexplainable artistic skill to combine the ingredients into a crowd pleasing experience. The primary purpose of this whitepaper is to introduce a list of b2b segmentation ingredients that should be considered when you develop your unique b2b segmentation strategy. We have sorted the ingredients into five major groups that we call segmentation dimensions. We recommend that you carefully select ingredients from each of the five dimensions to assure that you create a balanced view of your market and target audience. At the same time we also recommend that you avoid selecting too many variables – that would be similar to selecting too many ingredients for a gourmet recipe – it will result in more confusion than enlightenment. We also want to warn you in advance that reviewing our list of b2b segmentation variables is somewhat like looking in your kitchen pantry and having your heart sink as you realize that it takes a great deal of creativity to put those ingredients to good use. The secondary purpose of this whitepaper is to give you some suggestions on how to creatively combine segmentation variables. We offer these suggestions as a starting point to motivate you to do what you need to do – create a truly unique and creative segmentation strategy that is unlike your competitors ‐ “me too” b2b segmentation strategies rarely result in sustainable competitive advantage. Let’s first quickly review the five segmentation dimensions to illustrate why you should select variables from each of the five separate dimensions. The five b2b segmentation dimensions are as follows: Geographics, Firmographics, Product Usage, Benefits Desired, and Purchase Behavior. Each dimension answers a different question about your market and target audience. Geographics answers the “where” question. Firmographics answers the “who” question. Product Usage answers the “how much” question. Benefits Desired answers the “why” question and Purchase Behavior answers the “how” question. When you select key variables within each dimension you will be building an accurate representation of your market and target audience. We have worked hard to create a very extensive list of b2b segmentation dimensions and variables however we do not believe that any list of this sort can be absolutely exhaustive. Similar to gourmet cooking, there are endless possibilities for adding exotic ingredients that may make no sense to some people but all the difference to others, so we encourage you to view our list as a well balanced set of ingredients that can serve as a solid foundation for segmentation strategy development and also as a launch point for more exotic segmentation variable ideas. Finally, it is important to say that the selection of segmentation variables must be validated by your observation of your market and target audience ‐ they should not be selected because you like them. They should be selected because they are important and relevant to your market and target audience.

“GEOGRAPHICS” – SEGMENTATION DIMENSION ‐ ANSWERS “WHERE” QUESTION MARKET SCOPE – describes the geographic scope of your market GLOBAL Worldwide North America Europe Asia Latin America Selected Countries NATIONAL Aggregation of States REGIONAL New England Plains States Southeastern States Western States LOCAL Zip Code MSA County City CULTURAL Example ‐ French Speaking Canadians MEASUREMENT UNITS – describes how geographics will be measured CENSUS MSA PMSA CMSA Census Tract Census Block Group POSTAL 5 digit zip code 3 digit zip code

GOVERNMENT City County State URBANICITY Urban Suburban Rural Exurbia MEDIA ADI = Arbitron = Area of Dominant Influence DMA = AC Nielson = Designated Market Area TRADE AREA Primary Secondary Tertiary Marginal CLIMATE Climate Zones “FIRMOGRAPHICS”‐ SEGMENTATION DIMENSION – ANSWERS “WHO” QUESTION AGE Years in Business SIZE Number of employees Number of Locations Number of Plants FINANCIAL Sales Profits Credit Rating DECISIONS Headquarter / Subsidiary Branch

INDUSTRY SIC Code NAICS Code NACE (EU) ISIC – International OWNERSHIP Public Company Private Company Government Non‐Profit MARKET Market Size Number of Potential Customers Market Structure POSITION Market Share Industry Position STAGE Product Life Cycle Industry Life Cycle TRENDS Growth Decline Stability CUSTOMERS Business to Business Business to Consumer Business to Education Business to Government PROPERTY Lease – Plant & Equipment Own – Plant & Equipment RESIDENCY Length of Residency

MANUFACTURING Discrete Manufacturing Process Manufacturing TECHNOLOGY High Tech Low Tech “PRODUCT USAGE” ‐ SEGMENTATION DIMENSION – ANSWERS “HOW MUCH” QUESTION VOLUME High Medium Low VARIETY Single Product versus Multiple Products High Medium Low FREQUENCY First Time One Time Regular Continuous Seasonal Occasional RFM (good measure of usage and loyalty) Recency Frequency Monetary Value TRENDS Growth Decline Stable APPLICATION Raw Material Work in Progress Finished Good

PRODUCT USES Single Application Multiple Applications VALUE CHAIN Location within Customer’s Customers Intermediary Sales End Users IMPORTANCE Critical Component Insignificant Replaceable SHARE Share of Customer Share of Market MARKET OEM ‐ Original Equipment Manufacturer MRO – Maintenance, Repair, Overhaul – (aftermarket) ADOPTION Product Use by Adoption Category Innovators Followers Laggards HEURISTICS Heavy Half Segmentation Pareto ‐ 80/20 rule KEY WORDS Internet Search Words Key Words Represent Product Research Indication of Product Usage USER TYPE Current Former Non‐User

BUYER SIZE Large Medium Small COMPARISONS Users versus Non‐Users Users versus Competitor Users Heavy Users versus Light Users Usage Level versus Profit Level “BENEFITS DESIRED”‐ SEGMENTATION DIMENSION – ANSWERS “WHY” QUESTION BUYER MOTIVES Physical Emotional Psychological PRIORITY Primary Benefits Secondary Benefits MULTIPLICITY Usually only one use for product There can be many benefits associated with one product VARIABLES Price Value Quality Reputation Service Delivery Timing Relationship Reliability Durability Ease of Use Innovation Warranty Customization Payment Options Experience

VARIABLES (continued) Scalability Geo‐Scope Vendor Size Expertise Technology Patents 4 MAJOR BENEFITS Service Quality Image Price Must excel in at least one Must be acceptable in all “PURCHASE BEHAVIOR” ‐ SEGMENTATION DIMENSION – ANSWERS “HOW” QUESTION ORGANIZATIONAL Centralized Decentralized POWER STRUCTURE Engineering Finance Sales Marketing Manufacturing BUYER SELLER RELATIONSHIP Strong Weak Similarity between buyer and seller PURCHASE POLICY Bid Price Lease Purchase Vendor approval process RISK ATTITUDE Risk Taker / Risk Averse

PURCHASE CRITERIA Price Quality Image Service Specifications Vendor Capacity DECISION MAKING UNIT DMU = Decision Making Unit Number of DMU Stakeholders Roles of DMU Stakeholders DMU Seniority Level SITUATIONAL ISSUES Order urgency Fast / Slow Delivery Product Application ORDER SIZE Large Medium Small RISK ATTITUDE Risk Taker Risk Averse PURCHASE LOYALTY High / Medium / Low MARKET STRUCTURE Number of Buyers in Market Buyer Industry Consolidation Buyer/Seller Power Continuum COMPLEXITY Simple Sales Process Complex Sales Process Sale Cycle Time COMPETITION Market competition

GEO‐CLUSTERING Buyer Geo‐Clustering Silicon Valley – example PSYCHOGRAPHICS – cultural component of purchase behavior CORPORATE CULTURE Attitudes Opinions Personality Values Beliefs Interests Motivations Self‐concept Ideology Lifestyle Psychological Sociological Anthropological BUYER CLUSTERS Social Buyers Factual Buyers STRATEGIC CLUSTERS Defenders / Prospectors / Analyzers / Reactors ORIENTATION CLUSTERS Customer Orientation Financial Orientation Internal Orientation Research & Development Orientation PRODUCT ADOPTION CURVE Innovators Early Adopters Early Majority Late Majority Laggards

SUGGESTIONS ON HOW TO GET STARTED As previously mentioned, the secondary purpose of this whitepaper is to give you some suggestions on how to creatively combine segmentation variables to develop a unique and effective segmentation strategy for your company. A potential benefit of these suggestions is to help organize your thinking about segmentation strategy development. Before going any further we want to emphasize that there is no “right way” to do segmentation. The key issue is to better understand your current markets and to identify new market segments that can be successfully and profitably exploited. The second insight that we want offer prior to digging into suggested methodologies is how to start. There is no “right way” to start – you can begin piece meal or you can do an extensive analysis – it all depends on your internal resources and your unique needs. Below we briefly describe four suggested approaches to b2b segmentation strategy development. These methods have been well researched and validated with positive market experience. NESTED APPROACH – SUGGESTED METHOD #1 This approach was developed by two Harvard professors, Bonoma and Shapiro. Its attractive benefits include multi‐dimensional descriptive qualities and a systematic progression from observable variables to subtle buyer behavior variables. Below is a summary of the nested approach. DEMOGRAPHICS Industry Company Size Customer Location OPERATING VARIABLES Technology Product Usage Customer Capabilities PURCHASING APPROACHES Purchasing Procedures Power Structure Buyer/Seller Relationships Purchase Policies Purchase Criteria SITUATIONAL FACTORS Order Urgency Order Size / Product Applications

BUYER PERSONAL CHARACTERISTICS Buyer/Seller Similarity Attitude toward Risk Buyer Motivations Buyer Perceptions 3 LEVEL –MARKET DEFINITION MODEL – SUGGESTED METHOD #2 The 3 Level Model is a nice way to identify the appropriate level of market segment abstraction to define attractive market segments given your resources, objectives, and marketing environment. A key benefit of this model is avoiding myopia (too narrow segment definitions) and also avoiding mass marketing (too broad definition) so that the best definition balance is achieved. LEVEL 1 – RELEVANT MARKET Define Geographic Trade Area = current market served Define Product Market = current products offered (myopia) Define Generic Market = mass marketing definition (mass market) Relevant Market = Larger than Product Market / Smaller than Generic Market LEVEL 2 – DEFINED MARKET Defined Market = Relevant Market containing customers and non‐customers LEVEL 3 – TARGET MARKETS Apply Segmentation Dimensions to Defined Market Identify Multiple Segments within Defined Market Select Attractive Segments within Defined Market SEGMENT SELECTION CRITERIA – SUGGESTED METHOD #3 The Segment Selection Criteria Method is a simple check list of qualitative and quantitative criteria that can help you select the best market segments for your business. QUALITATIVE CRITERIA Nature of business preferred Strategic synergy Strengths and Weaknesses Market trends Geographic coverage Industry structure QUANTITATIVE CRITERIA Sales growth rates Sales within market

QUALITATIVE CRITERIA (continued) Market share Profit potential Customer lifetime value (LTV) Customer retention indicators Return on investment (ROI) Breakeven analysis (BEA) Net present value analysis (NPV) Payback time frame 3 KEY CONSIDERATIONS Growth Profits Segment size 4 “R” TEST RANKABLE Ability to objectively rank segments Ability to subjectively rank segments REASONABLE SIZE Large enough to pursue To justify differential treatment REACHABLE Ability to communicate with segments RESPONSIVE Segment responds to marketing communication MARKETING AUDIT – SUGGESTED METHOD #4 The final suggested method is a great way to start the segmentation process by asking yourself a series of pointed questions about your current marketing situation. The answers will identify areas that need improvement – a great starting place for your market segmentation strategy development. SALES HISTORY How do sales break down by product line? Do you break down sales by customer segments? What products are not meeting potential? What markets are not meeting potential? What segments are not meeting potential?

MARKETING COMMITMENT Do you develop and implement formal marketing plans? Are your marketing plans based on market segmentation? MARKETING ENVIRONMENT What major developments/trends represent opportunities? What major developments/trends represent threats? What actions have been taken in response to opportunities? What actions have been taken in response to threats? What major technology developments/changes are occurring? How have you responded to technology developments/changes? What are competitor’s strengths within markets you serve? What are competitor’s weaknesses within markets you serve? What are competitor’s strategies within your markets? What is happening relative to market size? What is happening relative to market growth rates? What is happening relative to market profit rates? MARKET SEGMENTS What in your view are your major market segments? How do different customer segments make buying decisions? Who are new potential customers for your products? Are segments identified, measured, and monitored? Are any small but profitable segments over‐looked? How do you presently segment your markets? Is your present market segmentation approach effective? How does competition define market segmentation definitions? Have you created customer profiles for major market segments? Should your company withdraw from any business segment? What would be short term / long term consequences? Are market segment definitions based on research? PRODUCT What are objectives for current product lines? How do you gather, generate, and screen new product ideas? Do you do market research prior to new product launches? Do you weed out unprofitable products and add new ones? MARKETING MANAGEMENT Do you have a marketing intelligence system in place? Is marketing research effectively used by decision makers? Do you regularly analyze profitability of market segments?

MARKET SEGMENTATION – RECOMMENDED RESOURCE The basis and foundation of all information presented in this whitepaper has been the following book: Handbook of Market Segmentation – Strategic Targeting for Business and Technology Firms Author: Art Weinstein PhD, Professor of Marketing – Nova Southeastern University Publisher: Haworth Press – 2004 – third edition

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...FAST MOVING CONSUMER GOODS (FMCG) Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer packaged goods. Items in this category include all consumables (other than groceries/pulses) people buy at regular intervals. The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories and extends to certain electronic goods. These items are meant for daily of frequent consumption and have a high return. The Indian FMCG sector with a market size of US$14.8 billion is the fourth largest sector in the economy. The FMCG market is set to double from USD 14.7 billion in 2008-09 to USD 30 billion in 2012. FMCG sector will witness more than 60 per cent growth in rural and semi-urban India by 2010. Indian consumer goods market is expected to reach $400 billion by 2010.Hair care, household care, male grooming, female hygiene, and the chocolates and confectionery categories are estimated to be the fastest growing segments. At present, urban India accounts for 66% of total FMCG consumption, with rural India accounting for the remaining 34%. However, rural India accounts for more than 40% consumption in major FMCG categories such as personal care, fabric care, and hot beverages. In urban areas, home and personal care category, including skin care, household care and feminine hygiene, will keep growing at relatively attractive rates. Within the foods segment, it is estimated that processed...

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