2002 Edition Vitale and Giglierano Chapter 7 Segmenting, Targeting, and Positioning Prepared by John T. Drea, Western Illinois University

2002 Edition

Vitale and Giglierano

Chapter 7Segmenting, Targeting, and Positioning

Prepared by John T. Drea, Western Illinois University

3 Basic Concepts in B2B Marketing

Segmenting Targeting Positioning

Basic Ideas of Segmentation

Marketers seek to create market segments that have the characteristics of

Measureability

Accessibility

Substantiality

Actionability

MeasureabilityCan we understand the size and needs of the market segment?

AccessibilityCan we communicate with the segment so that serving the segment is possible?

SubstantialityDoes the segment desire that values that an offering presents?

ActionabilityCan we create a competitive advantage with respect to the needs of the segment?

Common Bases for

Segmentation

By product offered

By industry in which the customer

participates

By size of the customer’s

company

By buying behavior

By technologyused by thecustomer

By size of account

By geographicregion

Value-Based SegmentationValue: the sum of the benefits minus the sum of the costs

Companies should try to choose and address segments that are homogenous in the kinds of value sought.

HomogenousSegments

HeterogenousSegments

Analytic Approach to Segmentation

Analytic approaches need two sets of data:1) Information about segment size and growth

• Standard Industrial Classification (SIC) and North American Industrial Classification System (NAICS) codes are useful.

2) Information about each targeted segments needs and buying behavior.

Exhibit 7-3: Hypothetical Segmentation Data

• From secondary data (US Census data)– Number of business with 50-500 employees 375,000

• From quick survey of consultants– Seg 1: Major turnaround 10%– Seg 2: Stopping deterioration 20%– Seg 3: Competitive improvement 30%– Seg 4: Specific area improvement1 50%

• From Delphi estimate of small business consultants:– Seg 1: Change in major turnaround by 2002 +100%– Seg 2: Change in stopping deterioration by 2002 +100%– Seg 3: Change in competitive improvement by 2002 -50%– Seg 4: Change in specific area improvement by 2002 +150%

1 – can overlap with other categories

Exhibit 7-4: Hypothetical Sizes of Market Segments

Segment # of Small Businesses

in 2000

# of Small Businesses

in 2002

Change, 2000 to

2002Segment 1 – Major turnaround

37,500 75,000 100%

Segment 2 - Stopping deterioration

75,000 150,000 100%

Segment 3 - Competitive improvement

112,500 56,250 (50%)

Segment 4 – Specific area improvement

112,500 281,250 150%

•This shows how an analytic approach can be used to estimate segment size and growth.•To complete the analysis, data is also needed on the needs and buying behavior for each segment. Go to Exhibit 7-6

Segmentation by Discovery

• Sometimes, a business starts serving only 1-2 large customers.

• Over time, additional customers who seek something similar to the original offering are recruited/attracted. In this way, a new segment is “discovered.”

• Field marketing personnel must be coached to recognize such discovery opportunities.

• Proprietary information of different customers must be respected.

Exhibit 7-5 Factors in Assessing Segment Attractiveness

•Size of segment•Growth rate of segment•Intensity of unmet needs•Reachability of segment through communication channels•Readiness of segment to reach and adopt a solution•Likelihood of competitive intensity•Sufficiency of channel reach•Likely value contribution by channel(s)•Match between segment needs and supplier’s strengths•Differentiability of supplier’s offering•Opportunity to achieve strategic goal by addressing segment•Opportunity to achieve learning goal by addressing segments

Attractiveness of SegmentsMarket

Attractiveness

Competitive Attractiveness

Channel Attractiveness

Internal Attractiveness

Attractiveness – OtherConsiderations

Market Attractiveness






•Large and fast growing segments are more attractive than smaller and slow-growing segments•This necessitates accurately predicting future growth.•Other issues include

•Adaptability of market segments,•Existing relationships with the buying center members, and•Available customer’s budget







•What is the likely existence or emergence of competition in the market segment?•Are there barriers to entry facing competitors?•Does being first to market provide an advantage?







•It is preferable to target customers already served by well-established marketing channels, or if an existing channel can be adapted, it may serve the segment.•When there is no suitable existing channel, a market view of competition may be necessary.

•How is the existing need being met?•Will customers switch?







•A segment is more attractive when the segment’s needs can be met by the firm’s core competencies.•This is identified through environmental analysis.

Exhibit 7-6 Segment AttractivenessSegment 1

Major Turnaround

Segment 2: Stopping

Deterioration

Segment 3: Competitive

Improvement

Segment 4: Specific Area Improvement

Potential Size in 2000 (in millions)

2$187.5

3 $375.0

4$562.5

4$562.5

Growth, % by 2002 4+100%

4 +100%

1-50%

5+150%

Need strength 5 4 3.5 3.5

Competitive strength 3 3 4 3

Channel reach 5 5 5 5

Communications reach

4 4 4 4

Capability fit 2 5 5 2

Price sensitivity 2 3 4 3

Overall attractiveness (sum of attribute scores)

27 31 30.5 29.5

Attractiveness – Other Considerations






•Other factors that might cause a segment to rated higher or lower include:

•Public policy (excessive government regulation can cause a segment to be downgraded)•Organizational goals (market share goals may make firms more aggressive in targeting)

Standardization and Successful Standardization and Successful E-Business RelationshipsE-Business Relationships

Standardization

Data Standards• EDI

• XML

• Others (ASCI X12, UD/EDIFACT)

• IDW - Rosetta.net

Process Standards• Covisint.com

Standards

• History of standardization- Arabic numeral system- Phoenix alphabets

• Need• Challenges

- Loss of individuality- Resistance by the backward

• Recent developments- ISO 9000- Euro

Back Office Integration

DistributorPurchase

orderSys tem

DistributorsorderSi te

BackOffice

Integration

DistributorCustomer

orderprocessing

DistributorERP

Customersorder

Sys tem

ManufacturerTechnical

Support

BackOffice

Integration

E-MARKETINGE-SALESE-RESOURCEMANAGEMENT

ManufacturerCustomer order processing

E-SALES E-MARKETING

Back Office Integration as part of the E-channel

Back Office Integration

Two challenges:

•Transitioning from Tacit to Explicit

•Increasing Tacit Knowledge

Explicit knowledge is commodity(inventory availability, pricing, specifications…)

Explicit knowledge on the internet

Real Time

Challenges in Real Time information– Up to the minute information on inventories– Pricing and Discount Structure – Transferring Technical Information– Custom made Quotes and jobs– Standardization and formats

Standardization

•System-to-System connection needs standardization•Non-standardized processes are expensive

XML and Standardization

•SGML - HTML - XML

•Benefits and Limitations

XML

Alphabet

Telephone

Business Process

Grammar

Words

Sound

Human-to-Human Exchange

HTML/XML

E-Business Application

????

Internet

EDI usingXML

ANSI X12 / UNEDIFACT

EDI Translator

Business Rules

VAN/Leased Lines etc

Traditional EDI

EDI versus Human versus XML Based Information Exchange

Emerging Standards

XML

ANSI X12

UN/EDIFACT

SHTML

EDI

Cost (VAN)

Role of:IDW, Rosettanet, CommerceNet,

O.A.S.I.S

B2B platforms need standard EDI principles

Evolution Will Continue

Data Standardization is external and evolving

Process standardization is within and strategic

Firms must adapt to both

Tools determine success and are thus critical

The Vision is Clear

•The implementation will be long and difficult.•Some of the technology is not here yet but is coming soon.•When the technology is fully enabled, the race will become brutal and poorly prepared firms will be eliminated.•Redesigning processes is the priority now.•Companies need an E-Business strategy and implementation plan now to stay ahead of the technology changes.

Documents

2002 Edition Vitale and Giglierano Chapter 7 Segmenting, Targeting, and Positioning Prepared by John T. Drea, Western Illinois University