Segmenting organizational markets

As we noted in Chapter 3, organizational markets, in contrast to consumer markets, tend to be characterized by relatively small numbers of buyers. Nevertheless, there are also many cases where it will be appropriate to segment organiza­tional markets.

Organizational segmentation criteria

Some of the most useful bases for segmenting organizational markets are described below.

Organizational size

Market segmentation in this case may be by size of buying organization. Large organizations differ from medium-sized and small organizations in having greater order potential, more formalized buying and management processes, increased specialization of function, and special needs (e.g. quantity discounts). The result is that they may form important target market segments and require tailored marketing mix strategies. For example, the salesforce may need to be organized on a key account basis where a dedicated sales team is used to service important industrial accounts. List pricing of products and services may need to take into account the inevitable demand for volume discounts from large purchasers, and the salesforce will need to be well versed in the art of negotiation.

Industry

Industry sector - sometimes identified by the Standard Industrial Classification (SIC) codes- is another common segmentation variable. Different industries may have unique requirements from products. For example, computer suppliers can market their products to various sectors such as banking, manufacturing, healthcare and education, each of which has unique needs in terms of software programs, servicing price and purchasing practice. By understanding each industry's needs in depth, a more effective marketing mix can be designed. In some instances, further segmentation may be required. For example, the education sector may be further divided into primary, secondary and further education, as the product and service require­ments of these subsectors may differ.

Geographic location

The use of geographic location as a basis for differentiating marketing strategies may be suggested by regional variations in purchasing practice and needs. The purchasing practices and expectations of companies in Central and Eastern Europe are likely to differ markedly from those in Western Europe. Their more bureaucratic structures may imply a fundamentally different approach to doing business that needs to be recognized by companies attempting to enter these emerging industrial markets. In Chapter 2, we saw how different cultural factors affect purchasing practices in European countries. These differences, in effect, suggest the need for regional segments since marketing needs to reflect these variations.

Choice criteria

The factor of choice criteria segments the organizational market on the basis of the key criteria used by buyers when they are evaluating supplier offerings. One group of customers may rate price as the key choice criterion, another segment may favour productivity, while a third may be service-orientated. These varying preferences mean that marketing and sales strategies need to be adapted to cater for each segment's needs. Three different marketing mixes would be needed to cover the three segments, and salespeople would have to emphasize different benefits when talking to customers in each segment. Variations in key choice criteria can be powerful predictors of buyer behaviour. For example, Moriarty found differences in choice criteria in the computer market. One segment used software support and breadth of product line as key criteria, and bought IBM equipment. Another segment was more concerned with price and the willingness of suppliers to negotiate lower prices; these buyers favoured non-IBM machines.