This document summarizes key points about industrial market segmentation. It discusses segmentation variables that can be applied, including measurability, substantiality, and operational relevance to marketing strategy. It also describes a two-stage model of macro-segmentation based on factors like company size and geographic location, followed by micro-segmentation. However, it notes some challenges in applying theoretical segmentation models in practice.
Porters 5 forces - a simple explanationBrent Spilkin
Porters Five forces - a simple explanation
Porter five forces analysis is a framework to analyse level of competition within an industry and business strategy development.
It draws upon industrial organisation (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market
‘macro’ and ‘micro’ bases of market segmentation AND ‘nested’ approach and how is it different from Wind and Cardazo’s model of a ‘two level’ segmented approach
It is a case analysis of a Harvard Business School Case. This ppt shows how a shift has taken place from upstream to downstream activities in the business.
Porters 5 forces - a simple explanationBrent Spilkin
Porters Five forces - a simple explanation
Porter five forces analysis is a framework to analyse level of competition within an industry and business strategy development.
It draws upon industrial organisation (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market
‘macro’ and ‘micro’ bases of market segmentation AND ‘nested’ approach and how is it different from Wind and Cardazo’s model of a ‘two level’ segmented approach
It is a case analysis of a Harvard Business School Case. This ppt shows how a shift has taken place from upstream to downstream activities in the business.
INDUSTRY ANALYSIS One of the major competences that str.docxcarliotwaycave
INDUSTRY ANALYSIS
One of the major competences that strategic managers need is the ability to define their business, conduct an effective industry analysis,
and identify the "key success factors" for firms competing in their industry. This brief note discusses the steps most often found in a
solid analysis of an industry.
A.DEFINE THE INDUSTRY.
The boundaries for an industry analysis are determined by the markets and products that best describe the domain of the industry. Once
you fully understand the business segment that is to be analyzed, you are in a position to identify the capabilities required to participate
successfully in that industry, and the competitors that are likewise able to effectively target the same business segments. These
elements set the parameters for understanding and analyzing the industry. As industries converge and shift, business definitions become
more difficult. In virtually all industries, consumers are becoming more demanding for customized products and services. These
demands encourage the development of innovations, products, and competitors.
B. DESCRIBE THE INDUSTRY STRUCTURE.
For each product-market segment, an industry analysis will describe the "five-forces" of competition. The five forces discussed briefly
below predict the long run profitability of an industry and are an important first step in analyzing the industry once it has been identified.
1. Bargaining Power of Buyers: This primary force comes from the customer segments that make up the markets in which firms
compete. The size and importance of customers influences their power to negotiate prices and terms that reduce the overall
profitability of the industry. The sizes and types of buyers present in an industry determine their potential influence on product
development and influence the level of competition to be found in the industry.
2. Intensity of Rivalry: A second force comes from the competitors and the ways they compete. Each competitor offers a set of
products and services that attempts to provide higher value to the product-market segments they address. Strategies can be
designed to provide combinations of higher performance, more fashion and features, higher quality, or lower price. Increased
rivalry always leads to price or service competition that reduces the profitability of the industry.
3. Bargaining Power of Suppliers: A third influence on the profitability of an industry comes from its suppliers. In some industries,
suppliers might control critical inputs that can affect all firms’ ability to compete. Analogous to Bargaining power of Buyers,
whenever suppliers are large or few, their leverage tends to be high. Limited access to critical factors of production, equipment,
materials, or components can increase prices and accordingly limit profit potential.
4. Threat of New Entrants; a fourth force represents the ease with which a new competitor can compete for exi ...
industry, Industry Analysis, Why is Industry Analysis Important? How Industry and Firm-Level Factors Affect Performance, Techniques Available to Assess Industry Attractiveness, Studying Industry Trends
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PRINTED BY: [email protected] Printing is for personal, private use only. No part of this book may
be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.
KEY ELEMENTS OF SUPPLY CHAIN STRATEGY
A supply chain strategy involves many interlocking activities and decisions, large and small. According
to Michael Porter, strategy guru and author of Competitive Advantage, successful business strategy relies
on the concept of “fit”—that is, a group of activities that support a chosen competitive strategy.
Although any single activity can be copied, the activities taken together form a system that is virtually
impossible to duplicate.9
Porter’s concept of fitness holds equally true for supply chain strategy. Five elements of your
business—and the choices you make regarding these elements—are fundamental:
Customer service. What are your objectives in terms of delivery speed, accuracy, and
flexibility?
Sales channels. How will your customers order and receive your goods and services?
Value system. Which supply chain activities will be performed by your organization and which
by your partners?
Operating model. How will you organize the planning, ordering, production, and delivery
processes to provide customer service while still meeting your working capital and cost
objectives?
Asset footprint. Where will you locate your supply chain resources, and what is their scope of
action?
Companies often make decisions about each of these elements in isolation, without considering the
others. It’s possible, for example, to develop a manufacturing footprint that reduces costs, only to fall
short of required customer-service levels. To get the full strategic benefit a supply chain can offer,
however, it’s critical to treat each element as part of an integrated whole (Figure 1.2).
Figure 1.2 Elements of Supply Chain Strategy
https://jigsaw.vitalsource.com/api/v0/books/0071846646/print?from=9&...
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CUSTOMER SERVICE
The first step in developing a supply chain strategy is to define customer service objectives. Offering
various levels of delivery speed, accuracy, and flexibility for different types of customers can help
distinguish the overall customer experience. Should, for example, deliveries reach all customers in the
same amount of time, or should customers who are more valuable receive deliveries faster? Should the
ordering process be the same for all customers? Answers to questions like these will be dictated by your
company’s business strategy and target audience—that is, whether you are addressing B2C or B2B
segments.
Business to Consumer
In the B2C world, off-the-shelf product availability is often the key service criterion. Customers are
willing to wait for hot products from a leading brand—but only up to a point. Retailer Nordstrom
introd.
Commonality Unleashed Across Functions and IndustriesCognizant
Semantics aside, the commonality, or similarity, of processes and functions across industries and business sectors suggests that cross-pollination - or crossover - is a valid approach for addressing the talent gap many companies face.
Company Valuation webinar series - Tuesday, 4 June 2024FelixPerez547899
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Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
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1. A report on
INDUSTRIAL MARKET SEGMENTATION
• SUBMITTED TO • SUBMITTED BY
• Prof VIVEK SIR • MOHITE GOKHALE
• CHETAN KANOJIA
• ANKIT VEDA
• ASHISH GHANGORIYA
2. • Introduction: -
• A market segment is commonly defined as "a group of
present or potential customers with some common
characteristics which is relevant in explaining / predicting
their response to a supplier's marketing stimuli “
• In contrast to consumers, industrial customers tend to be
fewer in number and purchase larger quantities. They
evaluate offerings in more detail, and the decision process
usually involves more than one person. These
characteristics apply to organizations such as
manufacturers and service providers, as well as
resellers, governments, and institutions.
3. • Many of the consumer market segmentation variables can
be applied to industrial markets.
• Moreover, companies collaborate among themselves
heavily even in consolidated industries. One eg. is the
automobile industry. There is not one single car
manufacturer in the world that does not collaborate with at
least one other car manufacturer either on drive-train
technology, platform design, assembly, marketing or some
other discipline. This makes it highly challenging for
suppliers to differentiate themselves according to the
needs of any one particular customer or segment. Yet
others propose a totally different method by emphasizing
on supply chain analysis and competitive advantage.
4. • Segmentation Variables for Industrial
products
• Segmentation variables as "customer
characteristics that elate to some important
difference in customer response to marketing
effort" & recommends the following three
criteria:
5. • Measurability, "otherwise the scheme will not be
operational" according to Webster. While this would be
an absolute ideal, its implementation can be next to
impossible in some markets. The first barrier is, it often
necessitates field research, which is expensive and
time-consuming. Second, it is impossible to accurate
strategic data on a large number of customers. Third, if
gathered, the analysis of the data can be daunting task.
These barriers lead most companies to use more
qualitative and intuitive methods in measuring
customer data, and more persuasive methods while
selling, hoping to compensate for the gap of accurate
data measurement.
6. • Substantiality, i.e. "the variable should be relevant to a
substantial group of customers". The challenge here is
finding the right size or balance. If the group gets too
large, there is a risk of diluting effectiveness; and if the
group becomes too small, the company will loose the
benefits of economies of scale. Also, as Webster rightly
states, there are often very large customers that provide a
large portion of a suppliers business. These single
customers as sometimes distinctive enough to justify
constituting a segment on their own. This scenario is often
observed in industries which are dominated by a small
number of large companies, e.g. aircraft
manufacturing, automotive, turbines, printing machines
and paper machines.
7. • Operational relevance to marketing strategy.
Segmentation should enable a company to offer the
suitable operational offering to the chosen
segment, e.g. faster delivery service, credit-card
payment facility, 24-hour technical service, etc. This
can only be applied by companies with sufficient
operational resources. For eg., just-in-time delivery
requires highly efficient and sizeable logistics
operations, whereas supply-on-demand would need
large inventories, tying down the supplier's capital.
Combining the two within the same company - e.g. for
two different segments - would stretch the company's
resources.
8. • A Generic Principle
• One of the recommended approaches in segmentation
is for a company to decide whether it wants to have a
limited number of products offered too many
segments or many products offered to a limited
number of segments. Businesses are encouraged not to
offer many product lines to many segments, as this
would dilute their focus and stretch their resources too
much. Yet this happens relatively often in
practice, which hints to the question, to what extent
the recommended models realistic.
9. • The advantage in attempting the above approach is that although it
may nor work at all times, it is a force for as much focus as
practicable. The one-to-many model ensures – in theory – that a
business keeps its focus sharp and makes use of economies of scale
at the supply end of the chain. In "kills many birds with one stone".
• Eg.s: Coca Cola and some of the General Electric businesses. The
drawback is that the business would risk loosing business as soon as
a weakness in its supply chain or in its marketing forces it to
withdraw from the market. Coca Cola's attempt to sell its Mineral
bottled water in the UK turned out to be a flop mainly because it
tries to position this "purified tap water" alongside mineral water of
other brands. The trigger was a contamination scandal reported in
the media.
10. • Two-Stage Market Segmentation
• Industrial market segmentation based on broad
two-step classifications of
• Macro-segmentation and
• Micro-segmentation.
• This model is one the most common methods
applied in industrial markets today. It is
sometimes extended into more complex models
to include multi-step and three- and four-
dimensional models.
11. • Macro-segmentation centers on the characteristics of the buying
organisation, thus dividing the market by:
• - Company / organisation size: one of the most practical and easily
identifiable criteria, it can also be good rough indicator of the
potential business for a company. However, it needs to be
combined with other factors to draw a realistic picture.
• - Geographic location is equally as feasible as company size. It tells
a company a lot about culture and communication requirements.
For eg. A company would adapt a different bidding strategy with an
Asian company than an American customer. Geographic location
also relates to culture, language and business attitudes. For
eg., Middle Eastern, European, North American, South American
and Asian companies will all have different sets of business
standards and communication requirements.
12. • - SIC core (standard industry classification), which
originated in the US, can be a good indicator for
application-based segmentation. However it is based only
on relatively standard and basic industries, and product or
service classifications such as sheet metal
production, springs manufacturing, construction
machinery, legal services, cinema's etc. Many industries
that use a number of different technologies or have
innovative products are classified under the 'other'
category, which does not bring much benefit if these form
the customer base. Eg.s are access control
equipment, thermal spray coatings and uninterruptible
power supply systems, none of which have been classified
under the SIC.
13. • - Purchasing situation, new task, modified re-buy or
straight re-buy. This is another relatively theoretical
and unused criterion in real life. As a result of
increased competition and globalisation in most
established industries, companies tend to find focus in
a small number of markets, get to know the market
well and establish long-term relationship with
customers. The general belief is, it is cheaper to keep
an existing customer than to find a new one. When this
happens, the purchase criteria are more based on
relationship, trust, technology and overall cost of
purchase, which dilutes the importance of this
criterion.
14. • - Decision-making stage. This criterion can only
apply to newcomers. In cases of long-term
relationship, which is usually the objective of
most industrial businesses, the qualified supplier
is normally aware of the purchase
requirement, i.e. they always get into the bidding
process right at the beginning. & "with increasing
turbulence in the marketplace, it is clear that
firms have to move away from transaction-
oriented marketing strategies and move towards
relationship-oriented marketing for enhanced
performance".
15. • - Benefit segmentation: The product's economic value
to the customer, which is one of the more helpful
criteria in some industries. It "recognizes that
customers buy the same products for different
reasons, and place different values on particular
product features. For eg. The access control industry
markets the same products for two different value sets:
Banks, factories and airports install them for security
reasons, i.e. to protect their assets against.
However, sports stadiums, concert arenas and the
London Underground installs similar equipment in
order to generate revenue and/or cut costs by
eliminating manual ticket-handling
16. • Type of institution: banks would require designer furniture for their
customers while government departments would suffice with
functional and durable sets. Hospitals would require higher hygiene
criteria while buying office equipment than utilities. And airport
terminals would need different degrees of access control and
security monitoring than shopping centers. However, type of buying
institution and the decision-making stage can only work on paper.
As institutional buyers cut procurement costs, they are forced to
reduce the number of suppliers, with whom they develop long-
term relationships. This makes the buying institution already a
highly experienced one and the suppliers are normally involved at
the beginning of the decision-making process. This eliminates the
need to apply these two items as segmentation criteria.
17. • Customers' business potential assuming supply
can be guaranteed and prices are acceptable by a
particular segment. For eg., 'global accounts'
would buy high quantities and are prepared to
sign long-term agreements; 'key accounts'
medium-sized regional customers that can be the
source of 30% of a company's revenue as long as
competitive offering is in place for them; 'direct
accounts' form many thousands of small
companies that buy mainly ob price but in return
are willing to forego service.
18. • Purchasing strategies, global vs. local decision-making
structure, decision-making power of purchasing officers vs.
engineers or technical specifies.
• - Supply Chain Position: A customer' business model affects where
and how they buy. If he pursues a cost leadership strategy, then the
company is more likely to be committed to high-volume
manufacturing, thus requiring high-volume purchasing. To the
supplier, this means constant price pressure and precise delivery
but relatively long-term business security, e.g. in the commodities
markets. But if the company follows a differentiation strategy, then
it is bound to offer customised products and services to its
customers. This would necessitate specialised high-quality products
from the supplier, which are often purchased in low volumes, which
mostly eliminates stark price competition, emphasises on
functionality and requires relationship-based marketing mix.
19. • Micro-segmentation on the other hand requires a higher degree of
knowledge. While macro-segmentation put the business into broad
categories, helping a general product strategy, micro-segmentation
is essential for the implementation of the concept. "Micro-
segments are homogenous groups of buyers within the macro-
segments" Macro-segmentation without micro-segmentation
cannot provide the expected benefits to the organisation. Micro-
segmentation focuses on factors that matter in the daily business;
this is where "the rubber hits the road". The most common criteria
include the characteristics of the decision-making units within each
macro-segment
• E.g. - Buying decision criteria (product quality, delivery, technical
support, price, and supply continuity). "The marketer might divide
the market based on supplier profiles that appear to be preferred
by decision-makers, e.g. high quality – prompt delivery – premium
price vs. standard quality – less-prompt delivery – low price".
20. • - Purchasing strategy, which falls into two
categories, according to Hutt and Speh: First, there are
companies who contact familiar suppliers (some have
vendor lists) and place the order with the first supplier that
fulfils the buying criteria. These tend to include more
OEM's than public sector buyers. Second, organizations
that consider a larger number of familiar and unfamiliar
suppliers, solicit bids, examine all proposals and place the
order with the best offer. Experience has shown that
considering this criterion as part of the segmentation
principles can be highly beneficial, as the supplier can avoid
unnecessary costs by, for eg. not spending time and
resources unless officially approved in the buyer's vendor
list.
21. • Structure of the decision-making unit can be one of
the most effective criteria. Knowing the decision-
making process has been shown to make the difference
between winning and losing a contract. If this is the
case, the supplier can develop a suitable relationship
with the person / people that has / have real decision-
making power. For eg., the medical equipment market
can be segmented on the basis of the type of
institution and the responsibilities of the decision
makers, according to Hutt and Speh. A company that
sells protective coatings for human implants would
adapt a totally different communication strategy for
doctors than hip-joint manufacturers.
22. • Perceived importance of the product to the customer's business (e.g. automotive
transmission, or peripheral equipment, e.g. manufacturing tool)
• - Attitudes towards the supplier: Personal characteristics of buyers
(age, education, and job title and decision style) play a major role in forming the
customers purchasing attitude as whole. Is the decision-maker a
partner, supporter, neutral, adversarial or an opponent? Industrial power systems
are best "sold" to engineering executive than purchasing managers; industrial
coatings are sold almost exclusively to engineers; matrix and raw materials are sold
normally to purchasing managers or even via web auctions.
• The above criteria can be highly beneficial depending on the type of business.
However, they may be feasible to measure only in high-capital, high-expense
businesses such as corporate banking or aircraft business due to high cost
associated with compiling the desired data. "There are serious concerns in practice
regarding the cost and difficulty of collecting measurements of these micro-
segmentation characteristics and using them".
23. • Perceived importance of the product to the customer's business (e.g.
automotive transmission, or peripheral equipment, e.g. manufacturing
tool)
• - Attitudes towards the supplier: Personal characteristics of buyers
(age, education, and job title and decision style) play a major role in
forming the customers purchasing attitude as whole. Is the decision-maker
a partner, supporter, neutral, adversarial or an opponent? Industrial power
systems are best "sold" to engineering executive than purchasing
managers; industrial coatings are sold almost exclusively to engineers;
matrix and raw materials are sold normally to purchasing managers or
even via web auctions.
• The above criteria can be highly beneficial depending on the type of
business. However, they may be feasible to measure only in high-
capital, high-expense businesses such as corporate banking or aircraft
business due to high cost associated with compiling the desired data.
"There are serious concerns in practice regarding the cost and difficulty of
collecting measurements of these micro-segmentation characteristics and
using them".
24. • Nested Approach to Segmentation:
• The application of all the criteria recommended by
Wind and Cardozo and subsequent scholars who
expanded upon their two-stage theory became
increasingly difficult due to the complexity of modern
businesses, Bonoma and Shapiro suggest that the same
/ similar criteria be applied in multi-process manner to
allow flexibility to marketers in selecting or avoiding
the criteria as suited to their businesses. "They
proposed the use of the following five general
segmentation criteria which they arranged in a nester
hierarchy:
25. • Demographics: industry, company size, customer location
• Operating variables: company technology, product/brand use
status, customer capabilities
• Purchasing approaches: purchasing function, power
structure, buyer-seller relationships, purchasing
policies, purchasing criteria
• Situational factors: urgency of order, product application, size
of order.
26. • Buyers' personal characteristics:
• The idea was that the marketers would move from the
outer nest toward the inner, using as many nests as
necessary". As a result this model has become one of
the most adapted in the market, rivaling the Wind &
Cardozo model head-on. One of the problems with the
nested approach "is that there is no clear-cut
distinction between purchasing approaches, situational
factors and demographics. Bonoma and Shapiro are
aware of these overlaps and argue that the nested
approach is intended to be used flexibly with a good
deal of managerial judgment.
27. • Bottom-up Approach
• According to Kotler, where masses of customer data are
studies and similarities searched to make up segments that
have similar needs, i.e. assessing the customer base
quantitatively and grouping them – i.e. building up – the
segments based on similarities in purchasing attitude.
• When starting the segmentation process, instead of seeing
customers as identical, the build-up approach begins by
viewing customer as different and then proceeds to identify
possible similarities between them. In a turbulence market
[pretty much all markets today], using a build-up approach
is more suitable than a breakdown approach".
28. • Targeting and Positioning
• "There is a critical difference in emphasis between target market
and audience. The term audience is probably most useful in
marketing communication". (Croft, 1999) Indeed, people to whom a
product or service is sold are target markets. Therefore, marketing
operations include the entire go-to-market processes such as
product lifecycle management, pricing, distribution, sales and after
sales service as well as communication.
• Target markets can include end user companies, procurement
managers, company bosses, contracting companies and external
sales agents. Audiences, however, can include individuals that have
influence over purchasing decision, but may not necessarily buy a
product themselves, e.g. design engineers, architects, project
managers and operations managers, plus those in target markets.
29. • Competition
• Attempting to include two vast topics such as India and China into this
discussion is naive. However, one element that should never be left out of
sight while segmenting, targeting and positioning, is competition. This is a
key concern that may impact the success of the company, especially as
one of segmentation's core objectives is differentiation.
• Apart from the expected competition within a company's known
geographic reach, competition is seriously taking shape from China and
India, both of whom have been predicted to become global economic
superpowers within a few years. The bulk of the threat is facing Europe
and North America. "Italy is the sick man of Europe–its economy has
shrunk 4% since 1999. Along with Germany and France, the nation has
been struggling with weak consumer spending, waning productivity and
rising government deficit. Italy's economic structure is almost perfectly
shaped for an attack by China. "The threat is not only relevant to Italy, but
the whole of Europe, including the UK,
30. • The second major threat comes from India. Where China is turning
into the world's 'manufacturing house', India is focusing on IT
outsourcing, software development, business process off shoring
(BPO), banking, insurance and legal services. "Exports from India's
IT industry and from BPO are on track to reach $60 billion a year by
2010, representing a 28% annual growth rate. India currently
accounts for 65% of the world's offshore IT services and 46% of its
BPO."
• As modern industries are driven by mechanical and electronics
technologies, and both of these are being dominated by either
China or India, the balance of economic power is bound to shift
from West to East. This will impact the way companies do business.
Those that can offer low-cost, efficient solutions sourced in either
of those countries are likely to survive and prosper provided they
take advantage of the modern communication skills to market
themselves appropriately.