Segmentation Flashcards
Describe the article:
Thomas, R.J. (2012), Business-to-business market segmentation, in Lilien, G.L. and Grewal, R. (Eds), Handbook of Business-to-Business Marketing, Edward Elgar Publishing, Cheltenham, pp. 182-207.
The article discusses the effectiveness of market segmentation in the business-to-business (B2B) context. It mentions a case study that shows significant sales increases through B2B market segmentation. It also highlights the importance of cooperation and innovative approaches in implementing segmentation strategies. Overall, the article emphasizes the potential benefits of B2B market segmentation but acknowledges the need for careful consideration and new approaches to achieve success.
Decide on the use of segmentation - Clarks matrix (Step 1)
The first dimension of the matrix is the level of implementation, which distinguishes between strategic and operational levels. Strategic segmentation refers to high-level decision-making that influences the overall direction and focus of the firm. Operational segmentation, on the other hand, involves more specific and tactical decisions related to day-to-day activities.
The second dimension of the matrix is the creation of new offerings. This dimension considers whether the firm is focused on developing new value propositions or adjusting existing offerings. Creating new offerings involves innovation and developing products or services that cater to new customer segments. Adjusting existing offerings, on the other hand, involves modifying or refining existing products or services to better meet the needs of specific segments.
By combining these two dimensions, the contextual segmentation matrix creates four distinct situations or quadrants. These situations are characterized by different purposes for segmenting and have different requirements and implications. The matrix takes into account internal and external activities, resources, actors, and how value is created.
Build the segmentation database (Step 2)
- Base Variables: These variables are used to define market segments. They are typically focused on identifying customer needs and motivations to make a purchase. Examples of base variables could include customer needs, organizational characteristics (such as size, age, industry), and buying center characteristics (such as size, influence, location).
- Descriptor Variables: Descriptor variables are used to describe and target specific segments. They provide additional information about the segments identified using base variables. Descriptor variables can include factors like awareness of major brands, perceptions of major brands on needs and benefits, and preference/likeability for major suppliers and brands.
- Response Variables: Response variables are used to develop segment positioning. They help in understanding how different segments respond to marketing efforts and how they perceive the value of offerings. Response variables can include factors like perceived value for pricing, intention-to-buy brands or new product concepts, and intention to buy brands or new product concepts.
- Marketing Variables: Marketing variables are used to formulate marketing strategy based on the identified segments. They focus on the specific marketing actions and tactics that can be employed to effectively target and serve the segments. Marketing variables can include factors like product design, development, assortment, channels of distribution, and media usage and preferences.
Identify and profile segments (Step 3)
- Identify Segments: The first step is to identify segments within the target market. This involves analyzing customer data, conducting market research, and using various segmentation methods to identify groups of customers who are similar within the groups but different from each other. Some common methods for segment identification include classifying customers on preselected categorical variables, grouping customers with cluster analysis, classifying customers with latent class analysis, or optimizing segments using predefined criteria.
- Profile Segments: Once the segments are identified, the next step is to create profiles for each segment. This involves describing the characteristics, behaviors, and preferences of customers within each segment. The profiles may include demographic information, psychographic traits, buying behaviors, needs, preferences, and other relevant variables. The goal is to gain a deep understanding of each segment’s unique characteristics and motivations.
Selecting target segments - Criteria (Step 4)
criteria that can be used to characterize ideal segments, which may align with these concepts. Here’s a breakdown of the mentioned criteria:
- Measurability: Measurability refers to the ability to identify and measure the segment. In the texts, it is mentioned that early marketing theorists and managers tended to approach the targeting decision by defining criteria such as measurability. Measurability can involve collecting data on customer characteristics, behaviors, and preferences to effectively identify and quantify the segment.
- Substantiality: Substantiality refers to the segment being large enough to be profitable. The texts mention that one of the criteria for segment selection is substantiality, which means that the segment should have a sufficient size and potential to generate profits for the business.
- Accessibility: Accessibility refers to the ability to reach and serve the segment effectively. While not explicitly mentioned in the texts, accessibility is an important consideration in segment selection. It involves assessing whether the business has the necessary resources, distribution channels, and capabilities to effectively target and serve the chosen segment.
- Responsiveness: Responsiveness refers to how the segment responds to marketing efforts and how they perceive the value of offerings. While not directly mentioned in the given texts, responsiveness is a key factor in segment selection. Understanding the responsiveness of a segment helps businesses tailor their marketing strategies and offerings to effectively meet the needs and preferences of that segment.
Selecting target segments - The Brennan model
Formulate Positioning and Marketing Strategy (Step 5)
- Positioning Statement: A positioning statement is a concise statement that communicates how a product or brand is distinct and valuable to the target segment. It defines the unique value proposition and positioning of the product or brand in the minds of the target customers. The positioning statement should clearly articulate the benefits, features, and value that the product or brand offers to the target segment, and how it differentiates from competitors.
- Marketing Strategy: The marketing strategy outlines the specific actions and tactics that will be used to reach and engage the target segment. It includes decisions on product development, pricing, distribution channels, and promotional activities. The marketing strategy should align with the positioning statement and be tailored to the characteristics, needs, and preferences of the target segment.
The process of formulating positioning and marketing strategy involves a combination of data analysis, market research, and creative thinking. It is important to gather insights about the target segment, competitors, market trends, and customer preferences to inform the positioning and marketing strategy decisions.
Implement, Track and Validate Segments (Step 6)
Implementing, tracking, and validating segments is an important aspect of market segmentation. Here’s an explanation of this process:
- Implementation: Once the target segments have been selected and the positioning and marketing strategy have been formulated, the next step is to implement the marketing initiatives and tactics designed for each segment. This involves executing the planned activities, such as advertising campaigns, product launches, pricing strategies, and distribution efforts, with a focus on reaching and engaging the target segments.
- Tracking: Tracking involves monitoring and measuring the performance and outcomes of the marketing initiatives targeted at each segment. It is important to track various metrics and indicators to assess the effectiveness of the strategies and tactics employed. This can include tracking sales, customer acquisition and retention rates, market share, customer satisfaction, and other relevant performance indicators. Tracking helps businesses understand how well they are reaching and serving the target segments and whether the marketing efforts are generating the desired results.
- Validation: Validation refers to the process of assessing whether the identified target segments are indeed responsive and profitable. It involves evaluating whether the marketing program has successfully reached and engaged the intended segments and whether the expected outcomes, such as increased sales or market share, have been achieved. Validation helps businesses determine the effectiveness of their segmentation approach and make adjustments if necessary.
The texts mention that tracking and validating segments can be challenging, and there may be a lack of specific guidelines. However, they suggest that in smaller markets, tracking can be accomplished by the sales force, who can report results by customer and correlate them with targeted segments. In larger markets, one approach might be to identify early customers, obtain their characteristics, and determine their segment membership.
Describe:
Blocker, C. P. and Flint, D. J. (2007). Customer segments as moving targets: Integrating customer value dynamism into segment instability logic. Industrial Marketing Management, Vol. 36, pp. 810-822.
The PDF discusses the concept of segment instability in consumer segmentation studies. It highlights that while the overall classes of benefits and segment sizes may remain relatively consistent, segment membership at the consumer level can change substantially over time. Longitudinal studies have shown that only a small percentage of segment members remain the same between periods, indicating a high level of instability. Additionally, some key segments experience even greater turnover. The PDF also mentions that the outcomes of segment instability are limited in the literature, but there is evidence that well-defined segments can lead to benefits such as closer matching of a firm’s products with customer needs, better communication with customers, and improved strategic decision-making.
Detailed summary of the results:
The PDF presents the findings of longitudinal studies on segment instability in consumer segmentation. Calantone and Sawyer (1978) conducted a study on banking services and found that although the overall classes of benefits and segment sizes remained relatively consistent over a 2-year period, segment membership at the consumer level changed substantially. In one segment, only 28% of the members were the same between periods. Yuspeh and Fein (1982) conducted a 12-month study on an undisclosed consumer product and found similar results, with less than half the sample remaining within the same segments. Some key segments experienced even greater turnover.
The PDF also discusses the potential outcomes of segment instability. While the literature is limited in discussing negative outcomes, such as wasted investment on segmentation when segments change, there is evidence for positive outcomes of stable segments. Well-defined segments are linked to several potential benefits, including closer matching of a firm’s products and capabilities with customer needs, better communication with customers, improved strategic decision-making about new products or re-positioning of old ones, and greater understanding of how to maximize communication with customers.
Overall, the PDF suggests that understanding segment instability and its impact on customer value change is crucial for effective marketing strategy in business-to-business markets. However, further research is needed to explore the antecedents, complexities, and outcomes of segment instability in more depth.
Heterogeneity in segments
- Latent segment change refers to the idea that within a market, segment types and their properties remain relatively stable while customers move in and out of those segments in a varied manner. This means that individual customers may leave a particular segment and enter another existing segment, but the segments themselves remain viable over time as long as there is a consistent inflow of new customers equal to or greater than the outflow. Latent segment change suggests that the overall structure of segments remains intact, but the composition of customers within those segments may change.
Manifest segment change, on the other hand, refers to the formation of new segments as a result of groups of customers undergoing similar shifts in their desired value and needs. This means that customers move together through changes in their preferences and requirements, leading to the emergence of new segments. Manifest segment change is often observed during significant market shifts, such as the introduction of new products or changes in customer preferences.
- Structural changes in the context of customer segmentation refer to the spatial outcomes and shifts that occur within segments. The PDF mentions several key descriptors of structural change, including changes in segment size, dispersion of customers’ needs within a segment, and boundary clarity.
Segment size can change as the needs of customers shift towards or away from the defined properties of a segment and its target offers. This means that segments can grow or shrink depending on the alignment between customer needs and the segment’s value proposition.
Dispersion of customers’ needs within a segment refers to the spatial distribution of customer preferences and requirements within a segment. Changes in dispersion indicate shifts in the diversity or homogeneity of customer needs within a segment. Higher dispersion suggests greater variation in customer needs, while lower dispersion indicates more uniformity.
Boundary clarity refers to the distinctness and clarity of the boundaries that define a segment. Changes in boundary clarity can occur as customers’ needs and preferences evolve, potentially leading to the redefinition or repositioning of segments.
These structural changes provide insights into the dynamics and evolution of customer segments. For example, stagnant segments may exhibit low variance and means in terms of need-change form variety and need-change intensity, while chaotic segments may have high averages and variance. Different types of variance among segment members can also indicate whether latent (high variance) or manifest (low variance) models of change are prevalent.
Heterogeneity in segments Framework
- Levels of change: The framework recognizes that SI can occur at multiple levels within the B2B context. These levels include the individual business customer, the segment, and the overall market. By considering SI at different levels, the framework captures the various dimensions and dynamics of SI.
- Individual business customer level: At this level, the framework acknowledges that individual customers’ needs and preferences can change over time, leading to shifts in their segment membership. This level of change reflects the dynamic nature of customer behavior and the potential for individual customers to move in and out of segments.
- Segment level: The framework considers the structural changes that can occur within segments. These changes include shifts in segment size, dispersion of customer needs within a segment, and boundary clarity. Changes at the segment level reflect the spatial outcomes of segment content changes and provide insights into the dynamics of segment composition.
- Overall market level: The framework recognizes that SI can have broader implications for the market as a whole. It acknowledges that changes in customer needs and segment dynamics can impact the competitive landscape, industry structure, and strategic decision-making. Understanding SI at the overall market level provides a holistic view of the market dynamics and the strategic implications of SI.
The B2B segment instability framework serves as a guide for understanding and studying SI in B2B markets. It offers a comprehensive approach by considering SI at multiple levels and incorporating various dimensions of change. By utilizing this framework, researchers and practitioners can gain insights into the dynamics of customer need heterogeneity within segments and its strategic implications.
