MODULE 3

MARKET SEGMENTATION, TARGET MARKETING AND POSITIONING And INDUSTRIAL MARKETING RESEEARCH

Introduction

STP is one of the important strategic decision in marketing. Objective is to identify, select, analyse, and evaluate attractive market segments and position the product favourably in the minds of the target customers. It enables the firm maximize the returns on investment It is directly linked to achieve the organizational goals.

STP-A Framework
MARKET SEGMENTATION TARGET MARKETING POSITIONING 1. Develop product/market positioning for each of the target market selected. 1. Identify measurable, 1. Evaluate resulting relevant and operational macro/micro segments: variables for segmenting the a. Profitability analysis market b. Competitive analysis 2. Define macro profiles of resulting segments 3. Define micro profiles of the resulting macro segments 2. Decide on market coverage a. Undifferentiated b. Differentiated c. Concentrated 3. Select the target segments

2. Develop marketing mix for each target market selected.

Market Segmentation

Selection of markets to serve effectively It enables the marketing firm to allocate resources effectively It is a process of dividing the total market into several segments or groups of buyers. The firm identifies different ways to segment the market, develop profiles of each resulting segment, and evaluate each segment's attractiveness.

Market Segmentation

For example, an auto company may identify four broad segments: car buyers who are primarily seeking transport or high performance or luxury or safety. Precision steel tubes was done based on the segmentation variables of end users such as bicycles, 2wheelers, furniture's, boilers, bus body builders.

Requirements of Effective Market Segmentation

The Variables selected for analysis must be Measurable- Information on the variables of interest should exists and be obtainable Relevant- the variables chosen should impact on decision making to marketing programs Operational- the variables chosen for evaluation should be related to buying behaviour and differences in customer requirements.

Benefits of Market Segmentation

It enables the industrial marketer to compare marketing opportunities to different market segments. Industrial firms with availability of adequate resources can develop separate marketing programs or plan to meet the specific customer needs Budget allocation of resources can be done effectively to various segments.

Criteria Used for Selection of Segmentation Variables

Measurable-The variables used should measure sales potential or quantity of product required by customers. Differentiable-the segments should be distinguishable and should respond to separate marketing plans.Ex: If scooter, motorcycle, and moped manufacturers respond similarly while purchasing steel, they do not form separate segments.

Criteria Used for Selection of Segmentation Variables

Sustainable-The segments should be large enough in terms of sales potential and profits. Ex- By using company size as the segmentation variable, a large company manufacturing and marketing electric motors, segmented the market into small, medium, and large segments, and the company selected medium and large sized customers as their target markets.

Identifying Variables used for Segmenting Industrial Markets

Industrial market segmentation is approached on the basis of: Macro-variables Micro-Variables In some instances after using one variable, it may be necessary to sub divide the market by using another segmentation variable in order to obtain a detailed scheme-sequential segmentation process

Major Variables used for Segmenting Industrial Markets

Macro-Variables Type of Industry

Which industry should we market our product or services. Mining, Chemical, Textile, Rubber, Automobile, etc. Types of customers include Govt., institutional, commercial, co-operative What size of company should we focus on? Based on the sales potential market is segmented as small, medium and large.

Company Size

Customer Location

What geographic area should we concentrate on? Customers located nearer to factory, or customers located near urban areas like Bangalore, Mumbai, Kolkata, Delhi, Chennai

End-use or application of products

Should we focus on certain end users or application of products instead of all the users Ex:Aluminium extrusions are used for doors and window frames, TV antennas, electronic equipment as heat sinks, etc.

0 Micro-Variables

Customer Interaction Needs

Should we serve customers who need more information, help or discussions in decision making process from the supplier?

Organizational Capabilities

Should we concentrate on customers who need financial support or technical support, like more service or more credit?

Purchasing policies

Should we focus on customers who prefer competitive bidding, market based negotiated price, turn-key contracts or service contracts?

Purchasing Criteria

Should we serve the customers who seek quality, service or price?

Personal Characteristics

Should we focus on customers based on the personal characteristics of buying centre members such as risk takers, risk avoiders, or personal motives.

Macro Segmentation

This approach consists of identifying the macro-variables on the basis of Industry characteristics and organizational characteristics such as size, type, geographical location or product application. Industry Characteristics-Industrial firms market their product or service to industries classified by Standard Industries Classification(SIC)

0 Ex:A MR firm decides to segment its market

based on industry type, to develop industry knowledge and information to give better value in the competitive market. The company uses the SIC codes to club different industries into homogenous groups like, engineering, chemical, fertilizers, agricultural and food processing industries; service organizations like hotels banks, trade associates and tourism

Organizational Characteristics
The size of the customer is an important macro variable used to segment the market. Large organizations avoid purchases from small firms, and differ in their marketing strategies. Customer location-the geographical locations of customer is an important factor in serving the needs of on time delivery. Ex:transportation time, inventory control, availability of warehouse facilities, aftersales service.

Market segmentation by end use of product is used by the firm who market product or service to the end use markets. Ex: Market segment for aluminium observed are doors, windows, partitions in factories, offices, and commercial establishments. And other end user segments are electrical control panels, bus body builders, electronic sinks, dish antennas etc.

Micro Segmentation

Micro segments are homogenous group of customers within the macro segments. Industrial marketers subdivide macro-segments into micro-segments only if necessary, and mainly based on purchase decision. Information and data required for developing micro segmentation is gathered by sales persons and market surveys.

Micro-variables in Microsegmentation

Buy Phases-buy situations are used to segment the customer group. Mainly done on the basis of customer interaction needs. Ex-computarized numerically controlled machines. Organizational Capabilities-factors include financial, technical, or operational Ex-financially week companies are attracted by long credit terms than on product quality or delivery.

Purchasing Policies-used to segment customer based on the purchasing practices. Ex: Govt. Customers have standard purchasing policy of tender bidding. Purchasing Criteria-used to segment customers based on the criteria used by buying organizations.Ex-criteria such as price, payment terms, inventory carrying cost, rejection cost, and inspection cost, dominate the purchase decisions.

Personal Characteristics of individual buyers within an organization is an important variable as the ultimate decision makers are individuals.Expersonal attributes like willingness to take risk, need of social relationship, education, age, and personal motives.

Overview

The degree of market segmentation depends on how detailed the customer knowledge is for effective utilization. More the market is segmented more it becomes costly and time consuming. Emphasis more on macro-segmentation, and only if necessary move to micro-segmentation Segmentation may even be based on the purchase situation and the power structure in the organization.

Target Marketing

Evaluating the Market Segments

Size and Growth- Indicates the size and market growth in each of the segment. Forecasting methods are used to obtain the market demand and Growth. Profitability Analysis- 3 elements involved in analysing the profitability are:

Market Potential Sales forecast Profitability

Competitive Analysis-Profit potential depends on the careful analysis of the competitor's strengths and weakness w.r.t manufacturing, R&D, finance, technical, service product quality, delivery performance, sales force, advertising, distribution, technology, and organizational reputation. Company Objectives and Resources- Check whether each potential segment is in line with firm's long term objectives, if not eliminate the segment. Ex:success factors for automotive industry are quality and after sales service.

0 Target Market Strategies 0 After deciding the target segments, the firm has to

adopt certain strategies to enter the market:

0 Concentrated Marketing:

The firm carefully defines a single or few segments Then focus all the marketing efforts The focus is on narrow range of products/services accompanied by high quality, high price and highly selective promotional and distributional products. Done by firms whose resources are limited. When the firm increases its focus and gain better information than the competitors, its reputation and share in business increases.

0 Ex:the company decided to segment the market

based on the customer location, and concentrated its marketing efforts only on those customers who were located near to the manufacturing plant, so as to give a superior pre sales and post sales services than the competitors. Although the company had limited resources and was in small scale sector, it was able to gain good profits. the market declines or competitor may invade the selected segments.

0 Concentrated marketing strategy may be a risk if

0 Differentiated Marketing

The firm decides to target several market segments whose needs, product usage, market responses are different. Develops seperate marketing strategies for some chosen segments and avoid some segments in the same market.

Gains higher sales volume and stronger position in the chosen market
Leads to higher costs in product development, promotion, production and administration.

0 Ex: an electrical engineering company decided

to market its medium range motors to cover entire domestic market. To succeed in the competitive market, the company decided to segment its whole market into OEMs, large users, and dealers. Different marketing strategies were developed on these focusing on 4Ps. sales and profits.

0 The strategy helped the company to increase

0 Undifferentiated Marketing

Lack of effective market segmentation. Ignores different marketing strategies for different segments.

Develop a single marketing plan common to all the segments.

Strategy used in market where there is a lack of differentiation among the customers Strategy used if there is a lack of management planning or analysis

0 Advantage is to keep the marketing costs low,

i.e.., MR, inventory, production, advertising.

follows differentiated marketing strategy. to use 4Ps to differentiate among the competitors

0 Sales persons face a tough job if the competitor 0 If the products are similar, the sales person has

Criteria in Choosing Target Market Strategy

If the company resources are limited then the firm can choose concentrated marketing strategy If a new product is in the introduction stage of PLC, then the firm can adopt concentrated or undifferentiated marketing strategy, and when it reaches the mature stage, differentiated marketing strategy is advisable. If the competitor follow differentiated marketing strategy, the firm should also follow the same. If the competitor uses undifferentiated marketing strategy, then the firm can use differentiated or concentrated marketing strategy.

0 Niche Marketing

A customer group that seeks product or service tailored specially to the individual needs, desires and preferences. Its objective is to reach unsatisfied potential customers more effectively than competitors.

A selective approach to find a market niche where the company's strengths and capabilities best match the customers' need. A strategic approach to gain increased acceptance in individual market.

Ex: A company focuses its services on training field sales ad service persons to suit the needs of each individual customers. Ex:Toyota was one of the first companies to realize there was a group of car buyers who would be very interested in environmentally friendly cars. To answer this need, it came up with the legendary Prius, the Hybrid Electric car.

Overview
Niche Marketing is followed when the customer has a complex and unique set of needs.
Niche marketing strategy achieves high profits, as the customers are willing to pay for their special needs. Difficult for a competitor to attack a niche market leader. In the mature stage of the PLC the company should be in top 3 positions or adopt niche marketing strategy. Major advantage is to attain high profits and sales may decline due to low demand or large competitor attack.

To be safe in market, the firm has to concentrate to develop two or more niche markets.

0 Ways to achieve Niche specialization

Geographic location- the firm sells only in certain geographic location.Ex-UPS manufacturers market locally.

End User- the organization decides to specialize in one type of end use customer-Management B-Schools, Educational Institutional.
Customer size-many small scale firms prefer to market their products/services to small size customers. Product line-a firms manufacturers only one product to focus on a particular need of the customer.Ex:lighting Customer- firms specialize in marketing their products/services to one or few customers.Ex:automobile component suppliers sell entire products to TVS or Yamaha.

Positioning
A distinct place a product/service occupies in the minds of the target customers. or How the firm wants its products/services to be perceived by the target customers. It should clearly differentiate its company and its products from that of its competitors. Ex:Infosys Technologies is positioned as a leading software company, L&T positioned as a leading engineering company. TATA positioned for the best quality in the minds of the customer

0 Procedure for Developing a Positioning

Strategy:

Identify the target customers' needs in terms of major attributes or benefits. Conduct MR to understand major attributes, which the target customer consider important factor in decision making. Variables used to differentiate products are:
0 Product Variables:ISO certification 0 Service Variables:Pre sales service, during sales service

and after sales service.

levels.

0 Personal Variables: arranging training programmes at all 0 Image Variables: the way buyers perceives a company-

competitive edge.

Select one or more major attributes for differentiation based on company's strengths.

Selection of the attributes like best quality, best service or most advanced technology to differentiate from competitors. JK tyre has positioned as No.1 in Quality, No.1 in R&D, No.1 in Technology, No.1 in Car Radials, No. 1 in Exports

Siemens Healthcare has positioned as Answers for life.

While deciding promotion strategy: the marketer has to keep in mind which are the factors that customer consider while selecting suppliers. How does the target customers perceive the company's products/services w.r.t important attribute. How does the target customers perceive the competitor's products/services w.r.t same attribute.

The customer perception is mapped by statistical analysis called perceptual map.

High product quality

A1

strong customer service

weak customer service

A
Low product quality

Communicate the company's positioning to the target market.

Its not only important to position but also important to communicate to the target market Communication of the positioning is done by sales force, exhibitions, trade shows, advertising in technical or trade journals Ex: if the firm chooses TQM as the positioning strategy, the firm displays superior quality in all the activities like submission of quotations, sales presentation, packaging, dispatch, installation, after sales service.

Some times customers perceive, high quality comes with high price

Industrial Marketing Intelligence and Marketing Research

Introduction Industrial marketing research is one of the components of the industrial marketing intelligence Marketing Intelligence is an on-going activity to provide continuous information for decision making. MR consists of systematic design, collection, analysis, and reporting of data and findings relevant to the marketing situations. The firm has to carry out external environmental analysis to respond to opportunities and threats.

Role of MR in Strategic Decision Making

Its one of the basis for strategic marketing plan. To analyse, plan, implement and control marketing strategy effectively, information must be gathered, organized, analysed. Its also used to conduct market surveys, experiments involving buying attitudes, and practices in case of new product development.

Difference between Consumer and Industrial Marketing Research Technical Orientation- Industrial marketing

researchers are more technically oriented than consumer marketing researcher as they interact more with engineers, production and purchasing personnel. Concentrated access to Information-due to a smaller concentration of industrial buyers, information sources tend to be concentrated. There is a greater reliance on secondary data sources, exploratory studies and expert judgement. Survey techniques-personal interviewing is preferred than telephone or mail, as it is easier to identify specific respondents with small sample base Respondent Cooperation-data from an industrial respondents are very difficult to obtain than from the consumer market.

Survey methods between consumer and industrial marketing research

Areas of Survey Methods Industrial Research Consumers Research
Large samples due to large universe, and individual or house hold buyers and are geographically dispersed

Sample Size

Small sample due to small market size and concentrated buyers

Respondent cooperation and accessibility

More difficult due to time constraint; accessibility is limited to working time

Less difficult to obtain data accessibility is easier

Defining respondent

More difficult, as buying decisions are made by several members of buying committee and not by purchase executives

Simple, as individuals and house hold users are generally the buyers

Scope of Industrial Marketing Research

Development of Market Potential-Industrial marketers need to gather information on sales and profit potential and should optimally allocate resources such as sales people, advertising, budget, capital expenditure, so as to decide which product should be dropped or which product should enter the market. Ex:A marketing manager of electric motors need information on sales and profit potential of fractional hp motors, small range motors, medium range motors and large AC motors.

0 Market Share Analysis-Market share of a product

for a firm changes due to change in the competitive strategies, change in customer requirements and change in economic and political environment. parameter in setting future goal of a firm.

0 Market share is an important performance 0 Sales Analysis-Sales, expenses and contribution

are evaluated by each product line, territory, sales person, market segment, customer. quarterly and yearly basis w.r.t above parameters. areas in market segment.

0 Actual performance is compared on monthly,

0 This analysis is important to identify problem

0 Forecasting-Its an important input in preparing

marketing plan.

0 Its important factor to analyse business

environment(opportunities and threats and strengths and weakness) and help the firm to take decision on new products, diversify market, change in distribution channel etc. undertaken to understand the customers' perception to competitors' product quality, service, pricing and promotion as compared to the firm.

0 Competitor Analysis-A market analysis is

0 In the highly competitive market the industrial

marketer has to satisfy the target customers' needs better than its competitors.

0 Benchmarking-Its used to find out how and why some of the 0 It aims to improve the firms performance by comparing and

competitors perform better marketing tasks than other firms.

measuring the firms against business leaders anywhere in the world.

operates like customer service, on time delivery, or effective sales force.

0 It includes success factors for the industry in which the firm

0 The process involves-determine the tasks to benchmark-

identify the critical performance factors of measurement-find out the best firm for the given tasks-measuring the performance of the best firm and also the of the firm-collecting the information on the process followed by the best companies-analyse the data and determine which process of the firm may work for the company-implement and monitor the result.

0 New Product Acceptance and Potential-After

the new product launch, industrial MR must find out initial reaction from the customer regarding the buying decisions. It helps the firm to decide on further investment in production, thus reduce the risk of failure. is mostly derived from other industries demand, its important to study the future trends of the business of those industries on which the demand of the product depends.

0 Business Trend Studies-As Industrial demand

0 Sales Quota Determination-marketing

research is conducted to evaluate the performance of sales persons and territories and for setting sales goals.
quota

0 The objective approach for deciding sales

Breakdown the estimated market potential and market share into various geographical segments. By multiplying the area market potential with expected market conditions. Manager decides the sales quota for the individual sales people and territories.

Marketing Research Process

Defines the various tasks involved in the marketing research. STEP1. Identify the problem or opportunity and define the research objectives. STEP2. Develop the research design. STEP3. Collect the data. STEP4. Process and analyse the data. STEP5. Presentation/reporting the research findings.

0 Identifying the problem and defining the

research objectives

The first step is to identify the marketing problem or opportunity and define the objectives accurately. Preparation of research brief-the background information on the problem and the how the findings will help the research process. Its a very important step to avoid any contingency at later stages

0 Develop The Research Design/Plan 0 It indicates the procedure and the cost of

conducting the research study.

0 Decision Areas in Research Design

Information type- preparation of the research objectives.

Sources of data- primary, secondary, commercial, or combination

Research methods- observational, descriptive, exploratory, experimental

0 Sampling Plan- sampling procedure, sampling

unit, sample size

interview

0 Methods of contact-mail, telephone or personal 0 Data collection methods-questionnaire,

mechanical devices

0 Decision Area in Research Design: 0 Information Type: 0 Based on the research objective the information

should include

List of competitors
Their market share Whether they are local national or multinational Whether any new competitor in future Competitors' SWOT analysis and pricing policies

0 Sources of Data

Primary Data-consists of original information gathered for specific purpose Secondary Data-consists of data that is collected earlier for some purpose Commercial Data include the marketing information offered by some marketing research organizations

0 Research Methods for Primary Data Collection

Observational Methods-information is recorded by observation on the behaviour pattern of people, without asking questions

0 Exploratory Methods-When the problem is not

clearly defined and little information is available. Ex focus group and depth interviews are used to gain the insight.

0 Survey Methods-Descriptive study are used by

interviewing people who are believed to possess the desired information. It measures people's knowledge attitude and buying behaviour.
measure cause and effect relationship by setting up a controlled situation.

0 Experimental Method-The purpose is to

0 Survey Research Methods:

0 In industrial marketing research, the most common

and the best primary data collection is the survey method.

0 Survey methods are classified into:

Structured direct and indirect interviews Unstructured direct and indirect interview.

0 Structured Direct Interview-Its a formal questionnaire approach to people, and instructed to respond to those questions only.
0 Since the responses are standardized, editing,

tabulating, analysing is done easily.

0 Its preferred when the sample size is large and

are geographically dispersed.

0 Unstructured Direct Interview-It known as

'depth interview' and often used for exploratory research.

0 Its conducted to obtain clear understanding of

the problem and to discover information on hidden motives. Conducted usually in informal and casual manner to build rapport and encourage the respondent to express views.

0 It takes longer time and requires competent

interviewer.

0 Structured Indirect Interview- Delphi

Technique-

0 Its a structured communication technique,

originally developed as a systematic, interactive forecasting method which relies on a panel of experts. (or decisions) from a structured group of individuals are more accurate than those from unstructured groups.

0 Delphi is based on the principle that forecasts

0 Unstructured Indirect Interview- Focus Group

Interview

0 A focus group is a form of qualitative

exploratory research in which a group of people are asked about their perceptions, opinions, beliefs and attitudes towards a product, service, concept, advertisement, idea, attitude or packaging. setting where participants are free to talk with other group members.

0 Questions are asked in an interactive group

0 Sampling Plan
0 A sample is a part of the population which is 0 Sampling Plan consists of 3 decisions:

selected to obtain the necessary information.

Sampling unit
Sample size

Sampling procedure

0 Sampling Unit: The researcher should

determine the population to be surveyed.

0 Sample Size-the researcher should determine

the sample size i.e., how many firms to be selected for survey.

0 Sampling Procedure-the researcher has to 0 Its classified into:

determine how the objects are to be selected.

Probability Sampling- based on Random Selection and statistical measurement of errors could be done.
Non Probability Sampling-based on non Random Sampling and sampling errors cannot be estimated. The cost and time of sampling is less.

0 Methods of Contact
0 The 3 methods of contact in industrial

marketing research are:

Personal Interview

Telephonic interview
Mail surveys

0 Personal Interviews: Its a most widely used method as

the sample size is small. Its time consuming, expensive and needs more planning and supervision. When the product is more technical, this method is more effective.

0 Telephonic Interview- Generally the information

gather is quicker, response rate is higher, and expenses are minimal. The interviews are short and not personal, such as measuring corporate awareness, evaluating advertising recall. expect the possibility of ambiguity, and the responses are low. Therefore the wordings of the questionnaire for data collection is important. Its free from interviewer bias and can reach the respondents, who are not easily approachable

0 Mail Survey- The contact is impersonal and can

0 Data Collection Methods(Research

Instruments)

0 Questionnaire-most common method used when

the sample size is large. It includes a number of questions in a proper sequence contributing to the research objectives. The questions can be closed end or open ended. The questionnaire should be pre tested to bring out the weakness in wording and sequencing of questions. are used to collect the information directly like the eye camera, psycho-galvanometer, audiometer, and motion picture cameras.

0 Mechanical Instruments-these are devices which

Processing and Analysing the Data

Processing of data includes: Editing, Coding, Classification and Tabulation Editing: consists of checking the completed questionnaires for any errors or omissions and correcting, whenever required to ensure consistency and accuracy. Coding: includes assigning symbols and numerals to answers so that the answers can be put into limited category, which is needed for efficient data analysis.

0 Classification-consists of arranging the data in

groups or classes based on common characteristics. 2 types of classification observed are: descriptive or qualitative and numerical or quantitative. into columns and rows so that further data analysis can be done.

0 Tabulation-Its an ordinary arrangement of data

0 Data Analysis is categorized into Descriptive and

0 Inferential.
0 Descriptive Analysis: Its a study of distribution of one

variable such as size, efficiency and performance.

0 Analysis of data w.r.t 2 variables is referred to bivariate

analysis, and analysis of more than two variables is called multivariate analysis.

0 Some of the multivariate analysis are:

0 Multiple Regression Analysis 0 Multi discriminant Analysis 0 Inferential Analysis

Presenting the Research Findings/Report

The final stage of the research is the report preparation including communication of the research findings. Report preparation: The researcher has to collect information about the profile of the executives of the user company. The research findings should be relevant to the market research objectives.

The researcher should logically justify the choice of research method, data collection method, data analysis techniques etc., under Research Methodology

The researcher must not try to satisfy the personal likes and dislikes of the executives in the user company.
The researcher should have clarity of thought and expression.

Standard format of marketing research report.

Title Page Table of Contents Executive Summary Introduction( or research brief) Problem Formulation and Research Objectives Research Methodology Findings of the Research Conclusions and Recommendations Appendix References Bibliography

Industrial Marketing Intelligent System

Marketing intelligence system provides relevant, accurate and timely information on continuous basis to the industrial marketing manager to make decisions. Industrial marketing intelligence system is defined as a broad spectrum of information that is required to make decisions. The components include:

Marketing Research Studies Internal Information System Secondary Data Sources Decision Support System