Segmenting the Business Market and

Estimating Segment Demand

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 KNOWING THE CUSTOMER IS NOT ENOUGH!
as said by a strategist at hp

• Once we know the customer, we need to

understand what new products, services
and features will excite them.

• Our job is to know the customer so well

that we can provide him or her with
(technological) solutions to problems that
they don’t even know exist yet!
 High-Growth
Companies
Succeed By:

• Selecting well- • Focusing

defined groups marketing
of potentially resources on
acquiring,
profitable • Developing
distinctive value developing, and
customers
propositions that retaining
competitively meet profitable
customer needs customers

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 BUSINESS SECTOR

The business market consists of 3 broad sectors:

1. Commercial Enterprises
2. Institutions
3. Government
Each sector has many segments
Each segment has a unique need and requires a
unique marketing strategy

National Industry Classification:

\\10.0.58.65\asob\spadashetty\B2B Jan 19\B2B Discussion & Cases\nic_2008
_17apr09.pdf
MARKET SEGMENTATION

Market People or organizations with

needs or wants, the ability to purchase and the
willingness to buy.

Market A group of present or potential customers with some

Segment common characteristics which we can explain (predict)
their actions when subjected to marketing stimuli.

Market The process of dividing a market into meaningful,

Segmentation relatively similar and identifiable segments or groups.
What key criteria / Characteristics define a unique
market segment?

The degree to which information on particular

Measurability buyer characteristics exists or can be obtained.

The degree to which the firm can

Accessibility effectively focus its marketing efforts on
chosen segments

The degree to which the segments are

Substantiality large or profitable enough to be worth
considering for separate market cultivation.

The degree to which segments respond

differently to different marketing mix
Responsiveness elements such as pricing or product
features
ART OF SEGMENTATION
Segmentation involves identifying groups of customers or
business groups that are…

1.Large enough
2.Unique enough
3.Financially independent enough
4.Reachable enough

…to justify a separate marketing strategy.

 Selective Segmentation Benefits

• Attunes marketer to unique needs of customer

segments
• Focuses product development efforts, develops
profitable pricing strategies and selects
appropriate distribution channels
• Provides valuable guidelines to allocate
marketing resources

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 Business Marketing Segmentation
Macro, centres around the char’s of buying organisation & the buying situation;
divides the market on size, structure, geographic location

Geographic

Customer Type
Macro-
Macro-
segmentation
segmentation Customer Size
Product Use
Business
Business
Markets
Markets
Purchasing Criteria
Purchasing Strategy
Micro-
Micro-
segmentation
segmentation Importance
Personal
Characteristics

Micro centres around higher degree of market knowledge, focussing on char’s within
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macro such as purchasing criteria, purchase importance, attitude towrds vendors
 MACRO-LEVEL BASES

To find viable macro-segments, it is useful to partition

buying organizations into smaller groups based on
certain criteria.

Criteria include:

1.Characteristics of the buying organization

2.Product /service application
3.Characteristics of purchasing situation
 Selected Macro-Level Bases of Segmentation

Springs –machine tools, bicycles, auto

components, surgical devices, missilesystem

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TYPES OF BUYERS
• First-Time Prospects: customers who see a need but have not
purchased

• Novices: First-time purchasers who’ve purchased in the past 3

months

• Sophisticates: Experienced customers ready to buy/rebuy

 Selected Micro-Level Bases of Segmentation

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KEY CRITERIA
Most business buyers value:

1. Quality
2. Delivery
3. Service
4. Supplier’s Reputation
5. Price (all other things being equal)
 PRICE VS. SERVICE
• Often there are tradeoffs between buyers with respect to
Price vs. Service

• One study (ITW India Ltd, producer of steel strapping

used for packaging a range of products) identified four
types of buyer segments:
• Programmed buyers
• Relationship buyers
• Transaction buyers
• Bargain hunters…..
VALUE BASED STRATEGIES

Many customers seek sellers who are able to

offer innovative solutions to help them become
more competitive. Marketers identify these
customers as:

1.Innovation-focused customers
2.Customers in fast-growing markets
3.Customers in highly competitive markets
1. INNOVATION-FOCUSED CUSTOMERS

• Committed to being the first in the market with

new products and technologies

• Want suppliers who offer innovative solutions

or opportunities that help them attract new
customers
2. CUSTOMERS IN FAST-GROWING MARKETS

• Constantly under pressure from

competitors in fast-growth markets

• Seek suppliers who offer proven

performance in technology, manufacturing,
marketing and supply-chain management
3. CUSTOMERS IN HIGHLY COMPETITIVE MARKETS

• Have mature products in highly competitive markets

• Look for suppliers who offer products/services that speed
up manufacturing and related processes
• Are efficient and effective at keeping overall costs down
PURCHASING STRATEGIES
Micro-segments can be classified according to their purchasing strategies:

1.Some buyers have several suppliers and give each a healthy volume of
business.

2.Some buyers need an assured supply, thus giving most of their business to a
few suppliers.

Ex. Raytheon India, manufacturer of small airplanes – civilian and business

aircraft, decided on a strategy on concentration.

https://www.raytheon.com/capabilities
Source: https://www.b2binternational.com/publications/b2b-segmentation-research/

Video: https://www.b2binternational.com/research/services/segmentation-
research/
AN APPROACH TO SEGMENTATION OF BUSINESS
MARKETS
IMPLEMENTING A SEGMENTATION PLAN

A well-developed segmentation plan will fail unless the following issues

are addressed:

1.How should the sales force be organized?

2.What services will the new segment require?
3.Who will provide the new services?
4.How do we contact the new segment?
5.Can we support the new operation?
6.Will new adaptations be necessary to serve the international market
segments?
ESTIMATING DEMAND
• Estimating demand within selected markets is vital to
marketing management!

• Forecasting demand represents probable sales. It takes

into account:
• Potential business
• Marketing efforts

• Virtually all business decisions are predicted on the

forecast, both formal and informal.
RELATIONSHIP BETWEEN POTENTIAL DEMAND
AND THE FORECAST
 Sales Forecast Data
Sales Forecast Data is used to:
 Distribute inventory within the supply chain
 Manage stock at each level
 Schedule resources at all levels
 Provide material, components and service to a
manufacturer
 Accurate forecasts go hand-in-hand with good
business practices throughout the supply chain
 METHODS OF FORECASTING DEMAND

1. Qualitative
Executive Judgment
Sales Force Composite
Delphi Method
2. Quantitative
Time Series
Regression (causal)
3. Collaborative Planning Forecasting and Replenishment
4. Combining Techniques

Link: Holistic Forecasting Method

 Qualitative Method: Executive Judgment

Executive Judgment:
This method is very popular because it is:
1. Easy to understand
2. Easy to apply

Executives from various departments (Sales,

Marketing, Accounting, Finance, Procurement) are
brought together and apply their collective
knowledge to the forecast.
 EXECUTIVE JUDGMENT:
BENEFITS

Executive judgments are often used in conjunction with

quantitative approaches to forecasting
Tend to be fairly accurate when:
1. Forecasts are made frequently & repetitively
2. The environment is stable
3. The link between decision, action and feedback is short
EXECUTIVE JUDGMENT: LIMITATIONS
• Does not offer systematic analysis
• No formula for estimating derived demand
• New executives may have trouble making a reasonable forecast
• The forecast is only as good as executives’ collective knowledge and experience
• Difficult to compare against alternative techniques
QUALITATIVE METHOD:
SALES FORCE COMPOSITE

• Rationale is that the sales force knows their customers,

markets and competition, thus they can estimate their market
fairly accurately.
• Having the sales force involved in the forecasting process
helps them understand how the forecast is derived and boosts
their incentives to achieve desired sales levels.
• The composite forecast is attained by getting input from all
their salespeople.
salespeople
Sales Force Composite: Benefits
• More successful if the dyadic (buyer/seller)
relationship is close
• Inexpensive
• Facilitates salespeople to review their account in
terms of future sales
• However, few companies rely solely on their sales
force estimates
• They are reviewed by top management and are
compared to quantitative methods
Sales Force Composite: Limitations
Limitations are similar to the executive judgment approach

 Not a systematic analysis

 It’s still only judgment/opinion
 Some salespeople overestimate their forecast to
look good
 Some salespeople underestimate to lower their
quota or increase commissions
 Generally, short term estimates are accurate, but
long-term estimates are lacking
QUALITATIVE METHOD:
DELPHI METHOD

1. It starts with a moderator (analyst) who attains a

forecast opinion from a panel of anonymous experts
2. These estimates (along with reasons) are passed
around to the entire group and new estimates are
evoked.
3. Rounds continue until a consensus is reached.
4. A panel may consist from 6 to 100’s depending upon
the purpose, and numerous rounds are conducted
until a consensus is attained.
DELPHI METHOD
• It is generally applied to long term forecasting of demand.
• Suitable in situations where little data exists and where a broad
estimate of the demand is acceptable

• It’s good for new products or unique products that are not well
suited for quantitative analysis.

• Finally, like other qualitative approaches, the Delphi method is

difficult to accurately measure.
QUANTITATIVE METHODS: TIME SERIES

• Time Series uses historical data

• Rationale is that the past patterns will apply to the future
• The analyst needs to understand all possible patterns to include:
• Trends
• Seasonal patterns
• Cyclical patterns
• Irregular patterns
• Time Series methods are well suited for short range forecasting
QUANTITATIVE: REGRESSION OR CAUSAL
ANALYSIS
• Uses factors that are identified as affecting past sales and
implimenting them in a mathamatical model.
• Demand is expressed mathamatically as a funtion of the items
that effect it.

• Y = a + bX Linear Regression equation

• To be valid, there needs to be a direct link between X

(independent) & Y (dependent) variables. For example, X cause
(housing starts) should affect future sales (demand) of Y (new
furniture or hardware or wood, etc.)
 Using CPFR to Estimate
Demand
 CPFR: Collaborative Planning Forecasting &
Replenishment involves deriving and sharing information
by combining the efforts of many functional areas within
the firm and between channel partners to estimate
demand.
 With respect to the supply side, functional areas include
Sales, Marketing, Production, Logistics and Procurement
will be called upon to discuss their upcoming plans.
 On the demand side, planners will reach out to customers,
distributors and manufacturers to discover their plans.
 RESULT OF CPFR
• Result: Often, the forecast of demand is accurate!

• Partners can map this shared information in a way that:

1. Fits into their organizational needs
2. Points out where plans deviate from their own
3. Allows collaboration that assesses assumptions
which may lead to different estimates

• This iterative process encourages the supply chain to

synchronize activities better while keeping the
enterprise planning process intact.
Combination Approach to Forecasting

• Research suggests that forecasting can be

improved by combining several forecasting
methods.

• Experts suggest that management should use a

composite forecasting model to include both
Qualitative and Quantitative factors.

• Furthermore, rather than searching for a “one

best method”, they should consider the broader
range of factors that affect sales, and integrate
them into a “composite” forecasting approach.
http://www.b2binternational.com/publications/forecasting-scenario-planning/

Fact: BOEING
Boeing purchase 2.3 million parts for its 787 series
Totally 783 million parts are purchased per year

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