Industrial market segmentation

(Webster, 2003)[1] He recommends the following three criteria: Nevertheless, academics as well as practitioners use various segmentation principles and models in their attempt to bring some sort of structure.

The goal for every industrial market segmentation scheme is to identify the most importantly significant differences among current and potential customers that will influence their purchase decisions or buying behavior, while keeping the scheme as simple as possible (Occam's Razor).

[citation needed] While similar to consumer market segmentation, segmenting industrial markets is different and more challenging because of greater complexity in buying processes, buying criteria, and the complexity of industrial products and services themselves.

Some people recommend against businesses offering many product lines to many segments, as this can sometimes soften their focus and stretch their resources too thinly.

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.

Yoram Wind and Richard Cardozo (1974) suggested industrial market segmentation based on broad two-step classifications of macro-segmentation and micro-segmentation.

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.

While macro-segmentation put the business into broad categories, helping a general product strategy, micro-segmentation is essential for the implementation of the concept.

(Sudharshan, 1998) The prerequisite to implementing a full-scale macro- and micro-segmentation concept is the company's size and the organisational set-up.

Ironically, Webster states that “the strategic implications of micro-segmentation lie primarily in promotional strategy.

However, promotion should not be seen in isolation, as it cannot facilitate log-lasting success, unless supported on all the relevant functions such as product, price and place.

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” (Webster, 2003).

One of the most significant uses of industrial market segmentation schemes is to make targeting and product positioning decisions.

Croft quotes Friestad, Write, Boush and Rose (1994) as stating that because the purpose of advertising is to persuade, consumers become sceptical of its methods and approaches [and indeed intentions].

When companies also work with potentially different suppliers, segmenting the supply side of the market can be very valuable as well.

To see the theoretical bases of, and to review, different supplier segmentation approaches see Day et al. (2010), and Rezaei and Ortt (2012).