The market for goods and services bought and sold between companies is huge. The business market is much larger than the consumer market, encompassing many types and sizes of organizations that selectively interact and form relationships of varying importance and duration with one another.
Although these organizations are often structurally and legally independent entities, a key feature is that they are also interdependent. That is, they must, to varying degrees, collaborate with other organizations to achieve their goals.
Imagine the complicated multiplayer chain of buying and selling every component Airbus Industries needs to build an airplane. The operational complexity is enormous and the total value of the materials, components, labor and energy involved far exceeds consumer spending in the confectionery or apparel market.
Regardless of whether they sell their products and services to consumers or to other organizations, all businesses buy and sell items to create their own offerings. In recognition of their added value, other companies can purchase these products to use in the creation of others.
B2B marketing is quite different from marketing goods and other services because buyers do not have touch with the products or services themselves. Unlike consumer markets, where the people who buy them personally consume the goods and services, the essence of commercial markets is that individual organizations undertake the act of consumption. This book is built around this important principle, which has critical implications for marketing strategies and related programs used to satisfy organizational buyers.
Regardless of the industry in which they operate, market-oriented organizations, despite some key differences from consumer marketing, share at least two key similarities:
1 Both are customer-centric and work backward from an understanding of customer needs.
2 Both must be able to collect, process and use information about customers and competitors to achieve their goals.
This market orientation is an essential foundation to explore the exciting and dynamic world of business markets and the contribution of B2B marketing. What do these factors add to understanding B2B marketing? In general, the marketing of goods and services between organizations is not the same as the marketing of consumer goods, and since there are a number of fundamentally different characteristics, it is necessary to implement different marketing strategies and operations to meet the needs of business customers.
However, many products and services are aimed at both consumers and organizations. Products such as office furniture, software, and cell phones can be sold in consumer and commercial markets.
Commercial marketing differs from consumer marketing in that there are two main ideas: first, the intended customer, which is an organization; second, the intended use of the product in support of the organization’s goals. As a result, various marketing programs are required to reach and influence the organization’s buyers rather than consumers.
In the corporate sector, organizations purchase a wide variety of products and services, either to create new products or to enable the production process or evaluate works successfully.
Defined processes and procedures are used for the purchase of products and services, and decisions about the procurement of the necessary materials often affect a large number of people.
Understanding organizational buying drives decision-making and the complexities associated with multiple people and processes. There are fundamental implications for providers in terms of timescales and the mix of notifications and communications required.
The principles of market segmentation are long-established and it is widely agreed that they form an important basis for successful marketing strategies and activities. In general, segmentation is a technique for dividing a mass market into identifiable sub-units so that the individual needs of buyers and potential buyers can be more easily met.
Traditionally, it’s the division of a mass market into distinct groups that share common characteristics, needs, and similar responses to marketing stimuli.
Wind and Cardozo (1974) described market segmentation in B2B markets as the identification of a group of current or potential customers with some common characteristics relevant to explaining (and predicting) their response to a supplier’s marketing stimuli.
The first thing to do is to identify the mass market and then use various criteria to identify the various segments within the overall market. The second task is for companies to select and target the segments that present the best marketing opportunities and most closely match the resources available to the business.
After selecting specific target markets, the final activity is to position products and/or services in such a way that buyers can clearly differentiate what is on offer from the prevailing competition.
Different marketing programs can be developed for each selected market. For example, segmentation analysis can be used to develop targeted communication strategies within marketing channels. This brief description is a simplified and unobtrusive summary of what is a complex and difficult to implement marketing management activity.
The reason for segmentation is that groups of customers or potential buyers with similar needs and purchasing characteristics are more likely to respond similarly to a company’s marketing programs.
This allows firms to focus resources more efficiently and offer more targeted marketing programs to better meet customer needs. Rather than reaching a mass audience, selecting specific submarkets concentrates activity and theoretically leads to better profitability.
Dibb and Simkin (2001) also point to additional benefits in the form of improved market intelligence, customer centricity, and competitive awareness leading to better targeting and positioning programs. There are two different ways to segment B2B markets.
The former holds that the market is made up of companies (and buyers) who are essentially the same, so the task is to identify groups that have certain differences. This is a breakdown method.
The second approach assumes that a market is made up of all different companies, so the task here is to find similarities. This is an accumulation method.
The accumulation approach attempts to move from the individual level, where all firms are different, to a more general level of analysis based on the identification of similarities. The build is customer-centric as it attempts to identify common customer needs.
Many of these segmentation ideas were developed at a time when transactional marketing was the primary focus of marketing and the allocation of resources to achieve that goal. The focus was on the defined goals of the marketing mix.
Modern B2B market segmentation should not only relate to resource allocation, but also to buyer needs and relationship requirements.
Segmentation should include an analysis of buyer attitudes towards relationships, attitudes towards individual sellers, and a better understanding of why and how companies use products and services. With technological change, shopper behavior and increasing competition, it is even more important to uncover the deep and unique consumer insights that underpin a differentiated go-to-market strategy and pave the way to profitable growth.
B2B market segmentation and positioning strategies marketers need to identify something deep in the consumer’s psyche that can help them better meet market needs.
The market segmentation is not a static concept and the process must reflect current market conditions. Some organizational exchanges are purely transactional, while others are embedded in complex relationships.
To be fully successful, the process and development of market segmentation activities must reflect a continuum between organizations that seek only purely transactional marketing activities and those for which complex relationship management and development is imperative.
All customer needs are important; some are very different, even unique to the particular context in which those involved operate. In purely transactional situations, the breakdown method seems most appropriate.
When relationship marketing issues dominate a business or businesses, the stacked approach seems more appropriate simply because of the customer focus and the detailed information provided. necessary to manage relationships. Therefore, the segmentation process will vary based on the prevailing conditions and the needs of the parties involved, not just the needs of the sales organization.
Relationships refer to the interaction of stakeholders, very often multiple stakeholders, and it is the needs of the interrelationship(s) that must dominate any segmentation activity. For example, an analysis of the potential relationship and buyers’ attitudes towards the supplier and other related stakeholders could provide a useful means of segmenting a market to the benefit of all relevant stakeholders.
As mentioned above, targeted marketing is the process of selecting specific segments and then developing marketing programs to meet the needs of potential buyers and other interested parties including the sales organization where markets are selected.
The development, or rather the identification of segments, can be viewed as an opportunity, as Beane and Ennis suggest, “a company with limited resources need only select the best opportunities to pursue it”, but it can also be viewed as an opportunity to become a means of recognizing and determining the nature and form of relationships between stakeholders.
For any segmentation approach to work, a basis against which to analyze markets must be estimated and applied before any meaningful analysis can begin.
Although similar principles apply, the fundamentals for segmenting commercial markets are different. In fact, there is no fixed way to easily identify business segments.
There are two main groups of variables used to segment B2B markets, and they are related. The first group of variables includes the characteristics of the market, such as the size and location of the organization. Those looking to segment markets where transactional marketing and the drill-down approach dominate are expected to start with these variables.
The second group is based on the traits surrounding the decision-making process applied in each of the organizational segments and these are called buyer traits. Organizations looking to establish and develop specific relationships are typically expected to start with these variables and build their knowledge of their market and customer base.