Segmentation analysis for industrial markets

Abstract

The underlying managerial rationale for segmenting markets is well established, with the marketing literature citing a range of benefits for businesses adopting a segmentation approach. Yet organisations frequently encounter difficulties in implementing segmentation principles. Even in the industrial marketing literature, where the most practical implementation guidance is offered, it is suggested that organisations tend to over‐emphasise the mechanics of segmentation, while failing to correctly implement the findings. This suggests that, if organisations are to benefit from applying segmentation principles, two fundamental questions should be addressed. The first concerns the basic conditions which must be met if implementation is to be effected. That is, it must be possible to map the dimensions developed on to usable customer characteristics. The second concerns the costs and benefits of the segmentation solution in relation to the proportion of variance in customer requirements which it explains. Addresses these questions in an industrial marketing context, using a literature review and quantitative analysis of data from the European car parts after market. The analysis shows that whilst traditional segmentation methods can be used to identify certain segments, these segments do not readily map on to implementable dimensions. Furthermore, it is suggested that even a relatively wide use of structural independent variables explains only a very small proportion of the individual variability in customer requirements. This suggests that much segmentation analysis may be poorly directed and also of rather limited practical value.

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