Editor’s note: Terry Grapentine is principal of Grapentine Co., Inc., a marketing research and consulting firm in Ankeny, Iowa.

Historically, chemical manufacturers have been production and sales focused organizations. Management concentrated primarily on ways to improve production, reduce manufacturing costs and develop an effective distribution system. The existence of such a capital-intensive industry was also dependent upon a highly trained and educated sales force whose primary objective was to sell commodity chemicals once major investments in plant and equipment had been made. The term "marketing" was simply not in these companies’ lexicon.

The chemical industry has changed much over the past 10 years and many of these manufacturers are beginning to integrate the marketing concept and market segmentation strategies into their overall operations. Over the past several years, one such company has conducted a variety of needs-based market segmentation studies that focus on placing customers and prospects into different segments that share common needs and wants. This firm’s marketing mix, therefore, has been changed or modified to focus on the specific needs and wants of targeted market segments.

Over time, however, this company has recognized that, for complex business-to-business markets, a needs-based segmentation strategy must be augmented with other segmentation schemes as the basis for its strategic marketing plan. For one market, comprised of many industries, the company’s challenge was to develop a perspective that took into account the following customer characteristics:

  • distinct industry needs;
  • customer needs and wants that are shared in common across industries; and
  • a change in customers’ manufacturing processes.

Different industries, such as toy and appliance manufacturers, use this company’s product in different ways and, consequently, desire different product benefits and features. Notwithstanding these distinct industry differences, management felt there were certain customer needs and wants that were held in common among certain groups of customers across different industries. For example, new product development assistance is valued by some customers even though these customers are in different industries. Finally, the marketing plan needed to address the fact that customers’ manufacturing processes were changing. With this change comes a different set of desired product attributes and benefits.

With this as background, management did not feel that a needs-based segmentation solution, by itself, would provide an actionable foundation on which to develop their strategic plans. A market perspective needed to be developed that recognized the other two market characteristics - differences related to industry applications and changes in customers’ manufacturing processes.

As a result, management conducted a marketing research study that produced three different segmentation schemes which, when integrated, formed the basis for their strategic planning efforts, and is depicted in the figure below.

The industry-specific needs/wants classification recognizes that different industries use the firm’s product in different ways and, consequently, seek different product benefits depending upon the industry applications. For example, one industry characteristic that differentiates companies is the amount of product required. The amount of a customer’s product requirements affects a number of variables in the supplier’s marketing mix such as product distribution and price. Consequently, companies that purchase relatively small product volumes are served through distributors as opposed to purchasing directly from the supplier.

The classic needs-based segmentation scheme identifies groups of customers that share similar product and service needs and wants. These different segments cross a variety of different industries. In this manufacturer’s study, one of the targeted segments requires new product development assistance which complements one of the supplier’s competitive strengths. Thus, this supplier plans to create a new product development assistance resource that will help companies in different industries find new and different ways to utilize the firm’s products in their manufacturing processes.

In this particular market, there is a major move from one kind of manufacturing process to another. The manufacturing process segmentation scheme helps the supplier take advantage of this opportunity. This firm developed strategies designed to motivate and to better enable companies to change to the new manufacturing process. For those customers who have switched to the new process, the supplier is in a position to market the relative advantages of its product in regard to this new process.

In summary, business-to-business markets can be quite complex. The classic needs-based segmentation approach, by itself, may simply not be able to capture all of the important characteristics of a market that need to be considered in a strategic marketing plan. Rather, a needs-based segmentation strategy often needs to be augmented with alternative market segmentation schemes that, when integrated, form the basis for a strategic planning initiative. As discussed above, this company integrated three different segmentation perspectives on a market. The segmentation schemes were integrated in a hierarchical fashion as shown in the following figure.

The manufacturing process segmentation scheme cuts across all industries. The variables that describe different manufacturing processes are the same regardless of industry type. The industry segmentation scheme produces profiles that are specific to each industry. Because each industry’s products are different, product quantity and performance requirements in each industry differ as well. Finally, the needs-based segmentation scheme can be used to classify specific accounts into homogeneous segments. Such a segmentation scheme helps the supplier define a marketing strategy by account type. Thus, for this manufacturer, augmenting the classic needs-based segmentation scheme with manufacturing process segments and industry-specific profiles, produced a foundation for its strategic planning process.