154 CHAPTER8IDENTIFYINGMARKETSEGMENTS ANDSELECTING TARGET MARKETS
IBM, already successful in marketing to corporate giants, is one of many com-
panies targeting small businesses. Within the segment of U.S. firms with 1,000 or
fewer employees, IBM is further targeting the segment of minority-owned businesses.
IBM’s strategy is to devote some field salespeople exclusively to small and medium-
size businesses, hire executives responsible for targeting subsegments, become more
involved in professional associations frequented by minority small-business owners,
and offer more flexible contact options such as telesales and service.^28
Looking beyond small businesses, marketers can be more effective even within
mature commodity industries if they use segmentation for better targeting. For exam-
ple, Rangan, Moriarty, and Swartz found these four business segments within the steel
strapping industry:^29- Programmed buyers:Buyers who see the product as not very important to their opera-
tion. This is a very profitable segment: The buyers view the product as a routine pur-
chase item, usually paying full price and receiving below-average service. - Relationship buyers:Buyers who regard the product as moderately important and are
knowledgeable about competitive offerings. They get a small discount and a modest
amount of service and prefer the vendor as long as the price is not far out of line. This
is the second most profitable segment. - Transaction buyers:Buyers who see the product as very important to their operations.
They are price and service sensitive and receive some discounts, but they know the
competition and will switch for a better price, even at the sacrifice of some service. - Bargain hunters:Buyers who see the product as very important and demand low prices
and top service. They know the alternative suppliers, bargain hard, and are ready to
switch if dissatisfied. The company needs these buyers for volume purposes, but they
are not very profitable.
Clearly, developing a segmentation scheme for this kind of industry will help a
business marketer determine where to increase or decrease price and service, since
each segment reacts differently.^30
Effective Segmentation
Even after applying segmentation variables to a consumer or business market, mar-
keters must realize that not all segmentations are useful. For example, table salt buyers
could be divided into blond and brunette customers, but hair color is not relevant to
the purchase of salt. Furthermore, if all salt buyers buy the same amount of salt each
month, believe all salt is the same, and would pay only one price for salt, this market
would be minimally segmentable from a marketing perspective.
To be useful, market segments must be:➤ Measurable:The size, purchasing power, and characteristics of the segments can be
measured.
➤ Substantial:The segments are large and profitable enough to serve. A segment
should be the largest possible homogeneous group worth going after with a tailored
marketing program.
➤ Accessible:The segments can be effectively reached and served.
➤ Differentiable:The segments are conceptually distinguishable and respond differently
to different marketing mixes. If two segments respond identically to a particular
offer, they do not constitute separate segments.
➤ Actionable:Effective programs can be formulated for attracting and serving the
segments.