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Industrial Market: Definition & Segments

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  • 0:00 What is the Industrial Market?
  • 0:29 What is Segmentation?
  • 0:43 Nested Approach
  • 4:56 Lesson Summary
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Lesson Transcript
Instructor: Ashley Johns

Ashley has taught college business courses and has a master's degree in management.

Your company has serviced businesses for five years. Last year, sales went down. Something has to be done to get back on track. You need to determine a focus area to increase sales and efficiency. This lesson covers segmentation and its importance.

What Is the Industrial Market ?

The industrial market consists of business-to-business sales. One business serves as a consumer, purchasing goods or services from another business. For example, Bussential is a company that provides cleaning, laundering, and other facility service needs to various businesses. The company services many different types of companies and needs to work on its structure to improve efficiency and increase profit.

What Is Segmentation?

The purpose of segmentation is to determine which consumer is most likely to make a purchase. Segmenting the market allows a business to focus its marketing and/or promotions where the most sales could be made.

Nested Approach

Nested Approach

The nested approach is the most common way to segment the industrial market, and is highly recommended. It is made up of layers. The approach is to start with the largest section, the outside layer, and move inward. Layers include: demographics, operating variables, purchasing approach, situational factors, and personal characteristics.

Demographics

The outside layer, and largest layer, is demographics. This consists of the industry, company size, and customer location. Knowledge of the industry explains the customer's needs and purchase decisions. Company size and location helps map out the logistics for serving the customers.

For example, Bussential serves both hospitals and farmers. The hospital is a large account that requires floor mats to be changed weekly on every level, bathroom supplies stocked, and laundry services. The farmer only wants shop towels laundered. Each account is very important to the company and demands an understanding from the company. Understanding the needs allows the company to better schedule employees and supplies that are necessary, allowing it to keep costs down.

Operating Variables

The next layer inside the nest is operating variables. These include technology, user/nonuser status (both brand and product), and customer capabilities (operating, technical, and financial). This layer tells the company what its customers can and do use. Bussential needs to know that the hospital needs a particular brand of cleaning products to meet the proper standards. On the other hand, the farmer will not use these products because they will not fit into his budget.

Purchasing Approach

This layer of the nest takes into account the formal organization of purchasing, power structures, the nature of buyer-seller relationships, purchasing policies, and criteria. This layer tells the company who they should contact within to make the sale and how the process works at their company. For example, Bussential may have to work with the person in charge of the national account to make the sale to the hospital. In this case, it is likely that there will be more limitations and rules that go along with the process. It can make for a larger sale, but may take longer. The farmer may be a quicker sale since getting in touch with the purchaser is a simpler task.

Situational Factors

This layer includes factors that are similar to the operating variables, yet on a short-term basis. In addition, it requires the selling company to have more information about the customer. Factors include: urgency to fill the order, product application, and order size. Understanding what customers use, when they use them, if there are times of the year when more or less of a product are needed, and typical order sizes helps separate how the selling company provides service to the customer in an effective manner.

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