Market Segmentation - WordPress.com€¦ · Effective market segmentation ... Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or

Market Segmentation

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Contents

1 Preparing for market

segmentation 2

4

8

Scope of Segmentation

Portraying how a market

works and identify decision-

makers

Developing a representative

sample of different

decision-makers

6Accounting for the behavior

of decision-makersForming market

segmentation

Determining the

attractiveness of market

segments

Assessing company

competitiveness and the

portfolio matrix

3

5

7

10Realizing the full potential

of market mapping

Predicting market

transformation9

12Setting market objectives

and strategies

Organizational issues on

market segmentation11

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Definition of Market Segmentation

“Market Segment is the

process of splitting

customers, or potential

customers, in a market into

different groups, or

segments”




Market Segmentation

Customers, therefore segment

themselves and what the

company must focus on and

understand the needs that

customers are seeking to satisfy

and, in doing so, understand the

motivation that drive the choices

made by customers




Why segmentation?

• To develop market activities

• Increase market effectiveness

• Generate greater customer satisfaction

• Create savings

• To identify strategic opportunities and niches

• Allocation of marketing budget

• To overcome competition effectively

• To develop effective marketing programs

• To contribute towards achieving company goals




Predetermined approaches used in

market segmentation

Product and

Services

Product and

Services

DemographicsDemographics

GeographyGeography

The problem with segmenting markets according

only to the product or services offered, or the

technology type is that in most markets, many

different types of customers buy or use the same

products or services.

Variables such as sex, age, lifestyle and so on, when

used to define segments, are by implication claiming,

for e.g., that every 30-35 years old will respond to the

same proposition.

Rather like demographics, segment based on geo-

graphic areas, however tightly defined, assumes that

everyone in a predetermined area can be expected

to react to a particular offer in exactly the same way




Predetermined approaches used in

market segmentation

ChannelChannel

PsychographicsPsychographics

Routes to markets are becoming more sophisticated

and complex, and are also becoming an increasingly

important component of many winning customers

propositions.

Here we have another customer insight that can

contribute to a segmentation project, but, on its own,

can’t define the entirety of a winning customer

proposition.




International Market Segmentation

Segmentation models in international

marketing tend to consist of geographical

groups, such as Western Europe,

Eastern Europe, North America, ASEAN,

Australasia and so on. Unfortunately,

such grouping are of very limited value as

actionable marketing propositions, since

they bear little relationship to actual

consumption or usage patterns.




Classifying market segmentation

in organization

Customer-

driven

Low

High

Level of organizational integration

High Low

Sales-based

segmentation

1

Structural

segmentation

2

Bolt-on

segmentation

3

Effective

segmentation

4





in organization

SALES-BASED

SEGMENTATION

This segment describes an

organizational archetype where

the market is segmented on the

basis of how the sales function

is organized, which does not

reflect the cluster of particular

customer characteristics or

needs.

STRUCTURAL

SEGMENTATION

This segment represents a

further archetype where there is

little emphasis on segments as

groups of customers segments

are defined by how the

organization is structured.





in organization

BOLT-ON

SEGMENTATION

This presents an archetype

where a high level of customer

focus is brought into the

defining of market segments.

EFFECTIVE

SEGMENTATION

It combines both a customer

focus and a high level of

organizational integration. The

organization is able to apply

customer-based data in order to

develop a set of defined

segments




Effective market segmentation

Proposition flexibility

This is the degree to which a

proposition can be tailored to

the needs of different groups

of customers. It can range

from a fixed product offering

to one in which the offer is

almost completely specific to

an individual customer.

Market granularity

Market granularity is the

degree to which customers

needs and motivations differ

within a defined market. It

can range from near

homogeneous, in which all

customers share very similar

needs and motivations, to

heterogeneous when the

opposite applies

Organizational

consideration

The most important point

about organizational structure

is that there are a number of

issues that all firms have to

address. They are –

Geographic location, function,

products, markets, channels.

Increasing competition has

forced organization to agree

that the 2 main issues are

products and markets which

is why many organizations

have ‘product/technology

managers’ and/or ‘market

managers’




Criteria for segmentation

• Possible to measure.

• Large enough to earn profit.

• Stable enough that it does not vanish after some time.

• It is possible to reach to potential customer via organization's promotion and distribution

channel.

• Internally homogeneous (potential customers in the same segment prefer the same

product qualities).

• It is externally heterogeneous that is Heterogeneity between segments (potential

customers from different segments have basically different quality preferences).

• It responds similarly to a market stimulus.

• It can be cost-efficiently reached by market intervention.

• Useful in deciding on marketing mix




Rules for segmentation

Each segment should

consist of customers who

are relevant to the

purchase situation in that

they are responsible for

making the decisions or

can affect buying behavior.

Each segment should

have sufficient potential

size to justify the time and

effort involved in planning

specifically for the

business opportunity.

Each segment should be

distinguishable from other

segments, such that each has

a distinctive set of require-

ments and can be served by

an equally distinctive

marketing strategy.


reachable by sales and

distribution channels

currently being used or

which could be used.


capable of being identified

by a set of characteristics




Advantages of segmentation

Recognizing customer’s difference is the key to

successful marketing, as it can lead to a closer

matching of customers needs with the company’s

product or services.

Segmentation can lead to niche marketing, where

appropriate, where the company can meet the

needs of customers in that niche segment

resulting in segment domination something which

is often not possible in the total market.

Segmentation can lead to the concentration of

resources in markets where competitive

advantage is greatest and returns are high.

Segmentation can be used to gain competitive

advantage by enabling you to consider the market

in different ways from your competition.




Contents

2 Scope of Segmentation


of decision-makers


segmentation

4

8



makers


sample of different

decision-makers

Forming market

segmentation

Determining the


segments

Assessing company


portfolio matrix

3

5

7


of market mapping

Predicting market

transformation9


and strategies






Segmenting consumer markets

Geographic

segmentation

Demographic

segmentation

Psychographic

segmentation

Behavioral

segmentation




Segmenting consumer markets

Geographic segmentation

divides the market into

different geographical units

such as nations, regions,

states, countries or cities.

Psychographic

segmentation divides

buyers into different

groups based on

social class, lifestyle,

or personality traits.

Demographic

segmentation divides

the market into groups

based on variables

such as age, gender,

family size, income,

occupation, race and

nationality.

Behavioral segmentation

divides buyers into groups

based on their knowledge,

attitudes, uses, or

responses to a product.




Geographic scope

A segmentation process clearly

requires a geographic boundary as

this will enable the project team to

size the market, identify the

localities in which the market

dynamics have to be understood

and, once the segments have

been identified, develop the

appropriate marketing objective

and strategies for those localities.

For companies trading in

numerous countries around

the world there is clearly an

enormous attraction in finding

a single global segmentation

model that can be applied to

every country.




Defining markets

Market definition is crucial for

Measuring market share and market growth1

The specification of target customers2

Recognition of relevant competition3

The formulation of marketing strategy, for it is this, above all

else, that delivers differential advantage4




Developing the market definition

The general rule for “market” definition

is that it should be described in terms

of a customer need in a way which

covers the aggregation of all the

alternative products or services which

customers regard as being capable of

satisfying that same need. It is not,

therefore defined in terms of what a

company sells, but in terms of what

customers are setting our to achieve.




Ensuring meaningful definition to your

company

COMPANY

In some case the market definition will not be suitable for few

companies, if they are focused on particular part of an overall product.

Now, define the potentially available market by

taking into account what you company’s

products or services and their directly competi-

tive products or services could be used for

within the totally available market.

Finally, therefore define the realistically

available market, as this will become the

market to be segmented.

First, define the totally available market by

expressing it as ‘a need that can be satisfied by

all the alternative products or services’.




Markets and SBUs

In addition to ensuring that the market definition is meaningful

to your company, another issue you may need to address is

associated with corporate structure. In many countries, the

market being segmented will fall within the responsibilities of

one strategic business unit and progressing with the project is

therefore quite straight forward.

An SBU will therefore

• Have common customers and competitors for most of its products

• Be a competitor in an external market

• Be a discreet, separate identifiable unit

• Have a manager who has control over most of the areas critical to success




Now that the market segmenting has been clearly

defined, a volume or value figure is required in order to

size it as it is today, with estimates for the future. In

most cases, the annual figures for the market should be

used. Being able to size the defined market is

particularly important for later stages in the process.

The size of a segment is used to determine whether or

not a segment represents a viable business proposition

and therefore worth the time and resources required for

the development of a specific offer for that segments.

Sizing the defined market




Market segmentation process

STAGE 1 – YOUR MARKET AND HOW IT OPERATESSTAGE 1 – YOUR MARKET AND HOW IT OPERATES

STAGE 2 – CUSTOMERS AND TRANSACTIONSSTAGE 2 – CUSTOMERS AND TRANSACTIONS

STAGE 3 – SEGMENTING THE MARKETSTAGE 3 – SEGMENTING THE MARKET

Step 1 – Market mapping

structure and decision makers

Step 2 – Who buys?

customer profiling

Step 3 – What is bought?

Purchase options

Step 4 – Who buys what?

Customers and their purchases

Step 5 – Why it is bought?

Customer needs




Contents



makers3



of decision-makers


segmentation

4

8


sample of different

decision-makers

Forming market

segmentation

Determining the


segments

Assessing company


portfolio matrix

5

7


of market mapping

Predicting market

transformation9


and strategies






Constructing your “market map”

A “market map” defines

the distribution and value

added chain between final

users and suppliers of the

products or services

included within the scope of

segmentation project.

This should take into

account the various

buying mechanisms

found in your markets,

including the part

played by ‘influencers’.

This is a key step in the

market segmentation

process and you should

spend as much time as

necessary to ensure you

correctly identify the

individuals or groups to be

taken into next stage of the

segmentation projects.




Constructing your “market map”

Starting a market map and adding the routes between the transaction stages

First – Lay the transaction stages

Final users

Retailers

Distributors

Suppliers

Second – Add the routes between them

Final users

Retailers

Distributors

Suppliers




Initial quantification of the market map

With quantification playing an important role in the process, mark at each junction and along

each route the volumes or values dealt with each of them.

Final users

100%

Retailers

60%

Distributors

35%

Suppliers

100%

Contractors

25%

75% 25%

60%

30%

30%

5%

20%

15%

Final users source 25% through

contractors and 75% from elsewhere.

The75% sourced from elsewhere is

split 60%:15% between retailers and

suppliers respectively.

The 60% sourced from retailers is, in

turn, split 30%:30% between distribu-

tors and suppliers.

In addition to the 30% sourced from distributors by

retailers, contractors also source product from

distribution. The 25% handled by contractors is split

between distributors and suppliers 5%:20%

respectively, giving a total of 35%




Preliminary segments

Many companies already hold views about how

their market splits into segments, with these

views based either on previous segmentation

work, natural divisions that have been observed

or on ideas that may have been developed while

constructing the market map, it is clearly useful if

the validity of these views can be tested in some

way and, in doing so, be able to track them

through the segmentation process.




Preliminary segments

Preliminary segmentation simply form a base from which to

work. Preliminary segments could consists of the following:

• A current segmentation structure

• Junction

• Junction types

• Leverage and non-leverage groups

• Standard approaches to dividing customers in a industry

• Extent of experience in the market




ToC

4Developing a representative

sample of different

decision-makers



makers3



of decision-makers


segmentation

8

Forming market

segmentation

Determining the


segments

Assessing company


portfolio matrix

5

7


of market mapping

Predicting market

transformation9


and strategies






Micro-segments

A ‘micro-segment’ is a group of decision-makers

who share a similar level of interest in a specific

set of features. The uniqueness of a micro-

segment is that when determining which of the

alternative decision offers is to be bought, the

decision-maker it represents demonstrate a

similar level of interest in a specific set of

features, with these features being the

characteristics or properties of ‘what’ is bought,

‘where’ it is bought, ‘when’ it is bought and ‘how’

it is bought as appropriate for micro-segment. It

is essential, therefore, that it is approached from

customers perspective.




Key Discriminating Features (KDF)

The features that are of interest to a

segmentation process are those

which the decision-maker focus on

and regard as important when they

are determining which of the

competing products will be bought.

Clearly, it is essential that these

features are looked at from the

customer’s perspective.

As a first step towards identifying

the KDFs, it is essential to draw up

a list of all features available across

the full range of products of

services competing with each other

in a defined market.




Getting micro-segments up and running

Micro-segments are based

on actual decision-makers,

not fictional individuals.

They represent the defined

market as a whole, not just

our own customers.

Their KDFs are from market as

a whole, not simply limited to

the features you and your

particular intermediaries offer.

Their KDFs are what they

see as important, not what

you would prefer them to see

as important.




Procedure to be followed when developing

micro-segments

Divide the market into identifiable groups of customers as this equips with useful

points of reference for developing micro-segment.1

Take one of these reference groups, familiarize yourself with the individuals it represents

and develop into a micro-segment by carefully listing the customers in this group regard

as their KDFs, with any differences within the group captured as micro-segment.

2

Now, attempt to indicate the relative importance of KDF to the micro-segment

using a simple grading structure.3




Procedure to be followed when developing

micro-segments

Consider a cross-section of customers included in a micro-segment to confirm if

they would all agree with the list of KDFs and their grading.4

Verify each micro-segment by checking that it is based on actual decision-makers, its

reality check, further verified by checking that its KDFs either represent a known

transaction, or actually make sense.

5

Size each micro-segment, by referring back to the reference group it originated

from and utilizing any market figures that may be available.6




Contents

Accounting for the behavior

of decision-makers5


sample of different

decision-makers



makers3


6


segmentation

8

Forming market

segmentation

Determining the


segments

Assessing company


portfolio matrix7


of market mapping

Predicting market

transformation9


and strategies






Explaining customer behavior

Basically, there are

two principal theories

of customer behavior.

One theory refers to the rational

customer, who seeks to maximize

satisfaction or utility. This custo-

mer behavior is determined by

the utility derived from a purchase

at the margin compared with the

financial outlay and other

opportunities forgone.

Another view of customer behavior

which helps to explain this

phenomenon is that which described

this psycho-socio customer, whose

attitudes and behaviors are affected

by family, work, prevailing cultural

patterns, groups they relate,

perception and lifestyle.




Benefit What the customer gets

that they explicitly need?

Advantage What it does?

From ‘features’ to ‘benefits’

When looking at the benefits for your market, it is useful if you first consider

what issues are of particular concern to the customer. Then to get from a

features to a benefit, describe what the feature does, its advantage and finally

identify the particular appeal this has to the customer, the ‘benefits’, this being

the reason why the feature is of interest to them.

The distribution between, a ‘feature’, an ‘advantage’ and a ‘benefit’ can be

summarized as

FeatureWhat it is, consists of, or

is made from?




Standard, company and differential benefits

These are basic benefit provided by product features but are not in any

way unique to any particular manufacturer/supplier.

E.g., the aerosol propellant is one that does not damage the ozone layer.

Standard

benefits

Whenever a purchase is made, the transaction links the customer to the

company supplying the item. Links will be forged between the two as

many levels. For e.g., in business-to-business transactions, their

accounts department will be in contact to deal with payment or financial

matters. Customers prefer companies which provide better service.

Company

benefits

In a competitive market place, most suppliers vying for the available

customers will not be able to claim that their standard, or company, benefits

are, in truth regarded as being a great deal different from those of the

competition. The benefits that only your products/services provide, which

also benefits in the eye of the customer, give your company its competitive

advantage and are known as ‘differential benefits’. For e.g., the only

breakdown services genuinely open 24 hours a day and therefore available

at any time to get the customer back on the move again.

Differen-

tial

benefits




Using Segmentation in Customer Retention

A company tags each of its active customers with 3 values

What retention tactics should be

used to retain this customer? For

customers who are deemed

“save-worthy”,

it’s essential for the company to

know which save tactics are

most likely to be successful.

Is this customer at high risk of

canceling the company's service?

One of the most common indicators of

high-risk customers is a drop off in

usage of the company's service. For

example, in the credit card industry

this could be signaled through a

customer's decline in spending on his

or her card.

Is this customer worth retaining? This

determination boils down to whether the

post-retention profit generated from the

customer is predicted to be greater than

the cost incurred to retain the customer.

12

3




Looking beyond the status quo

It is important when considering the reasons why a customer shows

interest in certain features. To help uncover their real needs and their

true motivations, we should be able to answer the question, ‘what are

they really trying to achieve?’

Thus, it is crucial at this stage to be alert to any possible unsatisfied

needs manifesting themselves in the guise of something else rather than

accepting the status quo.

For e.g., “price” may be given as the sole or major criterion for choice, but

it could be hiding the fact that customers are currently dissatisfied with

present alternative offers available, as their needs are not being met.

Also understanding why customers show little interest in a product and

asking ‘what would they really like to achieve?’ can help take the analysis

of benefits beyond the status quo.




Price

Clearly , ‘price’ has an

important part to play in

explaining customer behavior

and is obviously a component

of customers ‘buying criteria’.

Everything has its price!.

Not everyone buys the

cheapest, and for those

who do, it could be because

there is nothing available in

the market that really meets

their requirements.

“Price” is simply a measure of

value placed by a customer on

both the tangible and intangible

components of a purchase.




Decision Buying Criteria (DBC)

The 2 pertinent points to

remember while working

through this step are

The benefit are for the market

as a whole, not simply limited to

those that you deliver to your

customer.

These benefits are what the decision

makers regard as their decisive buying

criteria, not what you would prefer

them to see as their DBC.

DBC are the perceived or stated attributes of a purchase that

customers evaluate when choosing between alternative offers.

This is a critical stage in the process as, once this analysis has

been completed the resulting list of DBCs, are used to determine

the segmentation structure of your market, as they provide the

framework for comparing the micro-segments with each other.


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Techniques for uncovering unsatisfied needs

There are usually several main motivations in any market, just a few of

which are of real importance to the decision-makers. These

dimensions can be viewed as bipolar scales along with current offers

in the market can be positioned. For e.g.,

Expensive/

inexpensiveStrong/mild Fast/slow

Large/smallComplex/

simple

Garnish/

subtle

Masculine/

feminine




Techniques for uncovering unsatisfied needs

The possibility of there being unsatisfied needs in a market can be determined by

putting together a 2-dimensional matrix with the axes selected from the list of main

motivation and the current offers positioned accordingly.

This figure suggests that there are lot of “opportunity gaps” in the market for detergents. But before

investing resources in a new products targeted as these gaps it is essential to ensure that the gap

do not exist simply because they represent products for which there is no demand

High cleaning

power

Low cleaning

power

Low fresh-

ness

High fresh-

ness

Bleach

Harpic (other

powder)

Pine

disinfectant

Deodorizes




Contents

6 Forming market

segmentation


of decision-makers5


sample of different

decision-makers



makers3

2 Scope of Segmentation1 Preparing for market

segmentation

8Determining the


segments

Assessing company


portfolio matrix7


of market mapping

Predicting market

transformation9


and strategies






Why segment the market?

Better matching of customer needs

Customer needs differ. Creating separate products for each segment

makes sense and provides customers with a better solution

Better opportunity for growth

Market segmentation can build sales. For example, customers can be

encouraged to ‘trade-up’ after being introduced to a particular product

with an introductory, low-priced product

More effective promotion

By segmenting markets, target customers can be reached more often

and at lower cost

Gain a higher share of the market

Through careful segmentation and targeting, businesses can often

become the market leader, even of the market is small




Ways of segmenting market

Age

Businesses often target certain age groups. Good examples are tooth

paste which has variety of tooth paste products for children, adults

Gender

We all know that males and females demand different types of same

product. Examples include, clothing, hair dressing, magazines and

cosmetic products

Income

Many companies target rich consumers with luxury goods. Other

businesses focus on products that appeal directly to consumers on low

income

Social class

Many businesses believe that a consumer ‘perceived’ social class

influences their preferences for cars, clothes, home furnishings, leisure

activities and other products and services




Stages in segmentation process

Stage 1

Step 1: Defining the ‘Market’

The scope of the market

Step 2: Market mapping

Structure and decision-makers

Your market and how it works

Stage 2 Decision-makers and transactions

Step 3: Who specifies what?

Decision-makers and their purchases

Stage3 Segmenting the market

Step 4: Why

The needs of decision-makers

Step 5: Forming segments

Combining like-minded decision-makers




Size of market segments

The question about the economic size of a segment is

one that has to be considered by those businesses

where tailoring their propositions around the different

needs of individual customer is unlikely to produce the

returns required by the company

This is very likely to be the case for companies with

limited resource flexibility, such as those producing

products or services that require investment in large

fixed/capital assets, and where tailoring is severely

limited by technical considerations




Size of market segments

At the other end of the spectrum are those companies

with a high degree of resource flexibility, such as those

dependent on human resources, and with almost no

technical limitations on their proposition flexibility as

would be the case for consulting services

However, even for these latter companies, unless they

are offering full individual tailoring of every proposition,

they will still need to establish some minimum

threshold, but it would be substantially lower than that

setting the capital intensive organization




The relationship

High

Low

Low High

Re

qu

ire

d m

inim

um

siz

e o

f

se

gm

en

t

Resource inflexibility; technical

limitations




Segment checklist

Volume/Value

The size of each segment must be sufficient to

justify the expense of developing specific offers

for them and the expense of taking these offers

into the market. The ‘size test’ for each

segment should already have been cleared.

Segments have to be measured

1

2

3

4

5

6

7

8

9

10

Differentiated

Is the offer required by each segment

sufficiently different from that required by the

other segments? This is where marketing

strategies appropriate for one segment are

checked to ensure they are distinguishable

from the marketing strategies developed for

the other segments




Segment checklist

Reachable

This is where the different segments are checked to ensure

that the marketing strategies appropriate for each of them

can be directed towards them in some way. Each segment

must, therefore, have some distinctive characteristics that

can be used to identify the customers it represents, thereby

enabling us to communicate with them and distribute our

products and services to them. E.g., Television, Radio,

Newspaper, Magazines

Compatability

This is where you rigorously check your own company’s

ability to focus on the new segments by structuring itself

around them organizationally, culturally, in its management

information systems and in its decision-making process.

Such changes may not be possible immediately, therefore,

the organization’s ability and willingness to evolve to the

required structure should be tested




Contents

Determining the


segments7

6 Forming market

segmentation


of decision-makers5


sample of different

decision-makers



makers3


segmentation

8Assessing company


portfolio matrix


of market mapping

Predicting market

transformation9


and strategies






Plotting segments on the portfolio matrix according

to their attractiveness

Relative company competitiveness

Se

gm

en

t a

ttra

cti

ve

ne

ss

High

Low

Year 3

Year 3

Segment 1

Segment 2

To ensure a spread of segments

along the attractiveness axis, the

point of origin has been set to ‘3.0’

and the highest point set to ‘8.0’.

Segments positioned in the lower

half of the matrix should not be

treated as unattractive, they are

simply less attractive than

segments positioned in the top

half of the matrix. The cash they

generate will be an important

contribution to the investment

required in those segments

appearing in the top half




The Boston Matrix

High

Low

High Low

Relative segment (market) share (ratio of

company share to share of largest competitor)

Segment

(market)

growth

(annual

rate in

constant

money

relative

to, for

example

GNP

growth

‘Stars’ ‘Question

marks’

‘Cash

cows’

‘Dogs’

Cash generated

Cash used

Cash generated

Cash used

Cash generated

Cash used

Cash generated

Cash used

+ + +

– – –

0

+

– – –

– –

+ + +

– – –

+ +

+

–

0

Although ‘High’ is positioned

in the left of the horizontal

axis, it can, if you prefer be

placed on the right. The

definition of high relative

segment share is taken to be

a ratio of one or greater than

one. The cut-off point for high,

as opposed to low segment

growth should be defined

according to the prevailing

circumstances in the defined

market. As well as being a

postive figure, there is no

reason why the dividing line

on the vertical axis cannot be

zero or even a minus figure




The GE/McKinsey matrix

High

Medium

Low

Se

gm

en

t a

ttra

cti

ve

ne

ss

High Medium Low


• Size

• Segment

growth

• Pricing

• Segment

diversities

• Compe-

titive

structure

• Segment

profitability

• Technical

role

• Social

• Environ-

mental

• Legal

• Human

• Size

• Growth

• Share

• Position

• Profitability

• Margins

• Technical

• Strengths/

weak-

nesses

• Image

• People

Invest/Grow

Selectivity/

learning

Harvest/

divest

The figure shows:

• Segments categorized on a scale of attractiveness to the company

• The company’s relative strengths in each of these segments

• The relative importance of each segment to the company




The McDonald four box Directional Policy Matrix (DPM)

High Low


Se

gm

en

t a

ttra

cti

ve

ne

ss

High

Medium

Low

Segment 2

Segment 7Segment 5

Segment 8

Segment 6

Segment 4

Segment 3

Segment 1




Directional Policy Matrix for a portfolio of segments

High Low


Se

gm

en

t a

ttra

cti

ve

ne

ss

High

Medium

Low

No change

Maintain

Manage for

cash

Invest/build

Present position

Forecast position

in 3 years

Segment attractiveness has

only been calculated for the

final year. Relative company

competitiveness has been

calculated for both the current

year and the final year




Contents

8Assessing company


portfolio matrix

Determining the


segments7

6 Forming market

segmentation


of decision-makers5


sample of different

decision-makers



makers3


segmentation


of market mapping

Predicting market

transformation9


and strategies






Competitive factors

The factors will be principally a combination of an organization’s relative

strengths versus competitors in connection with customer-facing needs

in each segment, namely those that are required by the customer

This ‘success’ is in relation to the constituents of the offered required to

deliver each ‘Decisive Buying Criteria’ (DBCs) and these are frequently

referred to as ‘Critical Success factors’ (CSFs); this is the term most

often found in marketing text books and papers when describing the

business strengths/competitiveness axis of a portfolio matrix




Critical Success Factors (CSFs)

The CSFs can be summarized under the following categories

Critical

Success

Factors

P

P

P

P




For example: In the case of pharmaceuticals,

product strengths could be represented by

Relative Product Safety

Relative Product Convenience

Relative Cost Effectiveness

‘Profit’ on the segment attractiveness axis can

be broken down into a number of sub-headings,

so can each can be broken down further and

analyzed, with the sub-headings based on those

that are relevant to the segment

The profit




Questions to consider

How well your company can meet the requirements of each segment,

you may well need to consider questions such as

Do we have the right products ?

How large is our segment share ?

How well are we known in this segment ?

Do we have the right technical skills ?

Do can we adapt to change and do we have

enough capacity ?Can we grow? and how close are we to this

segment ?Copyright © 2008 - 2012 managementstudyguide.com. All rights



Portfolio management – examples

Well balanced portfolio

High Low


Se

gm

en

t a

ttra

cti

ve

ne

ss

High

Low


marks’

‘Cash

cows’

‘Dogs’




Portfolio management – examples

Poorly balanced portfolio

High Low


Se

gm

en

t a

ttra

cti

ve

ne

ss

High

Low


marks’

‘Cash

cows’

‘Dogs’




Contents

Realizing the full potential

of market mapping9

8Assessing company


portfolio matrix

Determining the


segments7

6 Forming market

segmentation


of decision-makers5


sample of different

decision-makers



makers3


segmentation

10 Predicting market

transformation


and strategies






The Market Challenge

Identify groups of customers who

have similar needs and wants

Find a way of offering

(positioning) a product which is

attractive to those customers




Market Mapping




Possible dimensions




Possible dimensions

Low price High price

High quality

Low quality




Taking care of Market Map

Advantages

• Helps spot gaps in the market

• Useful for analysing competitors

• Encourages use of market research

Disadvantages

• Just because there is a ‘gap’ it does not

mean there is demand

• Not a guarantee of success

• How reliable is the market research?




Contents


transformationRealizing the full potential

of market mapping9

8Assessing company


portfolio matrix

Determining the


segments7

6 Forming market

segmentation


of decision-makers5


sample of different

decision-makers



makers3


segmentation


and strategies






Market Transformation

The term market transformation is

the strategic process of intervening in

a market to create lasting change in

market behavior by removing

identified barriers or exploiting

opportunities to accelerate the

adoption of all cost-effective energy

efficiency as a matter of standard

practice




A process for multi-channel strategy formulation

Analyze industry

structure

Define channel

chaining

Compare value

proposition

Set channel

strategies

Determine

channel tactics

• Future market mapping

• Intermediation analysis

• Current potential channel combination

• Fit with customer life cycle

• Channel value chain

• Strategy optiions

• Prioritization matrix

• Structure

• Human resources

• Project management




Recruit the partners

and allies needed to

truly deliver a complete

product. Doing it by

yourself is rarely if ever

possible

Determine what makes

the product

"complete" in the eyes

of your initial target

customer. Sometimes

this means reducing a

product's intended use

so that it fits a single

purpose or application

Six strategies that accelerate market transformation

23

4

5 6

1




Why Hi-tech companies fail?

Lack of Market Focus (Segmentation)

Excessive Pace of Product

Improvement

Incomplete Products

Undifferentiated Products

Channel Mismanagement

Failure to Establish the Right

Competitive Barriers

Using Price Alone To Drive

Market Transformation

Improper Use of Advertising

Misinterpretation of the

Technology Adoption Lifecycle

Model

Irrelevant Market Research





Lack of market focus

(segmentation)

• Emerging high-tech companies often do anything possible to

generate revenue and in the process try to be all things to all people.

Worried about losing business they avoid segmenting the market and

refuse to focus on one or two key segments

• As a result the company is unable to adequately serve any one

market segment and management is suddenly swamped with

support problems and competitors

Excessive pace of

product improvement

• High-tech equipment is generally used over an extended period of

time, is integrated with complimentary products, and imposes

learning costs on the end user

• The rapid introduction of new and improved versions can make a

customer regret a previous purchase, delay all new purchases, and

agonize over similar purchases in the future, none of which are in the

long-term interest of the producer

Incomplete products

• Customers view products very differently than the people who create

or supply them

• The problem is that most customers consider factors such as

product support and company reputation to be more important

• The feature rich products created by techies are seen as incomplete

in the mind of the customer

• Company should focus on the "intangible" factors that are especially

attractive to most customers





Undifferentiated

products

• Most high-tech products that fail do so because of a lack of

differentiation

• Differentiation is possible on the basis of five fundamental factors:

function, time utility, place utility, price, and perception

• These five elements can be mixed into an almost infinite variety of

patterns

Channel

mismanagement

• Specific skills are required to effectively manage each type of

distribution channel and those skills must be developed internally

before significant selling can begin

• Unique management challenges exist for each primary type of

distribution channel: direct selling, dealers, manufacturers "reps" or

agents, OEMs, alliance partners, and inside sales

Failure to establish the

right competitive barriers

• Traditional barriers to competition, as defined by economists, are of

little value in high-tech

• The most effective competitive barrier in high-tech is the perceptions

held by customers, prospects, and the supporting infrastructure

Using price alone

to drive market

transformation

• It is easy to misinterpret the role price plays in market transformation

• It is a mistake to believe that a high-tech product would be widely

used and adopted if its cost was low enough

• Price reduction alone does not guarantee mainstream market

acceptance





Improper use of

advertising

• More money is wasted on advertising than any other marketing

activity

• A company cannot establish credibility or create a position in the

marketplace with advertising

• Advertising is also a poor choice if your target audience is skeptical

or if the message you are trying to communicate is complex

Misinterpretation of the

technology adoption

lifecycle model

• There are two versions of the technology adoption lifecycle model

• The original describes the market acceptance of new products in

terms of innovators, early adopters, early majority, late majority, and

laggards

• The second version is an adaptation of the original that includes a

gap in the bell curve, between early adopters and the early majority

• This is an area of great confusion because not all high-tech products

are discontinuous, in which case the original technology adoption

lifecycle applies more than its successor

• Another misinterpretation occurs when marketing folks refer to a

market as characterized by all late adopters

Irrelevant Market

Research

• Companies routinely perform the wrong type of market research

• Statistical surveys of customer demand do not provide the qualitative

information that is needed most

• The judgments of your target audience often rely as much on

perceptions as on facts, qualitative research intended to identify

existing perceptions has much greater value in assessing, planning

and executing a company's marketing strategy




Contents



of market mapping9

8Assessing company


portfolio matrix

Determining the


segments7

6 Forming market

segmentation


of decision-makers5


sample of different

decision-makers



makers3


segmentation

12Organizational issues on

market segmentation

Setting market objectives

and strategies11




Identifying market strategy

Market growth

• Higher market penetration

• Sell more to same market (i.e., get

current customers to buy more or buy

more frequently)

• If overall market is growing this may not

necessarily mean a growth in overall

market share

• If overall market is not growing this

means a growth in overall market share

• Sell to markets or market segments not

previously targeted

• Develop new products for existing

customers

• Develop new products for new

customers




Identifying market strategy

Market stability

• Techniques to keep the status quo

Primarily used in times of economic

decline or market decline

• Generally requires the taking of market

share from others in the industry

Cost control

• Techniques to contain costs or operate

more effectively

• Can work in combination with market

growth or market stability

Market exit

• Techniques needed to depart a market




The Ansoff’s matrix

MARKET

PENETRATION

MARKET

PENETRATION

MARKET

DEVELOPMENT

MARKET

DEVELOPMENT DIVERSIFICATIONDIVERSIFICATION

MA

RK

ET

SM

AR

KE

TS Pre

se

nt

Ne

w

PRODUCTS & SEVICESPRODUCTS & SEVICES

Present New

PRODUCT

DEVELOPMENT

PRODUCT

DEVELOPMENT

Market penetration is the

name given to a growth

strategy where the business

focuses on selling existing

products into existing

markets

Market development is the


strategy where the business

seeks to sell its existing

products into new markets

Product development is the


strategy where a business

aims to introduce new

products into existing

markets

Diversification is the name

given to the growth strategy

where a business markets

new products in new

markets




Determining market objectives

Target market objectives

Market share

• Total

• By segments

• By channel

Customers

• Total

• Number/percentage new

• Number/percentage retained

Purchases

• Rate of purchases

• Size/volume of purchases





Promotional objectives

• Level of brand/company awareness

• Traffic building – e.g., store traffic,

website traffic

• Product trials – e.g. sales promotions,

product demonstrations

• Sales force – e.g., cycle time, cost per

call, closing rate, customer visits, etc





Channel objectives

Dealers

• Total

• Number/percentage new

• Number/percentage retained

Order processing and delivery

• On-time rate

• Shrinkage rate

• Correct order rate





Market research objectives

• Studies initiated

• Studies completed

R & D Objectives

• Product development

Other objectives

• Partnerships developed




Contents

12Organizational issues on

market segmentation



of market mapping9

8Assessing company


portfolio matrix

Determining the


segments7

6 Forming market

segmentation


of decision-makers5


sample of different

decision-makers



makers3


segmentation

Setting market objectives

and strategies11




Market Segmentation - Issues

Lack of information and data

Some markets are poorly researched with little

information about what customers want

Difficult in measuring and predicting

consumer behavior

Humans do not behave in the same way all of

the time

Hard to reach customer segments once

identified

It is one thing spotting a segment; it is another

reaching target customers with an effective

marketing message




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