Segmentation is often talked about in companies but seldom reevaluated based on asking ” What are the critiera that we collectively use to determine our segments – both product and markets”. Many, many companies – at one time or another – did put some thought into their segmentation but over the years these segment have just stale and became the excuse of ” the way we always look at our business. “If this sounds like your company – then you are most likely sub-optimizing your EBITDA, leaving money on the table, and selling products / serving customers that you should not be. It is that simple and that destructive to value.
Segmentation is the decision making process of dividing the overall market into meaninful categories or groupings along the critiera that is most strategically relevant and insightful into guiding how you can maxizmize profit in your industry. Properly done – it visusally paints a picture of how you look at your business – who is most and least important and where to place your investments and bets in the business. Old segmentation only underscores bad business practices and habits.
Because strategy and determining “where to compete” requires an assessment of the size and growth of the overall market and an understanding of its segments as they relate to the industry’s offerings – a relevant pricing strategy naturally flows from this. Converserly – poor or no thought out segmentation has your company year after year updating the pricing list with no mindset of maximizing your profits.
Effective product/market analysis can lead to a competitive advantage by providing superior understanding of customers.
To get your company on back on track ensure that they understand that segments can be reviewed through the following four filters:
- Product: Different types available to the customers: size, technology, cost structure, types, package, etc.
- Customer: Groups of users divided according to: demographics, behavior, economic characteristics, etc.
- Geography: Different zones where the customers are present on a space level: regional, national, international, etc.
- Channel: Different means of reaching the customers: wholesalers, national chains, specialty stores, mail orders, across the industry value chain
Once you review your existing segments across the above filtera engage your team and analyst group to complete the following steps:
1. Define the segmentation criteria
2. Identify the segments
3. Value the segments
4. Name the segments
5. Compare them against your existing “segments” and see how they differ.
You will find new avenues of profit and decaying segments to exit.