The identification and selection of market segments is one of the most important strategic decisions facing industrial, technology and service based B2B companies. The choice of market segment(s) to pursue is the key starting point for developing overall strategies and business plans but I believe it is often not done well.
A market segment should be a group of clients or users who have similar requirements, who will respond in a similar way to a given offer. The present and future needs of the segment allow you to appraise your company’s capabilities or strengths and weaknesses, and compare your offer against competitive suppliers. This will then enable you to tailor your business proposition to the specific needs of the clients in the segment, if you decide to pursue it.
Unfortunately, market segmentation is frequently not performed well.
• Companies often do not have all the facts about the needs of the market segments and future trends. This can lead to assumptions which result in them missing opportunities or being caught off base by unexpected developments.
• Salespeople tend to segment based on the size of existing customers, classing the largest as key accounts, irrespective of their requirements, growth or profitability.
• Product and manufacturing driven companies often find it difficult to think in terms of market segments, as they are so focussed on their product’s composition, manufacturing method and technical features. Product lines get grouped into “segments”, rather than focussing on the external market and the benefits that their product can bring.
• There is a danger in thinking too broad or too narrow. Large companies often segment too broadly, so the needs they identify are too generic, allowing more agile organisations to target specific growth opportunities. At the other extreme, some companies carry the idea of market segmentation beyond practical value, resulting in more segments than they can reasonably and profitably focus on.
Having selected potential target market segments, it is important to identify how attractive they are to your company, how well a fit your proposition is, and whether any developments are needed. The precise definition of a target market can lead to innovative product, price, distribution and service strategies, delivered through focused action programs
Competitive activity, technological changes, swings in the business cycle, acquisition and pricing decisions can dramatically change the segment boundaries and attractiveness, so I believe regular reviews are also key.
I look forward to your comments so please get in touch. You can call Julie on 07833 227975 or contact us.