Strategic Management: Formulation and Implementation

Business Segmentation Approaches

Unable to compete broadly against entrenched competitors, threshold companies and those entering markets new to them have repeatedly adopted market segmentation approach.

The identification and selection of market segments is the most important strategic decision facing the industrial firm. The choice of which market segments to pursue is they key starting block for developing successful overall strategies and product/market plans. How an industrial producer defines a market segment determines the boundaries of the business it is in.

The selection of an industrial segment(s) to concentrate on will significantly affect all of the functional areas of the firm. As Cory states:

All else follows. Choice of market is a choice of the customer and of the competitive, technical, political and social environments in which one elects to compete. It is no an easily reversed decision; having made the choice the company develops skills and resources around the markets it has elected to serve. It builds a set of relationships with customers that are at once a major source of strength and a major commitment.

The commitment carries with it the responsibility to serve customers well, to stay in the technical and product- development race, and to grow in pace with growing market demand. Such choices are not made in a vacuum. They are influenced by the company's background; by its marketing, manufacturing, and technical strengths; by the fabric of its relations with existing customers, the scientific community, and competitors (E. Raymond Cory).

A analysis of one manufacture's existing customers uncovered five segmentation findings that helped develop product/market strategies:

  1. The product was being marketed to six end use market segments that they had not previously identified. There were:
    • Semiconductor equipment
    • Heavy-duty highway trucks
    • Fast-speed printing machinery
    • Surgical and medical instruments
    • Material handling equipment
    • Robotics equipment
  2. There were major differences among each of the six identified market segments relatively to annual purchases, growth rates, long-term prospects, and profitability.
  3. The cost benefit value added of the producer's high-performance component was the greatest in two market segments where the producer had little market penetration.
  4. In some market segments it was competing with quite different products or technologies. In one low- performance segment, the company's product quality was far above the market segment's requirements.
  5. There were different arrays of competitors in three of the six identified segments.