Strategic Management: Formulation and Implementation

Segment By Applications

Distinct market segments can emerge from different applications or uses the same product. Segmentation by use or application requires a careful analysis of where and how a group of customers uses the product.

For example, a front-end equipment loader will have greater value to a customer who use it seven hours a day in a mining operation than to a customer who occasionally uses it one to three hours a day on a construction site. Application value analysis is one of the most useful approaches to segmenting many industrial markets. It include initial purchase, installation, operating expenses, and life-cycle costs.

The analysis should proceed as follows:

  1. Evaluate the customer's cost/benefit of the product across a variety of customers in the applications.
  2. Tentatively identify attractive market segments based on customer cost/benefit differences.
  3. Further analyze more customers in each segments to verify those variables that underlie cost/benefit differences among applications.

Segmenting by Common Buying Factors. Most industrial and high-tech buying decisions hinge on five buying factors: performance, quality, service, delivery, and price. Because common buying factors often cut cross traditional market segments, this is often difficult mode of market segmentation.

Therefore a few industrial companies have successfully defined market segments by identifying buying common factors.

Segmentation based on Geographic Consideration or Account Size. An example of ingenious geographic market segmentation is the case of a midwestern commodity construction materials firm that found itself faced with over-capacity and unable to take share away from its competition in its 200-nd information systems serve as competitive weapons.

A well-designed information system can benefit all of a business unit's functional areas. Particularly, at the business level of strategy formulation, competition is of critical concern. Therefore, any business must know what its competition is doing and is going to do and how these actions will affect it.

In response to these problems Rothschil provides tables indicating the information required and another giving sources for this information.