Intensified market segmentation – gaining more satisfied customers and long-term success

Market segmentation
In the booming last decades many Industrial companies gained a vendors’s tray full of products and a variety of customer groups. In many cases the former decision was probably right to provide dedicated products to certain customers. But does this former decision still hold up with today’s long-term strategy of the company?

Many industrial companies have just divided their sales revenues into different customer groups and call it “market segmentation”. But does this fiscal market segmentation really add value to the company?

Probably this “revenue grouping” rather provides an internal allocation of costs or resources.

Does this approach allow the company to make use of the full strategic value and to tap the whole sales and profit potential? Are the limited own resources optimally assigned?

Enterprises, which take market segmentation and customer focus seriously, forming small company units to align the value creation chain towards the actual customer needs of the market segments. In the long-term this pays off, as the customer loyalty will be strengthened and a value-based pricing model will be established for innovative products.

But let’s start at the beginning. Market segmentation begins with the generation of homogenous but clearly definable customer groupings. The customer groupings show similar needs, preferences and habits. When the segmentation is done, respective market indicators are added and the market attractiveness and the competitiveness have to be analysed to get a strategic overview for the pre-defined market segments. Selecting the most attractive segments will enable, to concentrate the limited resources for a focused market cultivation.

To gain long-term success in the market development, deep understanding of the needs of the different stakeholders in the application and along the product usage in the respective market segment have to be established. Often important - previously unknown - insights about market structure and competitive or substitutive products are revealed when executing structured field interviews/ observations. Adding first concepts of potential product developments to this, allows to generate a portfolio-roadmap which targets the respective market segment.

The deep application knowledge combined with the understanding of the behaviour of the customer group enables now resource-optimised use of the sales staff and cost-effective promotional activities, which offers tangible value proposition for the customer.

On the long run, a focussed team is formed within the company, which provides added value completely aligned with the needs of the market segment. Therefore, the risk of flops in product development or failed market launches will be significantly reduces. Usually the newly created products even surpass the customer expectations, which further will lead to stronger customer loyalty.

The initial investment of an intensified market segmentation pays off, when the company is able to differentiate from competition by providing sustainable added value.

Consequently, a pricing model can be established in the market, which is no longer oriented on the aggressive competitor prices, but is based on the actual added-value for the customer.

If you feel the urge to intensify the market segmentation in your company, I would be happy to support you in the methodical realisation.