Businesses can choose between two basic paths. They can choose to create products or services that are common to every customer, or they can choose to make a market segment of one. That is, they can choose to create a firm which tends to the needs of every unique individual. This is the summary of an article written by Andreas Birnik and Richard Moat. You can get the pdf of the behavioral targeting here: Segmenting When it Matters
In theory, the second option has a lot of promise. However, if a firm has a huge market, then this option becomes impractical. A firm can sometimes be led to chaos when one of its members insists on a more refined segmentation. The greatest risk occurs when a company that is used to elementary segmentation resorts to a more refined one. These moves may be unnecessary, so that customers don’t really need to be segmented, and the association becomes more important than the customer.
Segment range is the extent of segment differentiation; how many unique customer segments is targeted by the firm. There are several segment positioning options that a firm can implement. We have the portfolio strategy with full segment differentiation, the portfolio strategy with varying segment differentiation, the niche strategy with maximum differentiation for one segment, the non-segmented mass market strategy, core offering across segments with deep segment differentiation, and the core offering across segments with some segment specific differentiation.
When segmentation is used, A firm should focus on segmenting activities that satisfy customers and simplify business operations. To do this, businesses should know what customers in a specific segment really want. You can do this through what is called the “strategy canvas” by Renee Mauborgne and W. Chan Kim. The basic idea is to know the segmenting of your competitors, to know which competing factors you should remove and which are most significant.
Segmentation can swing like a pendulum in both ways. First, if a firm decides to develop propositions to include new segments, the pendulum may swing towards an unnecessarily large number of segments. Segmentation becomes more granular than is required by the consumer needs, and operational complexity increases. Furthermore, propositions may swing the other way and become too general. Standardization and customization should achieve balance.
Segment Activity Grid
Andreas Birnik and Richard Moat introduce the segment activity grid which allows managers to view activities in their firms from a segment level. This way, they can get rid of all business complexities which are unnecessary.
This grid is found to be very useful to view the degree of a businesses’ complexity. It can also be very valuable for firms that are preparing their launch, helping managers design the operating model which includes operational complexity and segment differentiation. To learn more about this segment activity grid, click on the link provided in the first paragraph.