Business

HOT: 4 Key Considerations in Identifying Strategic Segments

Industry segment recognition as strategic segments: Assessing the environment at industry level ignores the existence of segments within an industry. A company needs to segment the market, target its customers, and implement a marketing mix to satisfy them. The grid below identifies some of the key issues in strategic segments.


Benefits from recognizing strategic segments

Benefits to management from recognizing strategic segments are:
 Better tailoring of products and marketing mix to the wants of customers within a group (this is called market segmentation and targeting)
 Closer definition of competitors, i.e. those within the same segment, from others in the same industry but serving different sub-groups
 Identification of mobility barriers, i.e. factors preventing potential rivals entering the segment or preventing management from taking firm into new strategic segments.

4 key considerations in identifying strategic segments
4 Key Considerations In Identifying Strategic Segments

Key considerations in identifying strategic segments

The grid below identifies some of the key considerations in identifying strategic segments:

1. The product

What category of product is it?
E.g. consumer product, consumer service, specialist business product, business service, component, raw material etc.

2. The customer

Who is the primary customer? E.g. consumer, business, organization, government
What is the location of the customer? E.g. local, national, regional or global basis

3. Segmentation

Is industry divided naturally by country or region?
Does the industry effectively straddle several borders?

4. Competitors

Where is rivalry strongest?
Are there any niches with less competition?

Strategic segments in business to business industries : Different ways to segmenting industries

Business-to-business industries can be segmented in many different ways.

(a) By region


Is it a global market?
If so, a global supplier to a global industry would see no point in segmenting by country. However there may be different groups of customers with different buying characteristics.
However, if there are many competitors, a potential supplier might prefer to stay close to one particular market. A supplier may, because of its size or because of transportation differences, be unable to serve the entire industry.
Is it mainly regional? A company might chose to target the EU or the NAFTA areas.
Enforced segmentation Tariff and non-tariff barriers may enforce segmentation on a country
or regional basis.

(b) By method of buying


The decision-making unit (DMU) in an organisation is the group of people responsible for making the decisions whether to buy a product. Some issues related to DMUs are outlined below.

Authority

In some organizations, individuals have clearly defined areas of authority and decision-making power. However in some cultures, decisions have to be referred upwards to more senior figures, so the person doing the negotiating may not have the right to make the decision.

Clarity and ceremony

Clarity of authority. In some cultures, managerial decision-making is taken by consensus. The challenge is to manipulate this consensus on your behalf.

Structure

Does the organization buy on a global basis? If buying is centralized, then support at a high level is needed. If the organization buys on a local basis, then this may offer an opportunity to sell to other
business units in the organization. The level of centralization and delegation is thus significant.

Decision process

Does the DMU judge proposals according to the ‘rational model’? i.e. are a number of alternatives evaluated according to strictly rational criteria, or do other ‘political’ considerations intrude? If the
firm is part of a network of other firms, it might be under pressure to buy from a group company. There might be political considerations, internally and externally.

Management cultures

These are the views about managing held by managers from their shared educational experiences and the ‘way business is done’. Obviously this reflects wider cultural differences between countries but conversely national cultures can sometimes be subordinated to the corporate culture of the organization.

Negotiation

Cultural differences might affect buying behavior, especially in negotiation.
 How do you establish the salesperson’s credibility?
 Is the style of negotiation communicative or manipulative? In other words, do you want to exchange facts or manipulate the other party?
 To what extent are oral agreements the basis for business, and to what extent are contracts or written agreements preferred?

Implications for strategy


 The identification of industry segments can enable firms to defend niche segments against larger, less
focused, rivals.
 A difference in behavior may necessitate a difference in approach to a relationship e.g. the appointment of go-betweens.
 The cost of complying with the decision process will affect segment profitability.
 The potential to make some segments into partners willing to consult and advise firm on products and
expansion strategy.

4 Steps Of Identifying Operating Segments Under Matrix Structure



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