Every organisation has specific assets and capabilities. Your skills, knowledge, equipment, staff capabilities and finances will differ from those of your competitors.
It is therefore critical that once you have carried out the process of market segmentation that you target specific segments which align with your assets and capabilities. In particular you need to pick market segments where your assets and capabilities are stronger than those of your competitors or of potential new market entrants.
So what is meant by assets and capabilities?
Assets are organisational attributes which can be both tangible and intangible and which can be used to gain a competitive advantage in the market.
Assets can be:
- Scale Advantages – Such as high market share; media weight (high share of voice); leverage over your suppliers; International presence; Sales/distribution/service coverage; specialist skills due to scale.
- Production processes, plant, machinery and information systems – Level of contemporary practice e.g. robotic production line versus small workforce; level of flexibility; economies of scale; capacity utilisation; unique items of technology.
- Customer franchises – Brand name and reputation; brand franchises; CRM databases; relationship with customers; unique products and services; intellectual property including patents.
- Working Capital – Quantity of; ready access to; location of; access to credit.
- Sales/Distribution and Service Network – Area of coverage; Relationships with external distributors; size; quality.
- Relationships with other organisations – Suppliers; financial institutions; joint ventures; and joint exploitation of assets such as distribution capabilities and technology.
- Property – Type; location; ability to expand and quality of premises.
Assets should not be viewed in isolation and the competitive advantage that they provide must be clearly identified.
One method of identifying the value and strategic usefulness of assets is value chain analysis. Such analysis can identify areas of your business that provide competitive advantage. In particular it identifies where customers see value in your business. Competitive advantages can originate in both primary activities and support activities. Normally, value chain analysis is used to identify where investment should be made in the eye of your customers. This often means that the focus is on primary activities i.e. your production chain. This leads of investment being focused on these primary activities and resources being shifted away from secondary, background activities.
For example in relation to a business consultancy, primary activities would include service configuration, marketing and sales, data collection, data analysis, data interpretation (the conversion of raw data into specific, useful information), development of recommendations, reporting and communication and the implementation and evaluation of advice.
Support activities for a business consultancy would include ICT, human resources functionality and procurement.
Key competencies are often split into three broad categories:
- Marketing – including activities such as new product development, PR, advertising, business analysis, Customer service, customer relationships and brand extension.
- Selling – Including activities such as supply chain management, partnership building, merchandising, negotiation.
- Operations – Motivation and control, process engineering, productivity improvement, total quality management and purchasing.
Competitive advantages exist in all three of these three categories.
Targeting is the process of the strategic alignment of assets and competencies with the most attractive market segments. Targeted segments should fit within your chosen generic strategy i.e. cost focus, differentiation or niche.
It is therefore critical that your chosen market segments allow you to maximise your organisational strengths. Is your marketing presence able to create successful situations within your chosen segment?
Are there cost advantages in the chosen market segment? Would entering a price sensitive segment be consistent with your capabilities and your desired brand and corporate image?
Do your technological strengths give you an advantage in your chosen segment(s)? Is your technological ability consistent with your desired segment?
Do you have the required managerial capabilities and commitment to enter your chosen segment? If you do not have the appropriate skills, can you easily acquire them at a reasonable cost?
Is entering a particular target segment consistent with your long-term goals and objectives? If not, your strategy may be weak and it will be a waste to divert resources.
Tools such as the Shell Directional Policy Matrix or the GE Matrix, which use weighted criteria for corporate abilities and segment attractiveness can be useful in target segment selection.
Market segmentation is a strategic process where both qualitative and creative judgements need to be made. opportunities need to be evaluated on the basis of strategic fit. Your aim is to build synergies. You also need to consider if a competitive advantage is sustainable and compatible with your organisational mission. Is it consistent with your organisational values and culture? Does the chosen segmentation challenge your prevailing corporate values. Are there power struggles in your organisation which may be exacerbated by your chosen segmentation? Will such struggles hinder entry into a chosen segment?
Segmentation processes can act as a focal point for action and future organisational development. The selection of and entry into a chosen segment can facilitate innovation. You need to consider whether you have the ability to meet the innovation challenge and create an innovation culture which is compatible with your service capabilities and infrastructure. Does entry into a segment fit within your existing information flows and reporting lines.
Factors such as those outlined above are critical to successful strategic implementation of new segment strategies.
Remember, successful market segmentation strategies depend on the alignment of your organisational assets and capabilities and the creation of sustainable competitive advantages.