Why It May Be Time to Rethink Segmentation

© 2015 Blue Canyon Partners, Inc. All rights reserved.

September 2015

Why It May Be Time to Rethink Segmentation


Presenters

Axel J. LeichumPRINCIPAL, BLUE CANYON PARTNERS

T (847) 967-0253

E [email protected]

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Axel Leichum leads numerous business-to-business focused strategy projects that help Blue Canyon’s clients improve their understanding of customer needs, identify and prioritize growth opportunities, effectively segment and target markets, and enhance their major customer relationships

12+ years as a management consultant

Expertise across a wide variety of industries: IT hardware and software, wholesale distribution, electrical equipment, healthcare, personal and commercial vehicles, HVACR equipment, alternative energy, automation, and distributed power equipment among others

Experience executing projects with a focus on both developed markets and emerging markets

Contributed to a number of articles and white papers on topics such as adjacent markets, pricing strategy, and segmentation

J. Monte RoachPRESIDENT/CEO AMERICAS, A-GAS

T (815) 575-4484

E [email protected]

Monte spent 25+ years in the Industrial Automation and Electrical products space before moving to CEO of Maysteel, custom sheet metal fabricator, and now A-Gas as President/CEO of its Americas business. His first exposure to segmentation projects occurred with a BCG project while at Rockwell Automation in the early 1990’s. Monte has also held leadership positions with Emerson and Actuant.

A-Gas specializes in the recycling, reclaiming, distributing and destruction of high Global Warming Potential or Ozone Depleting Gases .

Has created market specific product and channel strategies in multiple industries segmented to utilize resources that create the best chance of success

Successfully turned around multiple businesses by engaging the right people, doing the right thing at the right time.


Why segmentation matters

Is it time to rethink segmentation? Three questions to help provide an answer

An approach to developing robust segmentation

Best practices for effectively implementing segmentation

Agenda

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Why Segmentation Matters

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Is the foundation of a successful growth strategy… Opportunities

Where to Target

How to Win

Delivers top line and bottom line improvements… Faster Growth

Higher Margins

Higher Return on Investment

Higher Productivity

Effective Segmentation

Companies can survive without good segmentation but they rarely thrive


Three questions to help provide an answer…

Is it Time to Rethink Segmentation?

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Is my Segmentation

Effective?

1

Am I Segmenting on Customer

Needs/ Purchase

Behaviors?

2

Does my Segmentation

Address Multiple

Stakeholders?

3




6

Is my Segmentation

Effective?


Needs/ Purchase

Behaviors?


Address Multiple

Stakeholders?

1 2 3


Is My Segmentation Effective?

7

1

Distinct

Consistent

Identifiable

Responsive

Enduring

Substantial

Effective segmentation creates segments that are…

Customers across segments behave differently

Customers within segments share same key needs/behaviors

Readily identifiable, measureable, and reachable

Respond differently to difference value propositions

Relatively stable in their purchase behaviors/needs over time

Big enough to matter now or in the future


Some tell tale signs of ineffective segmentation…

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Is My Segmentation Effective?1

“We know an efficiency, cost, or accuracy

customer when we see them, our sales guys can pick them out after they

get to know them.”

‘Sales of our different offerings: Low-Tier, Mid-

Tier, High-Tier, and Custom are pretty

consistent across our different customer

segments.”

Responsive Identifiable


Questions for the room…

▫ How does your organization evaluate segmentation?

▫ Does your segmentation meet all of these criteria?

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Is My Segmentation Effective?1

Distinct

Consistent

Identifiable

Responsive

Enduring

Substantial

Criteria for Effective Segmentation




10

Is my Segmentation

Effective?


Needs/ Purchase

Behaviors?


Address Multiple

Stakeholders?

1 2 3


Am I Segmenting on Customer Needs/Purchase Behaviors?

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2

Customer Characteristics

Customer Type-Based Segmentation

Customer Needs and Behaviors

Segments defined based on…

• Performance• Price• Efficiency• Etc…

Assigned…

• Industry• Size• Operations• Etc…

• Adopter• Non-Adopters• Etc…

The traditional way of segmenting in B2B…

Example: IT Hardware Access and Control Equipment Provider Segmentation

Finance

▫ Large Data Center

▫ Medium Data Center

▫ Small Data Center

Government




Retail




Etc…



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2

Moving to Needs/Purchase Behavior-Based Segmentation…

Example: IT Hardware Access and Control Equipment Provider NEW Segmentation

Needs/Purchase Behavior-Based Segmentation

Customer Needs and Behaviors

Segments defined based on…

Customer Characteristics

Identified by …

• Industry• Size• Operations• Etc…

• Performance• Price• Efficiency• Etc…

• Adopter• Non-Adopters• Etc…

New Technology Adopters

Cost & Functionality

Multi-Tool Users

Reliability & Redundancy

Alternative Product

Advocates

Simplicity

Core Product Loyalists

Compatibility & Ease of Use


Benefits of Needs/Purchase Behavior-Based Segmentation

▫ Greater clarity on different types of customers in the market

▫ Easier to define value propositions and offerings to effectively serve different customers

▫ Easier to identify who to target given company’s capabilities and strengths

▫ Easier to develop messaging and marketing collateral


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2

“How do we win with Multi-Tool Users” provides much greater clarity to the organization than “how do we win with

Medium Sized Finance Data Centers”



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2


▫ How many of your organizations have implemented Needs/Purchase Behavior-Based Segmentation? How has it impacted your organization?

▫ For those of who have not implementedNeeds/Purchase Behavior Segmentation, what is the greatest barrier?



Is it Time to Rethink Segmentation

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Is my Segmentation

Effective?


Needs/ Purchase

Behaviors?


Address Multiple

Stakeholders?

1 2 3


Does my Segmentation Address Multiple Stakeholders?

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3

“In our proposal we should emphasize the greater quality our technology can provide, focus on features that increase accuracy of testing and reduce

human error.”

Account Manager,Healthcare Equipment Provider

“Reputation as a landmark “Reputation as a landmark hospital is what matter most to

this customer. We should concentrate on our R&D

capabilities and track record of innovation in introducing new

tests.”

National Sales Director,Healthcare Equipment Provider

Who is right?



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3

Gro

wth Fast

Growers

Effi

cien

cy

CostFighters

Rec

ogni

tion

Quality Seekers

Accuracy Speed Productivity

User Needs

Man

agem

ent N

eeds

They are both “right!”

When there are multiple key stakeholders in a market, your segmentation should reflect the diverse needs of the different parties

Intersection of stakeholders’ needs define your needs/purchase behavior-based segments

Strategy and value propositions need to be multi-faceted



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3

• Stakeholder’s and needs/purchase behaviors will vary across markets• Can be internal within organization or separate organizations

CB

A

1 2 3

END USER NEEDS

CH

AN

NEL

NEE

DS

CB

A

1 2 3

CONTRACTOR NEEDS

OEM

NEE

DS

CB

A

1 2 3

OPERATIONS NEEDS

BU

SIN

ESS

NEE

DS

CB

A1 2 3

USER NEEDS

MA

NA

GEM

ENT

NEE

DS

Examples of Multi-Dimensional Segmentation



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3


▫ How many of your markets have multiple key stakeholders driving purchase decisions?

▫ How do you incorporate multiple stakeholders in your segmentation?

▫ Do you have distinct value propositions/messaging for different stakeholders?


An Approach to Developing Robust Segmentation

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Validate in the Market

Build New Segmentation

Listen to the Customer

Take StockInside

Outside

Outside

Inside

Internal reviewNote where segmentation is ineffective Identify potential alternatives

In-depth discussions with customersLearn needs and purchase behaviorsTest alternative approaches

Internally formulate new segmentationDefine key elements

Perform quantitative validationFinalize segmentation

• A third party perspective can often be valuable• Customers’ needs and behaviors are often not readily apparent or directly

communicated, requiring a skilled and well thought through approach to fully identify them


Best Practices for Effectively Implementing Segmentation

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Champion/ Ownership

Why do this? This will create work and discomfort in your organization – create the crisis of WHYWithout Organizational commitment/ change

or alignment it will not succeed

Organizational Alignment

Communicate and “own” from the top – make it important and the way you do business

Long Term Sustainability

Change Financial reporting to follow Segments Incentivize based on segments

Do the Heavy Lifting of “Change Management” or it will not work

long term


Best Practices for Effectively Implementing Segmentation

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▫ How does your organization develop segmentation today?

▫ What are the challenges your organization has in implementing segmentation?


Effective segmentation is a powerful business driver

Effective segmentation meets certain criteria. Is your segmentation meeting that criteria?

Are you focusing segmentation on needs/purchase behaviors?

Are you considering multiple stakeholders?

Developing a robust segmentation requires an iterative inside-outside approach

Segmentation provides little value if it is not thoroughly implemented. It is not just a one off market research project

Why It May Be Time to Rethink Segmentation

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Why It May Be Time to Rethink Segmentation

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