Segmentation based on our competitive advantages? Posted by Tomi Heikkinen , Friday, September 11, 2009 at 14:19, in Labels: chris fill, competitive advantage, kelly page, paul baines, segmentation, targeting, tomi heikkinen

Thanks to the upcoming Cranfield Experience(tm), I've been pre-reading Marketing by Paul Baines, Chris Fill and Kelly Page (2008). I'll possibly review the book later in depth, but many points have come to mind while reading their comprehensive, massive, but excellent textbook, and one in particular stirred some thinking.

The authors discuss the basics of segmentation and targeting. They go through both consumer and business market aspects of S&T, and while describing the business side of things, they mention some limitations of market segmentation. A particularly interesting point was that there is insufficient consideration how market segmentation is linked to competitive advantage. Moreover, market segmentation has not tended to stress the need to segment on the basis of differentiating the offering from competitors.

Why is this interesting? First we might consider what is competitive advantage. In rough layman's terms it means doing something critical to the customer so much better than the competitor OR having something critical to the customer that the competition has not. A sustainable competitive advantage furthermore is an edge that cannot be easily swayed from the supplier. However the competitive advantage is possibly two-fold: on one side, it's critical to the supplier because it enables it to differentiate from the competition. But on the other side, it might be critical to the customer - the supplier might have been selected because of the competitive advantage, ergo the offering should be vital to the customer's business. It is obvious not all businesses can have competitive advantages that are so remarkable. But shouldn't every business strive to develop advantages that become immensely important parts of the core businesses of their customers? Isn't it every CEO's dream?

Back to segmentation and targeting. A starting business, or even an established firm with a new business, should among other things consider their targeting according to their competitive advantages and their strengths. In other words, be both competition and customer-oriented. Key questions might be: What are our sustainable competitive advantages? For whom are we the most potent suppliers? Which advantage is most profitable? Who benefits most of our advantages, and are they profitable too? What kind of demands are we best suited to fulfill? Who are the customers to whom we could become a lifeline? A bit of blue ocean thinking too never hurts.

Maybe a well thought-out toolbox or a framework/mindset is in order? And maybe I just came up with a thesis project for myself?

How do we define our business Posted by Tomi Heikkinen , Friday, August 21, 2009 at 10:45, in Labels: business strategy, customer overdrive, marketing myopia, segmentation, tomi heikkinen

In order to pursue profitable growth, companies need to define what exactly is their business. Levitt's Marketing Myopia turned heads and revolutionized executives' viewpoints in this regard alrady back in 1960. Others, Clayton M. Christensen and Michael E. Raynor for example, have given other, similar perspectives for executives. Christensen and Raynor in particular have an interesting viewpoint on segmentation, which they describe in their book The Innovators Solution (2003). According to them, customers hire products [incl. services] to do specific "jobs". These jobs are as numerous as customers have needs. This is in other words a demand-based perspective that directs companies to align their businesses according to specific, select needs their customers have.

All in all, I think Christensen and Raynor have a solid perspective that deserves further observation. All businesses have long been seeking to become customer-oriented or customer-driven - many have succeeded while others have failed. But if companies adopt their perspective, do they face the risks of innovative stagnation and hampered business development caused by customer-overdrive? In many industries, small subcontractors and suppliers who chose to specialize in serving certain customers have hit rock bottom after these customers no longer continued business with them for varying reasons. They were customer-overdriven, and went bust because of it. These businesses had been entangled in processing and handling the current needs of their customers and had dismissed their own business development and innovation work.

Considering the different perspectives and these risks, I came up with this diagram, four perspectives to defining your business.



The diagram shows the classic perspective (aka "we're in the oil business and supply our customer with petroleum"), Levitt's marketing myopic (if you may) perspective, Christensen and Raynor's perspective and a fourth, Proactive customer-oriented perspective.

The fourth perspective is an attempt to fuse the best sides of myopic and demand-based perspectives. The myopic perspective's one groundbreaking advantage is that it expands the innovative horizon of the company - by defining business this way, new growth options become visible for innovative executives. Demand-based perspective's advantage is naturally customer-orientation. Combining these we achieve a viewpoint where we are customer-driven, grow as our customers grow, but also consider the larger horizon of business opportunities. Being customer-driven should not translate to being too focused in day-to-day customer demand satisfaction and to dismissing real out-of-the-box thinking and proactive satisfaction of hidden demands. While explicit and tacit information from customer and their ever-changing needs are essential for companies, they should not rely on them only, but keep a myopic perspective on their own business aswell. By doing so, they can enjoy being customer-oriented but evade risks mentioned above - and escape the danger of customer overdrive.