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 / First Quarter 1997 / Issue 6(originally published by Booz & Company)


Segments in Time

Another reason is that many marketers do not have the time or resources to invest in the technique. Evolutionary segmentation does require a little more upfront investment of time and money to capture and digest trends. Consequently, planners make do with less resource-intensive -- but shorter-lived -- methods.

What Evolutionary Segmentation Is Not

Evolutionary segmentation involves more than simply purchasing prepackaged groups of sociological/psychographic/demographic classes. These prepackaged collections will rarely bear any resemblance to groupings formed by fundamental forces changing a company's market.(6) Superior segmentation is based on understanding the underlying reasons for the creation of new forms of demand.

Evolutionary segmentation is analogous to life-cycle marketing, but different, too. Life-cycle marketing is used by insurance companies and others to identify prospects.(7) For instance, insurers track graduations, marriages and births because these events often signal the need for life or health insurance.

Evolutionary segmentation is different because industries do not ever repeat a "cycle" in that predictable sense. Market segmentation must change with broad industrial and social changes, which have the effect of constantly shuffling the deck for all the players at the table. For instance, software companies today are subject to greater economic, competitive and quality pressures than they were 10 years ago -- forcing them to respond in different ways as well.

How to Do It

Evolutionary segmentation, though a new approach, is not difficult to implement. To begin the process, senior management must insure that planners look for the logic shaping the evolution of their (or their clients') particular industry.

This means that management must choose the right scope of inquiry, as described below. Planners and managers must then "get their hands dirty" by conducting many industry interviews. These will be helpful in establishing some patterns. For example, those interviewed might say, "We used to be centralized, and tried to approach the market through a highly disciplined process, but then we met a lot of resistance and the department was split up among several other departments and everyone does it their own way now." Or they might say the opposite, or some variation in between. The point is to conduct enough interviews to have a large inventory of case histories.

The next step is to make sense of these case histories. Why a company originally tried one approach and switched to another requires detective work. What was the internal political process? What was the operational advantage? Did this company note a similar pattern at another company and copy it? What were the triggers to the migration from one segment to another?

The goal is for planners and managers to become familiar with how finances, operations, strategy and organization all interconnect. (See Exhibit VI.) If they are to predict change, they need to understand all the reasons why a specific organizational shift, for example, must precede an operational one. This detective work can be assisted by financial modeling, by organizational behavior theory and by an understanding of macroeconomic and societal changes affecting the industry.

Exhibit VI

Segment Dynamics

Source: Booz-Allen & Hamilton

A simple test of whether the process worked is whether planners are able to articulate the richness of likely evolutionary paths -- that they are able to show what factors led specific organizations to specific technological or operational approaches.

The final step is to develop a road map of how companies have progressed over time. In the case of data communications customers, for instance, the migration steps are complex. Map the most common steps, and pay particular attention to companies that have undergone several migrations and tend to be leading edge.

Unlike static segmentation, which offers little structure in quantifying future market proportions(8), evolutionary segmentation allows accounting-like accuracy over time. That is because "inputs" (earlier stages of evolution) plus growth must equal "outputs" (later stages of evolution). In other words, evolutionary segmentation tracks where specific customers come from and go to, and so gives a better indication of what segment growth shares will be like.

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