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Published: January 1, 1997

 
 

Segments in Time

MCI Communications. In its search for high-volume customers, long-distance carrier MCI was the first to focus on Asian immigrant groups. As these groups grew in number and prosperity, MCI became the leader in such highly profitable segments as the Asia/Pacific calling market.(12)

A leading computer equipment manufacturer, which reorganized its entire sales, marketing and product development organizations around evolutionary segments. It targeted two growing and receptive segments and thereby halted market share losses despite an aging product line.

Tenneco. The chemicals and plastics division of Tenneco used segmentation to identify customers willing to pay a premium for its high-quality and higher-priced products without requesting custom features. Evolutionary segmentation showed that such a target group, while shrinking in number, would still be a viable market over the next 5 to 10 years. After sales priorities were changed to better target this segment, the division's overall profitability jumped in the first year.

Most existing segmentation analysis is reactive, and tries to optimize where a product should be positioned or where the sales force should call, given the status quo. As has been shown, evolutionary segmentation uses the status quo as a departure point and thus can prove far more useful in sales management, product development and marketing functions.

An understanding of evolutionary paths can turn to gold for a vendor's sales force, for instance. That is because every step taken on the evolutionary journey changes what matters inside a potential customer's organization: decision-makers, buying criteria and budgets. The sales force that can anticipate these changes can get to a new decision-maker before competitors do. Arriving first, they can begin shaping the decision-maker's time frames and criteria.(13) When the laggards finally arrive at the new decision-maker's door, they may find that it has already been closed.

Evolutionary segmentation can also produce a big payoff when used to help define a new product or service. Typically, a product cannot meet every potential customer's needs, so some choices and trade-offs must be made. Evolutionary segmentation will help managers determine which segments will grow, and which will be the most attractive sub-markets -- and when.

The drivers of evolution are also the determinants of buyers' preferences. This allows product managers to avoid reliance on that notoriously inaccurate device: customer self-reporting.

When asked, most customers will say they are concerned about cost. This is not always the case, however. As described above in the computer/data communications case study, the values of buyers within the same company vary by the stage of evolution, ranging from long-term investment protection and technical performance to addressing end-user concerns. Only the independent telecom "utility" in the third phase is a short-term cost minimizer.

Superior segmentation can help senior managers identify growing new segments. This can provide an inroad into previously impenetrable markets that are guarded by incumbents who are focused on declining segments.(14) For instance, the start-up Cisco Systems used the growth in personal computers and the ensuing impact on data communications to become the pacesetter in the area of "logical" networking -- leaving formerly dominant data networking players behind. This growth was clearly forecast by Booz-Allen in early 1993, based on the evolutionary segmentation perspective described in this article.

Conclusions

Today, most segmentation is static -- a snapshot in time. While this analysis has utility, it pales when compared with a fluid approach that produces pictures that move.

Armed with a sense of how an industry is evolving and why customers will change over time, management can begin targeting the customers that it wants over the long term. Acquiring the right set of customers is often the fundamental key to improved profitability. Correct segmentation makes the difference between servicing a growing segment with a high willingness to pay for a company's special attributes versus responding to a heterogeneous collection of needs with varying profitability.

 
 
 
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