Strategy formulation often takes the traditionalapproach of first coming up with a broad, aspirational vision statement first and then developinga raft of tactics designed to realise that vision. Then, only once this is all done, is a marketing plan is developed to support these broad strategic aspirations.
So everything is in place to build competitive advantage and returns for stakeholders, right? Well, maybe. The simplistic, top down approach to strategy formulation has many flaws in the complex and volatile trading environments that business now has to contend with, which we will touch on in future posts.
If the purpose of an organisation is to sell to customers, developing a comprehensive marketing plan – who are you going to sell to, what are their characteristics and how are you going to sell to them – through proper market segmentation is key to putting the customer at the heart of strategy formulation, not an afterthought or treated as a mere tactic.
Comprehensive marketing plansgenerate a number of key strategies and downstream decision making in a number of areas that flow on from the focus that only proper segmentation can provide.
However, although proper segmentation is vital in developing a comprehensive marketing plan, it is rarely done properly, if at all. Segmentation and (if applicable) sub-segmentation are critical in the strategic decision making process.
Proper segmentation provides focus to a range of aspects of strategy, including ensuring that the product offering, positioning, pricing and marketing, promotional and selling strategies are targeted to the profile and characteristics of a particular customer segment. Further, many downstream decisions in marketing and sales, operations, R&D, HR and organisational structure will flow from this customer centric strategy formulation.
Best practice strategic formulation is should be rigorous and market segmentation is no exception which means there area number aspects to be aware of.
An area of confusion in segmentation, which is very common, is to mix up industry and market. To take a simplistic example, you may have a business that delivers goods to fashion retailers. The industry is transportation but the market is fashion retailing so the resources and capabilities that you are going to build (for example, the attributes of the drivers that you hire to walk into the customers stores and deal with customers) need be focused on your market. This may sound obvious and it should be front of mind in formulation but the point is that proper segmentation makes sure you can’t miss these vital decisions.
Geographic segmentation is an effective and often used way to break up markets. However, segmenting on the basis of geography can make it difficult to develop targeted strategies as the customer signalling and characteristics within the segment can be less apparent.
Customer behaviour segmentation on the other hand divides the market into groups based on the assumption that the types of product-services procured reflect that buyer’s characteristics and patterns of consumption or demand, making for easier development of targeted strategies. Whensegmenting according to customer behaviour, market segments must be focused to the attributes of those (externally) who may purchase the firm’s products or services and not on the internal features of those products and services.
There may also be significant value and inbreaking down segments further into sub-segments to provide laser-like focus to the strategic business plan asthe product offering, positioning and selling strategy may differ in various sub-segments. So you may have a geographical segment of India then sub-segments within India based on the characteristics of the customers.
However, it is also important to know when not to segment to ensure that marketing and other decision making isn’t any more complex than it needs to be. Two conditions need to prevail for segmentation to have a significant impact on the outcomes in formulating a strategic business plan:
• Price elasticity of demand (the extent to which the purchases become affected if you change the price) should be present within a segment. If a response is the same across nominated segments, then that level segmentation may not have any real implication for developing competitive advantage through a strategic business plan.
• There should not be what is called a signalling possibility between the segments. If the buyers can obtain clear signals on prices or value from across segments, then again our efforts to distinguish pricing-positioning or promotion between segmentsmay become somewhat artificial.
The absence of these conditions doesn’t mean that you can’t segment for example to better categorise your customer base, just that it isn’t as necessary for the purposes of differentiating marketing strategies and other key decisions.
It can be seen that there is much more to developing a comprehensive marketing plan than a few non-targeted promotional and sales strategiesor tactics put in place as an afterthought to strategy formulation.
As a proper marketing plan brings laser like focus to so many key decisions, taking the time to get it right and making your marketing plan a centrepiece of strategy is of the utmost importance.That’s why the software enabled Trackermap system for strategic business planning makes the marketing plan a cornerstone of strategy formulation.
The customer is paramount for almost every organisation and developing a properly constructed marketing plan during formulation is the vehicle for putting customers at the heart of your strategy.