Peeling the Onion to Revitalize Growth

Why Segmentation is never "One and Done" -

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Rather than viewing segmentation as a one-time task, businesses should embrace it as a tool for continuous exploration and discovery. By advancing to next-level segmentation, firms can uncover hidden growth within the familiar confines of their existing markets. This strategic approach not only revitalizes growth prospects but also fortifies a company's market position.

“We Have a Segmentation Already”

In the dynamic realm of business strategy, segmentation or segment strategy often appears early in the conversation. Firms that operate in well-established markets frequently find themselves grappling with lackluster growth, a scenario that often prompts executives to consider venturing into adjacent markets or developing new products. Yet, these paths come with inherent risks. In such contexts, stakeholders may confidently assert, "We already have a segmentation we're happy with." However, satisfaction with existing segmentation can present a barrier to recognizing its potential to generate material growth.

Organizations typically can describe their markets based on characteristics such as customer type, application area, and geography. These criteria can illuminate customer behaviors or preferences. However, when it comes to segmentation rooted in this understanding, schemes often fall short in two significant ways. Firstly, segmentation frameworks often favor one characteristic over the others, and companies rarely manage to discern meaningful distinctions simultaneously across multiple dimensions. For example, they choose to operate with segments based on customer type, despite personnel knowledge of multiple facets of their target customer. Secondly, this knowledge usually only exists for segments the firm targets and knows well. Whether due to choice or chance, areas that receive little organizational attention are rarely as well understood.

By focusing narrowly on single characteristics without considering how they interrelate, and by not addressing lesser known segments, businesses miss out on identifying easily-actionable growth. This inability to perceive cross-dimensional distinctions becomes a fundamental blind spot in existing segmentation frameworks.

Finding Growth Hidden in the Core

Fundamentally, segmentation should never be perceived as a static exercise. Early segmentation exercises moved companies from operating with no segmentation to a first-generation approach, and were likely perceived as highly valuable at the time. Likewise, next-level segmentation holds the promise of not only incremental improvements but also revealing hidden opportunities within a company's core market. By advancing segmentation strategies, businesses can uncover new growth prospects without the need for venturing into untested markets or launching entirely new products. This approach minimizes risk while maximizing potential.

In assisting clients to level-up their segmentation, we focus on three critical activities:

1. Analyze Multiple Dimensions: Instead of viewing customers on a single axis, meaningful growth emerges by examining multiple characteristics concurrently. By scrutinizing customer types, application areas, and geographies in unison, businesses can identify distinctive sub-segments with unique growth potential.
2. Finding Additional Meaningful Distinctions in Each Dimension: Basic categorizations—such as "OEM vs. Aftermarket"—often benefit from finer granularity. Further distinctions, such as "OEM by application - Retail parts - Service parts - distribution," enable companies to cater to varying needs profiles, enhancing customer relevance and satisfaction.
3. Adding Back "Forgotten" or Ignored Segments: Over time, segments that have been neglected, whether inadvertently or on purpose, may present new opportunities, particularly as technology evolves and customer needs shift. Revisiting these segments can transform a seemingly dull market landscape into fertile ground for accretive growth. Especially since tapping into these opportunities often does not require drastic innovations or drastic market shifts.

Our experience shows that growth rates can be doubled with improved segmentation analysis.

Actioning the Insight

Segmentation is not a static process, rather, a dynamic and evolving one. Companies seeking growth should continually deepen their segmentation frames, viewing them as vital to uncovering growth prospects. Next-level segmentation exercises that target deeper insights into existing markets can significantly boost growth potential.

These exercises should aim to:

• Go Deeper into Existing Markets: By delving more deeply into their current markets, companies can discover unmet needs and untapped growth potential, ensuring that they remain relevant and competitive.
• Configure Product and Service Offerings for new Targets: Align offerings against identified growth areas to maximize impact and profitability. Tailored products and services that meet the precise demands of emergent sub-segments enhance customer engagement and loyalty.

Until next week,

Kendall -

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