Industrial Market Segmentation - A Generic Principle

A Generic Principle

One of the recommended approaches in segmentation is for a company to decide whether it wants to have a limited number of products offered to many segments or many products offered to a limited number of segments. Some people recommend against businesses offering many product lines to many segments, as this can sometimes soften their focus and stretch their resources too thinly. See figure 1.

The advantage in attempting the above approach is that although it may not work at all times, it is a force for as much focus as practicable. The one-to-many model ensures – in theory – that a business keeps its focus sharp and makes use of economies of scale at the supply end of the chain. It “kills many birds with one stone”.

Examples are Coca Cola and some of the General Electric businesses. The drawback is that the business would risk losing business as soon as a weakness in its supply chain or in its marketing forces it to withdraw from the market. Coca Cola’s attempt to sell its Dasani bottled water in the UK turned out to be a flop mainly because it tries to position this “purified tap water” alongside mineral water of other brands. The trigger was a contamination scandal reported in the media.

The many-to-one model also has its benefits and drawbacks. The problem is that a business would stretch its resources too thinly in order to serve just one or a few markets. It can be fatal if the company’s image is ruined in its chosen segment. However, there are many companies that have dedicated themselves to only one market segment, e.g. Flowserve is a US-based supplier of many different types of pumps, valves, seals and other components – all dedicated to fluid motion and control.

Among the above models, the most popular is the many-to-many version. As companies constantly try to balance their risk in different technologies and markets, they are left with no choice but to enter into new markets with existing products or introduce new products into existing markets or even develop new products and launch them into new markets (see figure 2).

The problem with the many-to-many model is that it can stretch a company’s resources too thinly and soften its focus. One reason for the current financial problems of the world’s largest car maker, General Motors, is that it has tried to be everything to everybody, launching model after model with no clear segmenting, targeting or branding strategy.