As head of sales for several stock listed companies in different process industries, I have noticed a lack of market knowledge detailed enough to make good growth plans in many sales organisations.
Companies generally know their global market share as they have global production data from some sort of industry associations but they are rarely able to split this into different geographical sales areas and customer segments.
Is customer segmentation relevant?
I believe it is. A product or service will create different value for different customers. The value created affects the price the customers are willing to pay.
A transport company that buys a light weight trailer made of high strength steel will be able to increase their revenues as they will be able to carry more goods at the same cost.
The same steel can be used for a bridge structure. In this case it contributes to a one-off cost saving. This is also valuable but the benefits for the transport company are far greater.
Logically the transport company should be ready to pay more for the same steel than the bridge builder.
A good customer segmentation will support value based pricing and has a good potential to improve the profits for a company that has a value creation offering.
How well does your company know the market
We will now take a look at four companies with different knowledge level about their market share. Open your latest strategy document, check what kind of market data you presented there and compare yourself to the different cases below.
The internally focused company
The internally focused company has a good view of their global market share but they are not able to split it over their geographical sales areas or their customer segments. They know of course their own sales in every market but they have not estimated the total market in the different sales areas or over the different segments.
They will present their market position as global market share but are then limited to a split of their own sales over the different sales areas and segments. This gives no indication about their market share per sales area or per segment. This is not sufficient for making good growth plans and give good direction to the sales representatives.
The geographically focused company
This company has an understanding of how the total market is split up in their geographical sales areas and they are able to determine their market share in each and everyone of them. This is important to dedicate the sales and marketing resources to the right markets but it gives no direction when it comes to customer segment focus.
The segment focused company
Some customer oriented companies have been able to split their market in different customer segments which is particularly useful if they are focusing on value creation. Understanding your customer’s business and how his market develops will enable you develop the right products and services and tailor your marketing campaigns to your different customer segments. It is difficult to determine the market size per segment as all companies will have different definitions of their segments.