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& # 39; The Alignment Issue & # 39 ;: Market alignment with segmentation and differentiation

October
29, 2020

8 min read

The opinions expressed by the entrepreneur's contributors are their own.

This is the second in an exclusive series of articles by Total Alignment authors Riaz Khadem and Linda Khadem, entitled "The Alignment Factor". Check back every Thursday for new rates.

Businesses large and small are affected by the pandemic, and entrepreneurs are not immune. In order to survive and succeed in these difficult times, you may have to invest again in your business concept and redesign your offerings.

As a successful entrepreneur, you are aligned with your market, but are you still aligned? Do your customers need the same things as before with the same shipping method? For example, imagine a previously successful restaurant that lost its customers during the pandemic. Does the owner really understand the current needs of his customers beyond the previously offered menu or the previously created ambience?

Related: & # 39; The Alignment Factor & # 39 ;: The Keys to Internal Alignment

What is market segmentation?

In short, it groups heterogeneous people into homogeneous groups or segments according to certain criteria related to their needs. By defining a segment and focusing on that segment's needs and aligning products or services with those needs, you have taken steps towards market alignment. The main characteristics of a market segment could be similar customer needs or preferences. In a multi-location company, a segment will likely consider geography, demographics, and the choices people make, the types of services they value and the quality they expect. In a smaller company, this could be a subset of these criteria.

Let's take another look at the restaurants. Assuming that the wearing of masks is a pretty universal requirement, the first pressing problem for owners is how to proceed over the next few months. Should the restaurant continue to offer inside dining? If so, how do you protect customers? Usually this is achieved by placing the tables further apart and requiring the servers and hopefully the kitchen staff to wear masks and gloves. But what about the considerable number of people who want to eat out now? Should they be forced to go to a restaurant where people are eating (obviously without masks) to collect the food? Or can the restaurant more conveniently offer to bring the food to the car? What about the payment? Does the customer have to enter the dining room and present their credit card? Or can they pay by phone or on the website when ordering?

These problems are not unsolvable, yet many restaurants seem unable to adapt. Perhaps it is because of the rigidity of the owners with regard to their facilities and unwillingness to reassess the new needs of the segment of the market they serve. It is important to reevaluate your customers and possibly re-segment your market according to the new reality. Otherwise, valuable resources can be wasted on activities that are no longer synchronized. Flexibility and creativity at this point can mean the difference between success and failure.

What is differentiation?

Now that you've redefined your market segments, it's time to identify what's important to customers in a segment where your product is likely to be bought. Value drivers can be cost, quality, features, safety, buying experience, customer service, etc. In a restaurant, they may include the cost of menu items, the quality of the food (e.g., organic or not; use of meat, and poultry and seafood from sources that the animals take good care of in a healthy environment), the variety of the menu , the safety of the purchase of feed and food, the restaurant experience and post-service treatment.

For each segment, rate the importance of each appropriate value driver to customers on a scale from low to medium to high. For example, the quality can be high for a segment while the cost is a medium. Safety could be high and aftercare support low. The rating should be based on data, not just opinions. You may need to use customer surveys to hear the customer's voice.

Next, evaluate the same value drivers in terms of how your offering differs from your competitors. For example, is the quality you offer significantly better than that of your competitors? Are the costs that you offer significantly lower than those of your competitors? Are the features you offer unique to you and not available to customers of other providers? As you evaluate your value drivers, you can assign a low, medium, or high rating to each. For example, if your value drivers are features and you offer unique features that no one else provides, your differentiation is high. If they all offer the same features, your differentiation is little. Again, the assessment should be based on data.

After you have assessed your differentiation for each of the value drivers, you have a set of two ratings for each: the first is how important the value driver is to the customer in a segment, and the second is the differentiation of that value driver from your competitor. You can display the two evaluations in a two-dimensional grid, with the scale on both axes being low, medium and high.

The value drivers that fall into the (High: High) category should be your primary focus, both in terms of the message you send to customers in this segment and in terms of absolutely ensuring that these value drivers are recognized by your Customers will be perceived as you promised – or even better. For example, if Quality and Safety was rated (High: High), your resources should be focused on ensuring that your customers are aware of your differentiation and that your quality and safety are indeed at the highest possible level.

Strategies for each segment

Your market segments do not all deserve the same attention. You could close some segments and invest your investment in others, especially during these challenging times. As an entrepreneur, you have a preference based on emotional ties. This is dangerous as your pet offering may not suit all segments. Now that you've re-segmented your market during this pandemic, it's your decision where to put your energies and investments. You need to choose the segments that you want to grow, those that could stay at the same level of growth and those that you should leave.

How do you make such decisions? Consult the management literature for instructions to help you do this. Essentially, you perform a twofold assessment for each segment: How strong is your segment compared to your strongest competitor in terms of internal processes that add value to the customer? And how attractive is the segment for an investor?

If you are much stronger than your strongest competitor, your strength in this segment would be high. If you are on a par with your strongest competitor, your strength would be medium, and if you are weaker than your strongest competitor, your score in that segment would be low.

In terms of market attractiveness, you need to assess whether or not the market in a segment is extremely cheap (taking into account a number of external criteria). The external criteria could include the size of the market, the growth of the market and the profitability of the market. If the market segment is cheap, the valuation for that segment would be high. Otherwise it can be medium or low. The value of this exercise is that you can see the relative position of your various segments compared to each other.

The segment with high strength and high market attractiveness (high: high) deserves your attention most, and the segment with low strength and low attractiveness (low: low) can be sold unless it provides input to an attractive segment. Other segments require appropriate strategies based on their assessment.

Related: The one system that changes employee behavior

Strategic mindset

The strategic mindset that we propose in this article will help you come up with a number of strategies that are appropriate for each of your market segments. In order to develop a strategy, you need to have identified your market segments, the differentiation and relative position of your segments on the business strength / attractiveness continuum.

Choosing where to put your time and investment is key to your survival and growth. This enables you to make well-founded decisions and to use your valuable financial and human resources to offer your customers the greatest possible benefit.

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