Agile Factory

Constraint Manufacturing - APICS discussion

Market segmentation discussion

From: Bill Hodgdon
Sent: August 04, 2004

Hi Spyros,

Clearly segmentation strategy is important for any business. However, there are two key differences I focus on between B2B and B2C markets. The first difference is which department within the business can directly cause growth. The second difference is the number of people the business must convince before a buying decision is made.

In B2C, it is the Marketing department that can directly cause growth through advertisements, coupons, promotions, direct mail campaigns, discounts, telemarketing, etc. I make no claims of competence in B2C markets because I have little direct experience with them. Furthermore, there is a tremendous amount of information available about them and a deep understanding of what works and what does not work. In fact, what got me started on a different model for developing growth strategies for B2B markets was the fact that virtually everything written on marketing strategy references B2C examples and then assumes that the same ideas will work for B2B markets.

In B2B, it is the Sales Department that directly causes growth. The tactical part of Marketing still has the same responsibility to make the targeted markets aware, but it still requires sales people to get out there and make the calls and bring home the business. The marketing books and courses all seem to carry an assumption that a good marketing campaign is enough and that the offerings are so good that any competent sales person should be able to win the sales. This assumption is false and can only be held by people who have never been responsible for directly managing accounts to produce revenue. Thus, the marketing strategy for B2B markets must "sell" the sales channels on the strategy so that the sales channels will alter their Touch pattern to generate the desired growth. The 5 questions that must be answered, are based on the answers required to cause the "sale" to the sales channels to be made. These answers are the measure of a sound B2B growth strategy. If marketing can't answer them effectively, then their growth strategy can be improved.

These questions are:

What is the estimated size of the market in my territory and what method was used to estimate it?

What are the criteria that I can use to clearly identify which accounts in my territory are within the targeted markets and which ones are not?

What business results (actual measures of business performance that must include numbers) are being produced by this market that can be improved by our products and services?

What is the value (the economic case for changing which must include numbers) of the improved business results once they buy and implement our solutions?

How much time (Touches) must be allocated to these accounts to cause the desired growth?

Now for the second difference between B2C and B2B markets, the number of people the business must convince before a buying decision is made. In B2C it is one, in B2B it is many. This is a crucial difference that tends to go unrecognized in marketing strategy circles.

Let's relate this second difference to the TOC method for developing a Mafia Offer. When I worked with Eli on the Samsonite example, I found his solution to be brilliant. However, in later years what I came to realize was that only one person had to be convinced in the market to cause the sale, the shop owner. For those who have seen Eli's Viable Vision presentation or are aware of the Israeli drip irrigation case study, it is another example of a brilliant solution. However, once again only one person has to be convinced in the market, the farmer. I continue to be convinced that if Eli is the one coming up with the solution it will work regardless of whether it is B2C or B2B, but I do not have that confidence in anyone else including myself.

In B2B, claiming an understanding of the needs or UDEs of the customer must always be challenged with this question: Which position within the account were you talking with? The UDEs of Purchasing, Engineering, Maintenance, Operations, IT, Human Resources, and so on are all different! Of course you can go to the C-Level executive (CEO, COO, CFO, etc.) and get the real UDEs of the business, but that person will usually not force a solution down the throats of the departments who must implement it.

Building a Mafia Offer around faster delivery or pricing based on market segmentation will be embraced by Purchasing and Project Engineers because it hits their primary measures of business performance, reduced cost, reduced inventory, reduced time to complete the project. However, if Operations is comfortable with a competitor's solution they will generally have the power to prevent the buying decision to be made or to cause it to fail if Purchasing does buy.

The Mafia Offers that will work are the ones that will cause in increase in Throughput with minimal risk in the minds of the targeted accounts. There are only two departments in a for profit business who are directly responsible for causing Throughput: Operations and Sales. Every other department is focused on supporting these two money making departments and on reducing cost. Therefore, Current Reality Trees must be built on Operations and Sales UDEs and the Cloud must include Injections that will directly cause an increase in Throughput or at least a reduction in ongoing operating or sales expenses beyond the one time reduction in inventory or price.

My general claim will be that a Mafia Offer will not work unless it increases sales or reduces ongoing operating expenses for the targeted market with minimal risk. Mafia Offers have a much better chance of working when there is only buying influence to be convinced versus many to be convinced. The implementation of the Mafia Offer is another subject for another time.

So Spyros, I know this is a longer post than you expected, but I felt it was necessary to explain why my ideas are designed only for business to business markets. They might work for B2C, but I simply do not know right now.

Best Regards,

Bill Hodgdon