Nowadays, to effectively meet demand service needs across products, formats, responses, and methods, it is essential that businesses understand that no two customers, channels to market, or products are the same. A “one-size-fits-all” supply chain is no longer adequate. Businesses need to classify products, customers, and channels into groups that share similar characteristics and respond accordingly.
But segmentation is not just about responding to the varying needs of consumers today. It's about anticipating long-term trends, thinking ahead of the game, and predicting what customers want, even before they do, so there is time to respond and align the firm's business model and supply chain.
Put customers at the heart
While many organizations may claim to be driven by the customer, all too often businesses are so focused on their product that they lose sight of their business value proposition and how well it meets different customer expectations.
Not only do customers, channels to market, and products differ greatly, but the competitive playing field remains volatile, too. At different points in time, customers will have different expectations. For example, notwithstanding its inglorious role in the global financial crisis, the banking industry has adapted well to the shift from dealing with customers face to face to being heavily dependent on call centers for telephone banking to now being IT savvy with online banking and smartphone apps.
Marketing takes the lead
If everything is truly driven by the “customer value experience,” then naturally, segmentation will be led by sales and marketing. Segmentation also needs to be coupled tightly with new product development.
Led by sales and marketing, and running as a core business process, segmentation enables the supply chain to negotiate the optimal way to deploy resources and investments to bring new products and innovations to market and to manage them across their life cycles. A good marketing person will say, “Segmentation? But we do this.” However, it is rare for segmentation to be truly integrated with demand.
A case in point: One global company Oliver Wight is now working with traditionally depended on the impulse market. But shoppers' buying behaviors have changed; consumers are shopping online or going to the self-service checkouts, so they are not exposed to the product right in front of them. The occasion to buy is very different, and the company's sales subsequently declined. Had these changing consumer trends and shopping habits been anticipated, the marketing team could have worked more collaboratively across the end-to-end supply chain and gained competitive advantage; it could have even increased sales through a segmented response to these changing needs.
Breaking down silos
When a business is disconnected and working in silos, it is not possible to move beyond the near term and focus on an advanced, forward-looking level of segmentation, because people and teams aren't working together, and the supply chain is not integrated. It is only when a business starts to achieve integration between its product, demand, and supply teams that it can really reap the benefits of segmentation.
Integrated management processes, such as Integrated Business Planning (Advanced S&OP) can play a valuable role here, as they integrate diverse processes and different plans from the individual business functions to form one integrated company plan. This helps to break down the functional barriers and silo mentality, encouraging cross-functional integration instead.
Play the long game
The ongoing benefits of segmentation require sales and marketing to become intensely focused on the value chain — not only thinking about what adds value for Tier 1 customers, but considering Tier 2 customers, as well.
With the short-, medium-, and long-term trends built into the demand planning process, this can then be shared with the supply chain with open discussions on how to respond. “Are there products and services that need changing? Are there new products, new marketing messages, or new activities which could be introduced?” Then there are questions regarding the supply chain implications: “If the business moves into different product ranges, categories, markets, or customers, what skill set does it need?”
Looking ahead, there needs to be an ongoing review of market segmentation. A company may have identified customer segments today, but as more insights, trend predictions, and product developments emerge, the business strategy needs to reflect this.
Demand segmentation brings with it a whole host of benefits — it enables better decision making, instills simplicity in complex supply chains, increases operational efficiency, and drives competitive advantage. But in order to achieve this and truly understand customers' needs in tomorrow's rapidly changing market, demand segmentation must be intrinsically linked with the business strategy and become a core business process. Do this, and consumer needs will be met effectively and profitably, not just now, but well into the future.
Oliver Wight associate Debbie Bowen-Heaton co-authored this article.