Bases for industry segmentation

An industry  is a market in which similar or closely related prod­ ucts are sold to buyers, as shown  schematically  in Figure  7 – 1.2 In some industries a single product variety is sold to all buyers. More typically, however, there are many existing or potential  items in an industry’s product line, distinguished by such characteristics as size, performance, and functions. Ancillary services (repair, installation, applications engineering)   are   also   in   fact   distinct  products  that  can be and often are provided separately from physical products.3

In some industries  there is a single buyer  (e.g., in some defense and space industries). More  typically, though,  there are many  existing or potential buyers. These buyers are usually not  all alike, but  vary according to demographics, the characteristics of the industry in which they compete, location, and in other  ways. Firms  provide the link between products and buyers. Firms produce, sell, and deliver products through value chains (Chapters  2 – 4 ) in competition  with each other. In some industries, there are independent  distribution  channels  be­ tween firms and buyers involved in all or part of industry sales.

The boundaries  of an industry  are frequently in flux.   Product lines are rarely static. Firms  can create new product  varieties that perform new functions, combine functions in new ways, or split off particular functions into separate products. Similarly, new buyers can become part of an industry,  existing buyers  can drop  out, or buyers may alter their purchasing  behavior.  The  current  array  of products and  buyers reflects the products  that  firms have chosen to introduce and the buyers that  have chosen to buy them,  and  not  the products and buyers that an industry could potentially encompass.

Figure 7-1.    An Industry as an Array of Products and Buyers

1. Structural Bases for Segmentation

The reason that industries m ust be segmented  for competitive strategy formulation is that the products, buyers, or both  within an industry are dissimilar in ways that  affect their  intrinsic attractiveness or the way in which a firm gains competitive advantage in supplying them. Differences in structural attractiveness and in requirements for competitive advantage among an industry’s products  and  buyers cre­ ate industry segments.4 Segments grow out of both differences in buyer behavior as well as differences in the economics of supplying different products or buyers. Product and buyer differences that do not affect structure  or   competitive   advantage  (e.g.,   differences in   the   color of an otherwise identical product  variety) may  be important  for produc­ tion or marketing, but responding to them is not essential to competi­ tive strategy.

Structural Differences and Segmentation.   Differences in products or buyers create industry  segments if they   alter one or more  of the five competitive forces. Chapter  1 showed  how the five competitive forces determine  overall industry  attractiveness.  Structural  analysis can also be applied to industry  segments; the same five forces are at work. Economies of scale or supplier  power, for example, can vary among product varieties even if they are sold to the same buyer. A given buyer may also possess differing propensities to substitute for different product  varieties. Similarly, the power of buyers  or the threat of substitution for the same product  variety can differ from buyer to buyer. Figure 7 -2 represents schematically  how   the   five forces can vary by segment.

Figure 7-2.    Differences in the Five Forces Among Segments

 The television set industry provides an example  of how the five forces can differ by product  variety independently  of who the buyer is. TV sets can be segmented by configuration (portables, table models, consoles and combination units). Small screen portables have become largely a commodity, while console TVs offer more opportunities for differentiation through styling, furniture,  finish, and  features. More­ over, console set production employs  a different production  process and different suppliers than the production of portables, and is less sensitive to economies of scale. These differences affect mobility barri­ ers, supplier power, buyer power, and rivalry pressures. Similar differ­ ences which affect the five forces exist for other TV product varieties.

Large turbine generators illustrate how differences among buyers may also often have structural implications, independent of the product variety they purchase. Investor-owned electric utilities can be distin­ guished from municipally-owned utilities from a structural viewpoint. Investor-owned utilities   tend   to be more  technologically   sophisticated and purchase through  a negotiation  process, while municipal utilities are less sophisticated and purchase through public bidding. This creates differences in price sensitivity and  in the ability of a firm to create mobility barriers in selling to the two types of utilities such as brand identity, switching costs, and proprietary product differences.

Both product varieties and buyers in an industry  can potentially differ in all five of the competitive forces.   In   TV   sets,   for example, the distinction between console and portable sets has implications for mobility barriers, supplier power, and rivalry. In the turbine generator industry, investor-owned utilities and municipal utilities differ in their bargaining power, the rivalry among firms in serving them, and the opportunity  to erect mobility barriers. Even supplier  power  can vary for the same   product  variety depending  on   the end   buyer’s identity. In bicycles, for example, a bicycle enthusiast is much  more  aware of the brand name of key components such as hubs and derailleurs. This gives parts suppliers greater bargaining power in selling to firms target­ ing enthusiasts. They have far less power in selling to firms that sell bicycles to  casual bicycle purchasers.

Value Chain Differences and  Segmentation.   Differences in prod­ ucts and buyers   also create   segments  if they   affect the   requirements for competitive advantage.  The  value chain  can be used to diagnose this. Differences in product varieties or buyers lead to segments if:

  • they affect the drivers of cost or uniqueness in the firm’s value chain
  • they change the required configuration of the firm’s value chain
  • they imply differences in the buyer’s value chain

An example of a product  difference   that  affects   the   value   chain   is the difference between standard and premium  bicycles. Standard bikes are built with an automated  manufacturing  process, while premium bikes are   frequently   handcrafted.  M any   other  value activities differ for the two as well, and the drivers of cost and uniqueness  of value activities differ accordingly. Thus  the sources of competitive advantage for standard and premium bikes are quite different, making them differ­ ent segments. Another good example of how different product varieties can affect the value chain is draft  beer compared  to canned  beer. While the beer is the same, many other value activities are not.

An example of how differences in buyers  can affect the firm’s value chain is building insulation. Since many costs in the insulation industry  are driven by   regional   scale   and   by   the   location   of buyers in relation to plants, buyers located in different geographic  regions constitute im portant segments. This example shows not only how buy­ ers can differ in purchasing  behavior, but  also how   the behavior of cost in serving buyers can be quite different, even with the identical product.

Value chains also differ among  buyers. The  way a   hotel chain uses a TV set is different from how a household uses it, with strong implications for use criteria and  signals of value (Chapter  4). Differ­ ences in use criteria and signals of value among buyers define segments, because they affect the requirement  for competitive  advantage.  It is also important to recognize that the way different product varieties fit into the same  buyer’s value chain  can differ— for example, a new part versus a replacement  part. Product  differences that  affect the buyer’s use and signaling criteria define segments.

The Array o f Industry Segments.   In theory, every individual buyer or product  variety in an   industry  could   be a segment,   because the five forces or the value chain were   somehow  different   for   each.   In TV sets, for example, every screen size or feature might  potentially constitute a different segment. Similarly, in turbine  generators, every utility has a somewhat  different value chain. In practice, however, product varieties and buyers should  be grouped  into categories that reflect their im portant  differences. Deciding  how to group  products and buyers to capture the most im portant differences is a key to good segmentation and a subject to which I will return later.

An industry  segment is always a combination of a product variety (or varieties) and  some group  of buyers  who purchase  it. In some cases, buyers do not have im portant structural differences and segments are defined by product varieties, and  vice versa. Usually, however, structural differences in both  product  varieties and  buyers   are present in industries, leading   to segments consisting   of a subset of products sold to a subset of buyers. Note that product varieties are often associ­ ated with particular  types of buyers  that purchase  them,  as was true in both the TV set and turbine generator industries.

Industry  segments must also be defined independently of the scope of activities chosen by existing competitors. Segments stem from struc­ tural differences within an industry  that competitors may or may not have perceived. A segment may be im portant even though no competi­ tor is yet focusing on it. Industry segmentation should include potential product varieties and buyer groups  as well as those that already exist. The tendency in segmentation is to focus on observed differences in product varieties and  buyers. Yet  there  are typically product varieties that are feasible but  not  yet produced,  and  potential  buyer  groups that are not currently being served. Unobserved or potential segments can be the most  im portant to identify because they offer opportunities for preemptive moves that create competitive advantage.

1. Segmentation   Variables

To segment an industry, each discrete product variety (and poten­ tial variety) in an industry should be identified and examined for struc­ tural or value chain differences from others. Product varieties can be used directly as segmentation variables. Buyer  segments can be identified in a similar fashion, by examining  all the buyers in the industry and probing for structural or value chain  differences among them. Since buyers vary in a multiplicity of ways, experience has shown that  a good starting  point  in identifying   buyer  segments   is to look for buyer differences along three  broad  and observable   dimensions: buyer type, buyer geographic location, and distribution channel em­ ployed. Buyer type encompasses such  things as the buyer’s size, indus­ try, strategy, or demographics.

While these three  dimensions  of buyers  are often   related, each has an independent effect. Location can significantly affect purchasing behavior and the value chain required  to serve a buyer  even if all other  buyer characteristics  are   equal.   Similarly,   in   many  industries the same buyer is reached through different channels, though  the chan­ nel employed is often related to buyer type (and also to product vari­ ety). For  example, buyers of electronic components  purchase  small, rush orders of chips from distributors  and purchase  larger orders di­ rectly from manufacturers.

To segment an industry, then, four observable classes of segmenta­ tion variables are used either individually or in combination to capture differences among  producers  and  buyers.   In   any   given industry, any or all of these variables can define strategically relevant segments:

  • Product variety. The discrete product varieties that are, or could be, produced.
  • Buyer type. The types of end buyers that purchase, or could purchase, the industry’s products.
  • Channel (immediate buyer). The alternative distribution chan­ nels employed or potentially employed to reach end
  • Geographic buyer location. The geographic location of buyers, defined by locality, region, country, or group of countries.

Identifying segmentation  variables is perhaps  the most  creative part of segmenting an industry, because it involves conceiving of dimen­ sions along which products and buyers differ that  carry important structural or value chain implications. This requires a clear understand­ ing of industry structure as well as the firm’s and the buyer’s value chain.

To identify product segments, all the physically distinct  product types produced or potentially produced by an industry should be iso­ lated, including ancillary services that  could feasibly be offered sepa­ rately from the product. Replacement parts are also a distinct product variety. Groups  or bundles  of products  that  can be sold   together  as a single package should also be identified as a product  variety, in addition to the items currently sold separately.7 In the hospital manage­ ment industry, for example, some firms sell a complete  management package at a   single   price,   while   others  sell   individual  services such as physician recruiting. The package should  be viewed as a separate product variety for purposes of segmentation.  Similarly, in industries where the product requires service, there are often three product vari­ eties— the product  sold separately, service sold separately, and the product and service sold together. In many  industries, the list of prod­ uct varieties that  results from going through  such a process is quite long.

Product varieties in an industry can differ in many  ways that translate into structural or value chain differences and hence segments. Some of the most  typical product  differences that  are   good   proxies for structural or value chain differences that  define segments are as follows, along with some illustrative examples of why they reflect segments:

Physical size.   Size is often a proxy  for technological  complexity or how a product is used, both of which affect the possibilities for differentiation. For  example,   different sized forklifts are typically used for different applications. Size may also imply differences in the value chain required to produce  different varieties. Different sized varieties must often be m anufactured  on different machines, and require differ­ ent components. For example, a miniature camera requires a different manufacturing process and higher precision components  than  a stan­ dard camera.

Price level. The price level of product varieties is often associated with buyer price sensitivity. Price also serves as a good proxy in some industries for the design and nature of m anufacturing or selling value activities.

Features. Product  varieties with different features may be associ­ ated with different levels of technological sophistication, different pro­ duction processes, and different suppliers.

Technology or design. Differences in technology (e.g., analog ver­ sus digital watches) or design (front opening versus side opening valves) among product varieties can involve different levels of technological complexity, different production processes, and other factors.

Inputs  employed. Sometimes   product  varieties   differ significantly in their use of raw materials or other inputs  (e.g., plastic versus metal parts). Such differences often have implications for the manufacturing process or supplier bargaining power.

Packaging. Varieties may differ   in   the   way   they   are   packaged and subsequently delivered, such as in bulk   versus   bagged   sugar or draft versus canned  beer. This  translates  into   value chain   differences in both the firm and buyers.

Performance. Performance  differences such   as   pressure  rating, fuel economy, and  accuracy  are related to the technology  and  design of product varieties, and often reflect differences in R& D, manufactur­ ing sophistication, and testing.

New versus aftermarket  or replacement. Replacement  products often go through entirely different downstream  value chains than iden­ tical new products,  and may be different in other ways such as buyer price sensitivity, switching costs, and required delivery time.

Product versus ancillary services or equipment. The  distinction between a product and ancillary products or services is often a key indicator of price sensitivity, differentiability, switching costs, and the value chain required to provide them.

Bundled versus unbundled. Selling various products as a package (bundle) versus selling individual  items (unbundle)  can have implica­ tions for mobility barriers, the ability to differentiate,   and   the value chain required (see Chapter 12).

The product differences that are most meaningful for industry segmentation are those that reflect the most im portant structural differ­ ences. There are often a number of different product descriptors that are related. Price level, technology, and performance may all be correla­ ted, for example, and reflect the same basic differences among  products. If each descriptor is measuring the same difference, the measure that most closely measures or proxies the structural or value chain  differ­ ences should be chosen.

More than one product dimension  may define relevant segments, and all product differences that  affect structure  should  be identified. The best method for segmenting an industry in which there are multiple segmentation   variables   will   be discussed   below.   It   is also   important in product segmentation to include product varieties that are feasible though not currently  being produced,  such as service sold indepen­ dently of the product or a product variety with a new mix of features. Good examples are cordless telephones and the “ no name” food items now sold in grocery stores.


To identify buyer  segments, all the different types of end buyers to which an industry  sells must be examined for im portant structural or value chain differences.   In   most  industries,   there  are several ways in which buyers  can be classified. In consumer  goods, for example, some key factors include age, income, household  size, and decision maker. In industrial, commercial, or institutional products, buyer size, technological sophistication, and nature  of  use for the product  are among the factors that distinguish buyers.

There is an active debate among  marketers  about the best means of segmenting buyers.8 In fact,   no   one variable can   ever capture  all the buyer differences that might determine segments, particularly since differences that  affect the cost of serving buyers  (and the value chain for doing so) are often just as im portant for segmentation as differences in their purchasing behavior. Buyer segmentation should reflect the underlying structural and value chain differences among buyers rather than any single classification scheme, because the goal of segmentation is to expose all these differences.

Industrial and  Commercial Buyers

Common factors which serve as proxies for structural  or value chain differences that distinguish buyer segments among industrial and commercial buyers are as follows, along with some illustrative examples of how they reflect segments:

BUYER INDUSTRY. The  buyer’s industry  is often a proxy for how   a product  is used in the buyer’s value chain  and   what  fraction of total purchases it represents. For example, candy bar manufacturers buy and use chocolate much differently than dairy product firms, who use less chocolate and have less need for product quality. Differences such as these can affect factors such as buyer price sensitivity, suscepti­ bility to substitution, and the cost  of supplying the buyer.

BUYER’S STRATEGY (E .G ., DIFFERENTIATION  VERSUS COST LEAD­ ERSHIP).       A buyer’s competitive strategy is often an im portant indica­ tor of how a product  is used and  of price sensitivity, among  other things. Strategy shapes the buyer’s value chain and the role a product plays in it.   For  example,   a differentiated   high-margin  food   processor is more concerned with ingredient quality and consistency than  a pri­ vate label food  manufacturer that competes on cost.

TECHNOLOGICAL SOPHISTICATION.  A buyer’s technological so­ phistication can be an im portant indicator of its susceptibility to differ­ entiation and   resulting price sensitivity.   M ajor  oil companies  tend to be more sophisticated buyers of oil field services and equipment than independents, for example.

OEMVERSUS USER. Original equipment manufacturers (OEMs) that incorporate a product into their product and sell it to other firms often have differing levels of price sensitivity and  sophistication than firms that use the product themselves.

VERTICAL INTEGRATION.  Whether a buyer is partially inte­ grated into the product  or into ancillary or related products  (e.g., in-house service)   can   greatly   affect the   buyer’s bargaining  power and a firm’s ability to differentiate itself.

DECISION-MAKING UNIT OR  PURCHASING PROCESS. The partic­ ular individuals involved in   the   decision-making  process   can   have a m ajor impact on the sophistication of the purchase decision, the desired product attributes, and price sensitivity. Many industrial products are purchased in complex processes involving many  individuals (see Chap­ ter 4), and the procedures often vary markedly even among buyers in the same industry. Some users of electronic components  purchase through trained  and   dedicated  purchasing  agents,   for example,   and are much more  price-sensitive than  other component buyers that em­ ploy engineers in purchasing or use purchasing agents also responsible for purchasing other items.

SIZE A buyer’s size can indicate  its bargaining  power, how it uses a product, the purchasing  procedures  employed,  and the value chain with which it is best supplied. Sometimes order size is the relevant measure of size, while in other industries it may be total annual pur­ chases. In still other  cases company size may be the best determinant of bargaining power and purchasing procedures.

OWNERSHIP. The ownership structure of a buyer firm may have a major impact on its motivations. Private companies may value differ­ ent product  characteristics  than  public companies,  for example, while a division of a diversified firm may be guided by purchasing practices determined by the parent.

FINANCIAL STRENGTH. A buyer’s profitability and financial re­ sources can determine  such things  as its price sensitivity, need for credit, and frequency of purchase.

ORDER PATTERN. Buyers can   differ in their  ordering  pattern in ways that affect buyer bargaining  power or the value chain required to supply them. Buyers that place regular and predictable orders, for example, may be much  less costly to serve than  those whose orders come at erratic intervals. Some buyers also typically have more seasonal or cyclical purchasing  patterns  than  others,   affecting a firm’s pattern of capacity utilization.

Consumer  Goods Buyers

 Typical proxies of buyer differences that define segments among consumer goods buyers  are as follows, along with illustrative examples of how they reflect segments:

DEMOGRAPHICS.  Buyer demographics  can be a proxy for the desired product attributes,  price sensitivity, and  other use and signal­ ing criteria. For example, single persons have different needs and pur­ chasing patterns for frozen entrees than families with children. Many aspects of demographics can be important,  including family size, in­ come, health, religion, sex, nationality, occupation, age, presence of working females, social class, etc. In banking,  for example, wealth, annual income, and the education level of household members all determine what banking services are purchased and how price sensitive the buyer is.

PSYCHOGRAPHICS OR LIESTYLE. Hard-to-measure factors such as lifestyle or self-image can be im portant discriminators of purchasing behavior among consumers. Jetsetters may value a product differently than equally wealthy conservatives, for example.9

LANGUAGE.  Language also may define segments. In the record industry, for example, the Spanish speaking market  worldwide  is a relevant segment.

DECISION-MAKING UNIT OR PURCHASING PROCESS. The deci­ sion-making process within the household can be im portant to desired product attributes and price sensitivity. One spouse may be more inter­ ested in performance  features of a car,   for example, while the other opts for comfort and reliability.

PURCHASE OCCASION.  Purchase  occasion refers to such things as whether a product  is purchased  as a gift or for the buyer’s own use, and whether the product is to be part of a special event or used routinely. A buyer’s use and signaling criteria are often very different depending  on the occasion, even if the buyer  is the same person and the product is similar. Purchasers  of pens for gifts, for example, will favor recognized brands  names  such as Cross that  may carry less weight in purchasing for personal use.

Several buyer dimensions may be im portant in defining buyer segments. In oil field equipment, for example, buyer size, technological sophistication, and ownership are all relevant  variables. In frozen en­ trees, household  size, age of family members,  whether  both  parents are working,   and  income are   all   relevant  variables.   Potential   buyers of a product not currently purchasing may also constitute segments. Buyer segmentation variables may also be related and  the task is to select the variables that best reflect structural  and  value chain differ­ ences.


To identify segments based on channels, all existing and feasible channels through  which   a   product  can   or does reach  buyers should be identified. The  channel  employed  usually has implications  for how a firm configures   its   value chain   and  the   vertical   linkages   (Chapter 2) that are present. The channel can also reflect factors which are important  cost drivers such as order  size, shipment  size, and   lead time. Large orders of electronic components are sold direct, for exam­ ple, while small orders  are sold   through  distributors  (often to the same buyers). Channels  can also differ greatly in bargaining  power. Mass merchandisers such as Sears and K -M art have a great deal more power than independent department stores.

Typical differences in channels  that  define segments include:

Direct versus distributors. Selling direct removes the need to gain access to channels and may imply a very different value chain than selling through distributors.

Direct mail  versus retail   (or wholesale).   Direct  mail   eliminates the potential bargaining power of the intermediate  channel.  It also usually carries implications for value activities such as the logistical system.

Distributors versus brokers. Brokers  typically do not  hold inven­ tory and may handle a different  product line than distributors.

Types o f distributors or retailers. Products may be sold through retailers or distributors of very different types, which carry different assortments and have different strategies and purchasing processes.

Exclusive versus nonexclusive outlets. Exclusivity may affect a channel’s bargaining power and also the activities performed  by the channel versus  those performed by the firm.

There are often several types of channels in an industry.  In copiers, for example, machines are sold direct as well as through copier distribu­ tors, office products distributors, and retailers. Channel segmentation must also include any potential channel that might  be feasible. For example, L’eggs resegmented the hosiery market by discovering a new channel, the direct sale of hosiery to supermarkets.


Geographic  location   can   affect both  buyer  needs and  the costs of serving buyers. Geographic  location  may be im portant directly as a cost driver and   may   also affect   the   value chain   required   to   reach the buyer. Geographic location also frequently serves as a proxy for desired product attributes due to differences in weather, customs, gov­ ernment  regulation,  and  the like. For example, commercial  roofs in the southern United States require less insulation  than  in the North, while the roofing membrane  is more  likely to be ballasted with gravel in the N orth  than  in the South because  a roof designed to   take a snow load can handle the extra weight.

Typical geographic segments are based on variables such as the following:

Localities, regions or countries. Geographic areas may have differ­ ences in such areas as transportation  systems and regulations. Geo­ graphic buyer location also plays a key role in defining scale economies. Depending on the geographic scope of scale economies (Chapter  3), different sized geographic areas may be the relevant segments. In the residential roofing shingle industry,  regions are the appropriate  seg­ ments because high logistical costs limit the effective radius  of a plant. In food distribution, metropolitan areas are the appropriate  segments because of dense customer location and use of trucks for local delivery.

Weather zones.   Climatic conditions  often   have a strong  impact on product needs or on the value chain required to serve an area.

Country stage of development or other country groupings. Buyers located in developing countries  may have very   different needs than those in developed countries. In addition, packaging, logistical systems, marketing systems, and many  other  aspects of the value chain may differ significantly. Similarly, other groupings of countries may expose similarities that define segments.

The relevant measure of geographic location for segmentation purposes will differ from industry to industry.  In most cases, the rele­ vant  location to   use in segmentation  is the   location where  a product is actually consumed  or used. However,  sometimes  the location to which a product  is   shipped   (e.g.,   the   warehouse)  is more  relevant. In other cases, the location of the buyer’s headquarters or primary dwelling emerges as the most im portant geographic segmentation vari­ able, even though the buyer uses the product somewhere else.

There can also be more than one meaningful geographic segmenta­ tion. For example, regions may be meaningful segments for determin­ ing cost position in industries   where  the costs   of key   value activities are driven by regional scale, whereas countries  may be meaningful segments for   determining  desired   product  attributes  and   the   ability to differentiate.

2. Finding New Segments

Some segmentation variables are readily apparent as a result of industry convention or competitor  behavior.  There  are often estab­ lished norms for dividing buyers or grouping  geographic  areas, based on historical data collected by trade  associations or government agen­ cies. In the oil industry,  for example, the distinction  between majors and independents is an accepted segmentation. Traditional categoriza­ tion schemes for product varieties in an industry are also typical. Competitors   may also define apparent  segments   through  their  choice of focus strategies.

However, segmentation must go beyond conventional wisdom and accepted classification schemes. Correct industry segmentation should reflect important differences for structure or the value chain among products, buyers, channels, or geography, whether or not they are recognized and used currently. The greatest opportunity for creating competitive advantage  often comes from new ways of segmenting, because a firm can meet true buyer needs better than  competitors or improve its relative cost position.

In searching for potential new product segments, the following questions can be usefully considered:

  • Are there other technologies or designs to perform the required functions in the buyer’s value chain?
  • Could additional functions be performed by an enhanced prod­ uct?
  • By reducing the number of functions  the   product  performs (and possibly lowering the price), could the needs of some buy­ ers be better served?
  • Are there different bundles (either narrower or broader)  of products and services  that could be feasibly sold as a package?

Off-price retailers are an example  of a new segmentation  based on reducing the number  of functions  the product   performs.   Firms such as Loehmann’s eliminate costly services such as credit  and returns while selling through  spartan  outlets without  extensive dressing rooms or sales help. This stripped down value chain, without many  traditional value activities, has created  an entirely new segment. A similar process is occurring in the   hotel/m otel  industry,  where   budget  chains   such as La Quinta are selling rooms without other services such as restau­ rants and bars, and other chains are combining services in new ways. The possibility of-employing new channels also frequently exists.

Firms can sell direct where the norm  has been to use agents or distribu­ tors or employ new   types of distributors  or retailers.   Timex  did   this in watches, and Avon did it in cosmetics. Any  feasible channel  is a potential segment.

In identifying new geographic and buyer segments,   creativity   is often required in two areas. The  first is finding important  new ways that geography or buyers can be divided to reflect structural or value chain differences. As discussed earlier, Stouffer’s discovered important differences in purchase criteria for frozen entrees by isolating single households and households  with   two   working  parents.   The  second area for creativity in geographic or buyer segmentation is in identifying potential new buyer  types or geographic  areas not  presently being served by the industry. Sometimes reaching a new buyer type or geo­ graphic area   will   require  product  modifications,   while   in other  cases it just requires that a firm gain a better  understanding of its buyers’ needs and potential  new applications  for its product.  For  example, Arm & Hammer baking soda found a large market in deodorizing refrigerators, and  Johnson  & Johnson  Baby Shampoo proved popular with adults. No product change was required for reaching either new buyer group.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

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