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Using the value chain approach for segmentation analysis, Grant (1991) recommended five steps :
1. Identify segmentation variables and categories : There may be literally millions of ways to divide up the market into segments. Typically, an analysis considers between five to ten segmentation variables. These variables are evaluated on the basis of their ability to identify segments for which different competitive strategies are (or should be) pursued. The selection of the most useful segment-defining variables is rarely obvious. Industries may be subdivided by product lines, type of customer, channels of distribution and region/geography.
1. Identify segmentation variables and categories : There may be literally millions of ways to divide up the market into segments. Typically, an analysis considers between five to ten segmentation variables. These variables are evaluated on the basis of their ability to identify segments for which different competitive strategies are (or should be) pursued. The selection of the most useful segment-defining variables is rarely obvious. Industries may be subdivided by product lines, type of customer, channels of distribution and region/geography.
Segmenting by competitor is useful because it frequently leads to a well-defined strategy and a strong positioning statement. Thus, a target customer group for the Toyota Cressida consists of buyers of high-performance European cars such as the BMW. The Cressida is positioned against the BMW as offering comparable performance for a substantially lower cost.
2. Construct a segmentation matrix : After customer and product related variables have been selected for identifying different segments, a segmentation matrix can be developed. Two or more dimensions may be used to partition an industry.
3. Analyse segment attractiveness : Competitive assessments using industry structure analysis or core competencies analysis can also be used to evaluate the profitability of different segments. However, the competitive focus shifts to an analysis of the different segments.
4. Identify key success factors for each segment : Quality, delivery, customer satisfaction, market share, profitability and return on investment are common measures of corporate success. In this regard, each segment must be assessed using the most appropriate key success factors. Cost and differentiation advantages should be highlighted by these measures.
5. Analyse attractiveness of broad versus narrow segment scope : A wide choice of segments for an industry requires careful matching of a firm’s resources with the market. The competitive advantage of each segment may be identified in terms of low cost and/or differentiation.
5. Analyse attractiveness of broad versus narrow segment scope : A wide choice of segments for an industry requires careful matching of a firm’s resources with the market. The competitive advantage of each segment may be identified in terms of low cost and/or differentiation.
