Strategic Segments: Going beyond the 4 P’s
Differentiation within segments based on the four P’s is limited and easily replicated; strategic segments offer a more defensible position because they involve a more extensive value network.
Value networks are a key theme in Marketing As Strategy. Kumar describes value networks as “the orchestration of all marketing and nonmarketing activities necessary to create value for the customer.” Value networks marshall assets and capabilities throughout the organization to meet the needs of a strategic customer segment. He wants marketers to move beyond the 4 P’s when mapping customer segments because “replicating a value network is more difficult than copying a marketing mix.”
To create meaningful differentiation through strategic segments requires dedicating unique value networks to serving individual strategic segments
Success here relies on matching value networks to strategic segments rather than relying on the “shallow” segments that can be arrived at by using price, promotion, packaging, and place. Going beyond the four P’s means including research and development, operations, and service functions in the value network. Since more than just marketing capabilities are involved, a strategic segment is harder for competitors to serve.
Going beyond the four P’s means asking several key questions when defining a strategic segment:
- How can the company create sustainable differentiation?
- What are cross-functional implications across the firm from serving a strategic segment?
- What synergies exist between different segments?
- How should the value network be divided to serve a segment?
- What are the sources of the company’s differentiation advantage?
Market segments are typically defined by distinctiveness (each segment responds differently to the four P’s), identity (the ability of the marketer to identify members of the segment), and size (investment in marketing campaigns to each segment is financially viable for the company).
When defining segments, marketer use two types of variables: identifier – these variables are characteristics of the segment members such as age, gender, income or revenue; and response – how members of the segment behave, for example price sensitivity versus a focus on quality or product features.
With their segments defined, marketers can then select one of three targeting strategies: undifferentiated – targeting all segments with the same marketing program; differentiated – targeting each segment with a different marketing program; or concentrated – serving a single segment.
The Three V’s
Kumar’s framework for segmentation is the Three V’s (valued customer, value proposition, value network). For Kumar, customer definitions are not stated in demographic terms, rather customers segments must be associated with different value networks. Each segment should be addressable only by a separate value delivery chain.
Value propositions are created by examining which product and service attributes that the industry currently takes for granted should be eliminated, which attributes should be reduced below industry standards, which raised above industry standards, and which new attributes should be introduced. Kumar uses a value curve (a graph comparing how competing companies implement each attribute) to map out value propositions.
Value networks describe the purchasing, marketing, distribution, and operations strategies that support product and service delivery to strategic segments. Kumar advocates radical differentiation based on value networks. Each attribute in the value proposition must be mapped relative to competitors to ensure a different approach is taken.
Companies must search for customers with needs that are not being served well or at all and then developing a value proposition and value network to deliver the product or service. Can a value network can be defined and operated at lower cost than the industry average? Is there a value proposition that can offer higher benefits or lower costs than the competition?
Kumar’s three V’s (valued customer, value proposition, value network) offer a path to strategic segmentation which is not easily copied. Value networks are at the core of this approach. However, creating effective value networks requires coordination, planning, execution and a thorough understanding of customer needs.