Leg 2 from Lisbon to Capetown. Completed.
Good morning to all of you. It is Monday 27th of November 2017. Cyber Monday for USA people. The last Monday of November for the rest of the world. Let me share with you the wrap-up video from Volvo Ocean Race Website:
Today I will finish my strategy race about segmentation topics. Even though segmentation is always delegated to the marketing division in your company, or it is outsourced to marketing companies, I considered important for you to know the basics of segmentation. As a CEO or founder of your company, it is really important we can see segmentation as a key part of our business. Effective segmentation is not only about classifying, tagging and grouping customers according to a need or want. If you get involved in segmentation, it is well possible you will distinguish the nature of the decision-making and will foresee further opportunities to pursue them. There are often opportunities to target specific people which many times are dismissed because the owner doesn´t get involved directly in the segmentation process.
Market segments are not fixed. Instead, continual opportunities for creating new profitable segments are being all the time opened by changes in the industry, changes in the environment and new knowledge. There is a dynamic flow of information from our environment, from our customers. People change. Generation needs are different. When in recession or financial crisis, as it has happened recently, the companies have to adapt to those economic limitations. When in booming or rising economies, there is new customer needs to be attended. At the moment new knowledge and technologies offer new opportunities to meet these needs. The potential profit and growth opportunities that these new technologies represent has a huge impact on our old business models and the old ways of doing things. It is crucial to look for new ways to segment markets particularly with the IoT.
The Internet of Things is new for all of us on the quotidian basis, even though the internet has been around for more than 2 decades. Think to please: how many of us had instant messaging as WhatsApp in our mobiles before the year 2010?
Probably no one. Why? Because this technology was not available as a mobile application at that time for us. But since the mobile started to be seen as an internet tool, the world changed. Actually, many applications can be downloaded into our phones. Before and for years our mobile was used just to make phone calls and send little SMS. Later instant messaging evolved to become the application called “WhatsApp”, and now many people are using the mobile for digital payments, etc.
Internet of Things or IoT will bring new opportunities for segmentation, new customers, and it will increase many business possibilities as the market evolves. Creating new segments which add new customers or trade up current ones is a regular strategy pursued by conscious CEOs or founders. Any business needs to evolve.
IoT has come to stay in our world. “Although around 20% of advanced-technology companies already have integrated digital capabilities some years ago, the same cannot be said for traditional companies in other, more conventional businesses, such as industrial goods or artisan companies. IoT is certainly an important source of growth for technology companies; for less technology-centric companies, it can be utterly transformative”. And for the end consumers, it will be also a challenge. “The IoT’s early innovators, who have grappled with mixed overall demand, a lack of consistent standards, lack of regulatory framework, weak cyber-security measures, and other challenges, would agree that their road has been difficult” to this day. Well as you may be guessed by now, I truly enjoy seeing how the human being has evolved over time. I am fascinated with these things. I will dedicate some tour over Cape Town break to share about IoT and the challenges for all of us (from the point of view of consumers, and from the point of view of the businesses, industry and government agencies). This topic will be a bonus material for our coming days sailing race.
Now let´s wrap up our Leg 2. When leaving Lisbon on the 5th of November, we had an outline to cover.
We started with the first theme: Segmentation Customer Markets. We had the chance to cover each of the outline topics with detailed information and examples. We saw the psychological processes affecting consumer behavior and went through the customer decision making process. We understood explicitly why to segment markets: for a better matching of customer needs, enhanced profits, enhanced opportunities for growth, retention of customers, targeted communications and stimulation of innovation. We also saw the most common profilers used in consumer market segmentation as follows: geographic, demographic, psychographic and behavioral. Finally, we closed Theme 1 with the topic of segmentation criteria: To be a strategic tool, a segmentation scheme should meet five criteria: effective, identifiable, profitable, accessible and actionable.
On November 15th, we also started with the second theme 2: Intra-Industry Segmentation Analysis and Business-Government Segmentation.
We covered the concepts and basics of organizational buying, the buying decision process in businesses, the “buying center” purpose and how it works in general terms. We also sailed through the Strategic Groups and Industry Competitor Analysis or Competitive Intelligence.
Our Leg 2 has concentrated largely on the buying behavior of profit-seeking companies. But all the concepts and basics can be applied to the buying practices of institutional and government organizations. The only topic left is the Institutional-Government Segmentation. I will sail into it today, in this precise closure Leg 2 post. So far so good, institutional and Government Segmentation is an extensive topic as much as the rest we have seen over Leg 2. I believe it is a topic that can take me a whole new Leg to write about because I have seen several examples all over the world of how the government agencies do the buying process and each country has its buying procedures which are more or less good, and more or less inconvenient. In Government Buying Procedures the key is transparency because any government is using our taxes and international cooperation funds to buy their inputs. If you are interested to learn and dig deeper about this theme, do not hesitate to contact me for updated details.
The institutional market consists of schools, hospitals, nursing homes, prisons, elder care organizations and children aid entities. There are many institutions that must provide goods and services to people in their care. Many of these organizations are characterized by low budgets and captive clienteles. For example, hospitals must decide about suppliers when considering new equipment, medical inputs, medicines and good quality of food to buy for patients. The buying objective here is not profit. The hospital purchasing agent must search for institutional vendors whose quality meets or exceeds a certain minimum standard and whose prices are low (without sacrificing the quality).
In fact, many vendors set up a separate sales division to follow institutional buyers’ special needs and characteristics. Food companies produce, package, and price their offer differently to meet the requirements of hospitals, colleges, and prisons. In consequence, institutional entities also require best practices and supply chain management procedures. In the case of the government, these public organizations are a major buyer of goods and services. They typically require suppliers to submit bids and often award the contract to the lowest bidder. In some cases, they will make allowance for superior quality or a reputation for completing contracts on time. Governments also buy on a negotiated contract basis, primarily in complex projects with major R&D costs and risks and those where there is little competition.
Because their spending decisions are subject to public review, government organizations require considerable paperwork from suppliers, who often complain about bureaucracy, regulations, decision-making delays, and frequent shifts in procurement staff. From the point of view of Government entities, transparency in buying decisions is a key success factor. Governments must provide would-be suppliers with detailed guidelines describing how to sell and bid. Failure to follow the guidelines or to fill out forms and contracts correctly can create a legal nightmare. It is imperative for Governments to simplify the contracting procedures in order to make bidding more attractive. The Internet has helped a lot to vendors in order to eliminate massive paperwork recently. In the USA, purchasing is being done online via web-based forms, digital signatures, and electronic procurement cards.
Several federal agencies that act as purchasing agents for the rest of the government have launched Web-based catalogs that allow direct links between buyers and contract suppliers. A good starting point for any work with the U.S. government is the System for Award Management, which collects, validates, stores, and disseminates data in support of agency acquisitions. In spite of these reforms, for a number of reasons many companies all over the world that sell to the government do not have a marketing orientation in place.
All right, we have finished Theme 2. Remember the Social Media Segmentation (Theme 3) has been deferred to Leg 4, and I hope you will enjoy it soon.
Conclusion Leg 2
Let´s conclude with Professor Peter Doyle words: “Capitalizing on market opportunities requires several steps. First, it requires segmenting the heterogenous markets open in the ocean to all the firms. Some of those markets are already very competitive, and others are not even created. We need to understand the needs of the potential markets in which we will be able to be more profitable.
Segmentation is the key to marketing specialists who work with the CEO or Founder of the company. Why? Because segmentation offers the firm the chance to meet customer needs more effectively and so build sales growth and profits. Market segments are not static but offer continual opportunities for innovation and creativity. The key task of the management in competitive markets is to create a sustainable differential advantage to attract these choices”. “Buyers for government organizations tend to require a great deal of paperwork from their vendors and to favor open bidding and domestic companies. Suppliers must be prepared to adapt their offers to the special needs and procedures found in institutional and government markets”.
Thank you. We will continue working for you during the Volvo Ocean Race Break in Cape Town. Blessings!
Disclaimer: All the pictures or videos shown on this blog are not mine. I do not own any of the lovely photos posted unless otherwise stated.
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