Segmented Value Proposition

VOL. 0061 – FLORIDA, TUESDAY, MARCH 25, 2025

Juan F. Arjona Harry

President & CEO Strategee   

The second decade of this twenty-first century brought with it an intensification of competitive rivalry in all sectors of the economy in the world, due to the deepening of globalization.

The intensification of competitive rivalry in an industry brings sudden changes in the rules of competition in the sector, promoting innovation and optimizing logistics and trade in order to maintain market share in each participating operations. Unfortunately it also brings periods of degradation in profit margins.

It is precisely at the moment in which a correct understanding and interpretation of the market, should lead the corporation to the assimilation of the different segments and subsequent alignment of the corporate strategy to serve them with a single, distinct and useful value proposition.

The critical questions to identify (in addition to the usual questions about demographic, psychographic and CLV classification) are:

1. What are the channels where they different groups of customers buy?

2. What are the purchasing values of each group of customers in the market? Remember that purchasing values are the drivers of the purchase decision.

3. How is the process of the purchase decision in each of the segments? In B2C markets, the decision could be individual or influenced by others. Similarly in B2B markets the decision could come from technical committees, procurement departments and sometimes private invitations to tender and reverse auctions.

4. What are the preferred payment methods by customers?

5. What is the level of technology associated with the consumption and/or use of the product?

6. What is the context when buying and using the product?

7. How much is involved in the cost by each group of customers?

8. What are the different negotiating modalities of customers?

9. What is the use or final destination of the product produced with our supplies (for B2B or industrial markets)?

10. What are the technical characteristics required of the final product produced with our supplies (for B2B or industrial markets)?

These, among a few other questions, help identify different groups or market segments.

Once identified, the corporation must create a value proposition tailored for each one of the segments identified. The value proposition must ensure value creation towards the segment.

Companies require margin, but to the same extent required cash flow. The decline in margins (immediate consequence of intensifying competitive rivalry and in many cases, an evidence of deficits in the equation of value generation), brings the tightness in the cash flows and then financial exhaustion. Hence, it is so absolutely necessary to build the correct value given to different market segments and their execution leads to the recognition of the value by each segment; this recognition of the value is the base for price premiums charged in the transaction.

In order to recover the value, you must first create it.

To create a value proposition that is sustainable over time you must detail those items that make up internal responsibilities that the company must take to comply strictly with the promise to each segment.

The structure of a value proposition consists of the following vectors and sentences within each vector:

Value proposition facing the market segment:

1. Market Vector:

1. 1. Description of segment: describes the profile that delimits each market segment.

1. 2. Understanding customer needs.

1. 3. Identifying the drivers of purchase decisions: describing major purchase values, those that are really relevant for the purchase decision to each segment.

2. Product Vector:

2. 1. Product Description: Describes in detail the range of product features, benefits and technical details when applying.

2. 2. Description of what makes up the commercial offer: those things or promotional resources or introduction marketing which will ensure the initial purchase of the offer.

2. 3. Comprehensive Product Description (services, PQRS, and after sales): describes the special and additional services that will be provided with supply and service agreements that are defined for the segment.

3. Marketing Vector:

3. 1. Sales force: describes the composition of the sales force; whether this will be a new sales force or if the segment will be served by the same sales force; or whether this should be trained in the new deal or to be re-trained.

3. 2. Distribution Channels: describes the structure which will get the products or services to market. If is going to the usual channels used, even if existing channels will be used in the company or if new sales channels will be created.

3. 3. Communication strategy: what will be described in the communicational support for the launching and what would be the media mix including: catalogs, brochures, digital and physical sales support, blogs, advertising, ATL, BTL and digital media.

Value proposition facing the company:

1. Strategic Vector:

1. 1. Strategic Objective: describes the strategic objective that is impacted by attending each specific segment (remember that the main strategic objectives of the corporation are: sustainability, generating scales, gain market share, strengthening brand, profitability and growth).

1. 2. Business Strategy: describes the business strategy in terms of pricing, product modulation and modulation rates, terms, trade supports, merchandise on consignment, transfer sales, among others.

1. 3. Resource requirements (skills needed): describes in detail what the corporation needs to cater to this segment, such as generation of market linkages with other manufacturers or vendors, purchase of machinery and special equipment, creation of an administrative unit or structure, support, production, among others.

2. Profitability Vector:

2. 1. Investment Involved: details the additional investments in which the Corporation must incur to serve the segment as has been described in the value proposition.

2. 2. Operational risks: operational risks described both in production and sales or operations in general.

2. 3. Expected return: Determines the impact in terms of growth in gross margin, EBITDA margin or profits.

3. Operations Vector:

3. 1. Statistical Information System and Monitoring: describes the changes and/or adjustments to be made in the ERP and the SIM of the corporation, needed to ensure the commercial monitoring of each segment.

3. 2. Sales goals and sales plans: sets targets by product line, channel, area, regional, and country; and establishes the business plan in terms of budgeting and achievement of business goals.

3. 3. Agreed quality standards: describes in detail the quality parameters determined for the commercial supply of product/service aimed at this segment.

Thus, the value proposition will be technically established and shaped to meet each market segment.

But…What makes the failure of the implementation of a Segmented Value Proposition?

Experience shows that the following are the most common mistakes in implementing Segmented Value Propositions:

1. Administrative structure unsuitable for your attention.

2. Lack of resource allocation.

3. Over-promise customers.

4. Lack of monitoring and control.

5. Lack of operational discipline along the marketing chain, service, support and customer service.

Given the conditions for designing a value proposition properly formulated and implemented, the rest will go to the commercial dynamics and ensuring the target market share and the desired premium prices.