SEGMENTATION TO THE FARM GATE
by Dr. Jay Akridge and Aaron Reimer
There is likely no idea more foundational for marketers than market segmentation. Any marketer worthy of the title can talk at length about slicing markets via demographic, geographic, psychographic, and behavioral criteria. They can equally well espouse the benefits of a segment specific strategy, including a targeted marketing mix, which communicates and delivers a unique value proposition to each segment.
As is typical with ideas such as market segmentation, the reality of successful execution is a bit more complex than the intuition behind the idea. This is especially true when you are a manufacturer selling through a dealer network. Insuring successful execution of the segmentation strategy all the way to the farm gate requires the dealer to be fully engaged and capable of execution. It is not surprising that many mid-size dealer organizations struggle with segmentation considering their situation: limited marketing resources, geographically bound markets, and the need to have a very high share across all segments in the market area to be profitable.
This spring, the Center for Food and Agricultural Business at Purdue conducted a study involving 20 retail crop input dealer organizations to better understand the gaps between theory and practice with respect to market segmentation/target marketing. Following is a highlight of some of our key findings. Contact us for a copy of the complete study.
First, most of the dealers (17 out of 20) indicated that they were using segmentation in their business. This was not surprising given their size — the majority reported annual retail crop input sales from $15M to $150M. But in order to truly understand how effectively market segmentation was used, key individuals within each firm were interviewed and the general question of "how" they did segmentation was explored in depth. We focused on six steps to an effective segmentation strategy:
• Identify segments
• Assess segment attractiveness (including segment profitability)
• Design segment positioning
• Test segment value proposition
• Communicate value proposition
• Evaluate progress with segment
While most indicated they were using market segmentation, only three of the 20 dealers could be characterized as fully implementing a segmentation strategy. The others, while buying into the benefits of the idea, acknowledged that there were areas they struggled with or simply did not pursue. Some of the biggest gaps between "theory" and "practice" include: measuring segment profitability; developing unique value bundles (product, service, and information) for segments; fully engaging sales personnel in the segmentation strategy; and evaluating progress with segments.
What are some ideas for bridging these gaps, and helping a dealer organization do a better job successfully executing a segmentation strategy? Here are a few:
Recognize the realities of the local situation. Sales and marketing capabilities and market areas differ widely dealer to dealer. While a complex, multi-segment structure may make sense at a national level, it may be necessary to use something more manageable, at the local level.
Provide tools for evaluating segment profitability. This is a challenging area for many dealers. Getting to profitability information by customer or by segment is no small task given the information systems at their disposal. Short of substantial information technology investments (which may be needed long term), spreadsheets, budget-type examples, or other decision tools may help dealers understand how a segmented offering is more profitable than what they are currently doing.
Develop practical guides to segmented offers. Providing examples of successful offers and how dealers put together products, services, and information in unique ways to fit specific segments will help dealers move beyond a pure menu approach — and help them understand how a segmented strategy may or may not improve performance.
Continue to build the expertise of sales personnel. Unless the dealer's sales force is able to clearly communicate the benefits of the segmented offer to the right customer, any segmentation strategy will quickly unwind. In addition to on-going training, even the organization of the sales force may need to be revisited in an attempt to match the right sales personnel with the right customers.
Effective segmentation/target marketing is one of those "easy to talk about/hard to do" subjects for dealers. Digging deeper into the realties of the dealer's local situation will help manufacturers provide the support dealers need to successfully carry a segmentation strategy all the way to the farm gate.
Dr. Jay Akridge (firstname.lastname@example.org) is the Director of the Center for Food and Agricultural Business at Purdue University.
Aaron Reimer is a graduate of the master's program in Agricultural Economics at Purdue.
UPCOMING AGRIBUSINESS SEMINARS
National Conference for Agribusiness
November 13-14, 2007