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An intra- and inter-organisational perspective on industrial segmentation

A segmentation classication framework
Ann H. Clarke and Per V. Freytag
Department of Entrepreneurship and Relationship Management, University of Southern Denmark, Kolding, Denmark
Abstract
Purpose The purpose of this paper is to introduce and discuss a contextual framework, which is based on different purposes of segmentation. A matrix is proposed for segmentation that distinguishes between strategic and operational levels and the degree to which new value is created. Design/methodology/approach The conceptual discussion aims at contributing to development of the discussion of segmentation purpose. Findings Several models have emerged in the segmentation literature, but the purposes of many segmentation models are not explicitly addressed. However, the purpose of a model affects the segmentation process and has ramications to the subsequent implementation. This paper links segmentation to the purpose of segmenting and discusses the degree to which previous choices have impact on a rms possibility to select and implement new segments. Research limitations/implications This paper contributes to a more extensive discussion on segmentation. It adds to the discussion on segmentation purpose and implementation problems. Originality/value The proposed matrix sheds new light on the importance of having a clear purpose with a model. Furthermore, it is shown that different purposes may have different ramications to the rm and be more or less simple to implement, depending on the degree to which changes in the rms activities, actors and resources are needed. Likewise, changes in established relationships have to be implemented or new ones created. Keywords Market segmentation, Classication Paper type Conceptual paper

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Received March 2006 Revised January 2007 Accepted March 2007

Introduction Today segmentation is one of the core concepts in marketing (Sollner and Rese, 2001). It is important for successfully managing marketing strategies and programmes within industrial settings (Albert, 2003). Even though the importance of segmentation is well established there are still reports on gaps between theory and practice, which lead to implementation problems in segmentation (Dibb and Simkin, 2001; Kalafatis and Cheston, 1997; Sausen et al., 2005). On one hand, there seems to be problems with the segmentation methods and processes proposed in the literature, as these cannot be implemented in practice. The problems seem to be that practitioners have not moved away from very simple approaches, which can be handled as demonstrated by Abratt (1993). Further, theory offers a variety of approaches, which are quite advanced but difcult to handle in practice (Millier, 2000; Dibb and Simkin, 2001; Weinstein, 2004). In addition, the segmentation literature only to a certain extent considers what kind of

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process should be applied in different situations. Furthermore, it does not thoroughly analyse in what situations the authors proposed segmentation methods can be used. The same goes for the consequences and subsequent decisions to be made. Theory does not properly consider the implementation of identied segments in the rm and the degree to which the rm is bound by previous choices. This relates to how well the rm actually manages to change its strategic intent, activity links, resource ties and actor bonds in order to match the needs of the new segments as well as break old relations and build up new ones (Hakansson and Snehota, 1995). How the segmentation should be conducted and implemented depends on the purpose of the segmentation (Plank, 1985; Piercy and Morgan, 1993; Wind and Thomas, 1994). Different purposes raise different questions and result in different answers and decisions. This relates to the problems caused if there is no distinction between segmentation for operational and strategic levels (Sausen et al., 2005; Jenkins and McDonald, 1997) and the effect strategic and operational levels have on managers and their efforts to implement the segments. The main idea behind this paper is to contribute to the understanding of segmentation by drawing attention to the importance of whether the segmentation is made for more strategic or operational purposes and to what extent the market offering is predened. Depending on the purpose, the extent and process of segmentation will differ. Marketing has ourished with segmentation models, which if used correctly may be very useful, but they do not make the choice of an expedient segmentation model easy. Thus the paper starts by discussing different purposes for segmentation and the ramications segmentation has to the organisation. Further, it is discussed how market offering and segmentation are linked. On basis of different purposes behind segmentation and differences in market offering a classication matrix is developed. The classication makes it possible to distinguish how segmentation may be conducted depending on planning level and how fundamentally the offering is changed. After this, a case is used to illustrate how segmentation, due to the contextual segmentation framework, can be understood. In particular, the case demonstrates how previous choices and relationships affect the implementation efciency of selected segments in an organisation. Finally, in the conclusion, limitations of, implications and need for further research are discussed. Challenges within segmentation In a large number of models from the segmentation literature, it is more or less implicit that segmentation is undertaken in order to reach different customer groups on a given market. That was the basic idea as formulated by Smith (1956). The task is to divide the market by identifying possible segmentation criteria and choose the most suitable segments with regard to size, stability, growth, being reachable, etc. What may have seemed pretty clear in 1956 has changed a lot since then. A large number of different models have been developed, classied by the various purposes they may be used for: . positioning; . strategic planning; . market communication; . guiding sales; . pricing;

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product development and planning; and adjusting the distribution system.

Weinstein (2004) has introduced a strategic market denition framework. The framework adds to the understanding of a market by distinguishing between relevant, dened and target markets. The relevant market is the market, which ts the resources and objectives of the organization in the environment. The dened market is the customer segments that are penetrated or could be penetrated. The target market contains the present market segment and targeting of the market. This raises the question of whether segmentation is a matter of fundamentally changing the idea behind the rm, or whether it is rather a matter of adjusting to a changed market situation. The challenges involved in strategic and operational segmentations differ. Sausen et al. (2005) argue along the same lines and have developed a framework for strategic segmentation. According to Sausen et al. (2005) the objectives of strategic market segmentation may be: . exploitation of new customer potentials; . development of existing customer potentials; . increase of customer protability; . improvement in targeting of marketing measures; and . identication/exploitation of new submarkets. Already in 1985, Plank pointed out that it is important to distinguish between strategically and operationally oriented models. Piercy and Morgan (1993) contributed by developing a framework in which they distinguish between the operational and the strategic level. Issues such as sales, distribution, media, etc. can be dened as being at a more operational level. In other words, they are talking about ne-tuning the marketing-mix. On the strategic level, on the other hand, it is more a matter of in what business the rm should be. Implementation of segments depends on previously made choices The literature has also been criticized because it takes no account of the rms structure, culture, activities, resources, etc. (Jenkins and McDonald, 1997; Weinstein, 2004). In mainstream marketing literature the perspective on segmentation is that the rm is free to make independent choices (Kotler, 2000; Wind and Cardozo, 1974; Bonoma and Shapiro, 1984). Which segments to select is dependent on measurability, protability, accessibility and actionability, according to the Kotlerian view of the world. Based on an internal view of the market and potential segments management decides, which segments are to be targeted. However, this assumption can be dangerous to make, as rms are bound by their previous choices. Here the question could be said to be, whether a rm is highly path dependent or has the ability to make easy switches in its resource base. Furthermore, several studies have shown that rms do not necessarily exist in a reality, where the offering is decided by the seller alone, often offerings are co-created (Dubois et al., 2003). An attempt to implement a selection of new segments without understanding the rms current web of relations, internal as well as external, can cause failure of implementation of the segments.

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The purposes behind segmentation and the ramications it has on the organisation are issues that will be further addressed in the classication. The nature of the industrial market In business markets, the rm is involved in different kinds of relationships with other actors. The relationships with the actors in the network may be more or less close (Hakansson, 1982; Hakansson and Snehota, 1995; Webster, 1992; Coviello et al., 1997; Thomas, 2000). The degree to which the rm can make decisions will be affected by the web of customers. Deciding which customers to work or not to work with and in what manner, is thus an undertaking not only involving internal considerations and limitations, but external concerns will also have an impact on the feasibility of solutions. The choice of, whom to work with and in what manner, may thus be an undertaking not solely decided by the seller (Wilkinson et al., 2005), but also by the buyer. At the same time, the rm should be aware of possible partners when segmenting the market, and it should also take into account that customers are able to make their own decisions (Freytag and Clarke, 2001). As pointed out by Anderson et al. (1994) the world of the business marketer is rather complex. The roles of the rms are not given. At one point in time rms may be competing and at another point in time they may be cooperating. In some situations, the rm acts as seller and in other situations as a buyer, who may buy from a seller, who in some situations is a competitor. The role of the rm is dened by what the buyer is looking for and what is offered by the provider (Anderson and Narus, 2004; Ulaga and Chacour, 2001). Making priorities depends on what both parties want and the perception they have of each other. The offer is valuated by its capabilities in problem-solving it is not the drill that is interesting, but the ability to make holes (Levitt, 1980) and the other rms ability to deliver. Solving the problem of the customer is about offering value to the customer (Moller, 2006; Ulaga and Chacour, 2001, 2003). The interaction process denes both what value is created and how value is delivered (Hakansson, 1982; Hakansson and Snehota, 1995). To the business marketer, what value is created is not an isolated undertaking, but one that grows out of the search processes of both the buyer and the seller. Value creation Kothari and Lackner (2006) make it clear that offering creation is not about developing products but about how the elements of an offering create value to customers. Along the same lines Ulaga and Chacour (2001, p. 530) have dened value as customer-perceived value in industrial markets as the trade-off between the multiple benets and sacrices of a suppliers offering, as perceived by key decision makers in the customers organisation, and taking into consideration the available alternative suppliers offerings in a specic-use situation. Moller (2006, pp. 915-16) has added to the understanding by emphasizing linkage between the production system, the interaction process and the value creation process by stating that the nature of value production forms a fundamental characteristic of any value production system and that the requirements of value production are related to the level or complexity of interaction between the supplier and the customer. According to the concept introduced by Henneberg et al. (2005) value can be divided into three levels:

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(1) Exchange value value offering, which is consumed by the buyer What is the buyer getting? (2) Relational value value, which is conceived by the relationship What value is created in the relationship? (3) Proprietary value value, which is manufactured by the rm for its own benet What value is the seller getting? ARA-model and value In every market exchange, both the seller and the buyer gain benets and make sacrices. The ARA-model (Hakansson and Snehota, 1995) offers a framework for analysing the different value dimensions experienced by the seller and the buyer in the relationship. Activity links provide the set-up with regard to how activities are coordinated between two rms, i.e. how production, logistics, and planning systems are working. Resource ties describe how resources between two rms may be adapted. Actor bonds are the foundation for problem solving, learning and social exchange between two rms. The conguration of activity links, resource ties and actor bonds has developed from the choices and experiences of the two rms working together in more or less close cooperation. The conguration of actor bonds, resource ties and activity links also mirrors sacrices and benets for the rms involved and the relationship. A rm entering into a relationship will experience that it has to develop more or less individualised offerings. The degree to which the offerings should be individualised will depend on a number of factors. Firstly, it depends on the strategic intent of the two rms, secondly on the types of values (exchange, relational and proprietary value) the two rms will gain, and thirdly on which conguration of the resource ties, actor bonds and activity links will be the outcome of the engagement (see Figure 1). In this relation, the purpose behind segmentation will be to establish which value the customer wants and which solution the seller should provide. The degree to which the seller is able to full the buyers needs will depend on the degree to which the seller is able to adapt resources, activities and actors. Only to a limited degree, will the seller have control over activities, resources and actors, which again will limit the rms possibility to freely select its customers. Therefore, in some situations, adjustment of value offerings can be difcult to undertake and even more difcult to create. Even when rms try to reposition themselves more on the market, this may be very difcult due to commitments already made. Relations have often been seen in the perspective of the individual buyer and seller. In segmentation, the main idea is to classify customers in groups. When segmenting relationships it is important not to lose the focus on the individual relationship. This process is not simple, but a purpose-driven segmentation is a good lever (Freytag and Clarke, 2001).

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Figure 1. Values, activities, resources and actors

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Description of the contextual segmentation matrix Based on previous research, two dimensions have been identied that are appropriate for dividing the segmentation activities. The rst dimension relates to the level on which the segmentation implementation takes place, with strategic on one side and operational on the other. The second dimension deals with the rms creation of new offerings on one level and adjusting existing offerings on the other. These two dimensions form the basis for the later described contextual-segmentation matrix. The following section explains each dimension further. Strategic or operational Several authors have made a distinction between segmentation at a strategic or at an operational level (Goller et al., 2002; Piercy and Morgan, 1993; Plank, 1985; Sausen et al., 2005). The general assumption behind the dimension is that there is a fundamental difference in how the rm is affected by the segmentation. At a strategic level, the consideration is on top management level and concerns the creation of missions and strategic intent and can become closely linked to the capabilities and nature of the organisation (Jenkins and McDonald, 1997; Piercy and Morgan, 1993) and might thus be difcult to implement as it will require changes within the organisation. Thus segmentation can be seen as a creation of the organisation as much as a creation of the external environment (Jenkins and McDonald, 1997). At the operational level, there is a concern for planning and operational schemes for reaching target segments with an effectively adjusted offering as well as monitoring the performance. Examples of authors that focus more on the operational level are Albert (2003, p. 281). One outcome of micro segmentation is the ability to target communications to buyers with specic product or service offerings that they value and therefore are more apt to purchase from the seller. This application of customized or targeted communication strategies has often been cited as an industrial marketing strategy that should be more widely adopted. Others see the segmentation as particularly useful in personal selling, e.g. File and Prince (1996) and Robertson and Barich (1992) this can also be seen as more operational in nature. The two levels can be closely integrated, and many authors move into the operational area as well, when they, e.g. propose changes in the offering, but there can also be cases in which there may be little direct or mechanical connection between the two levels (Piercy and Morgan, 1993). Creating a new offering or adjusting an existing one The second dimension is the degree of changes the segmentation will have to the selling and buying organisations and the relationship. On one hand, the impact on the selling organisation can be centred on marketing, and the organisation is only moderately involved and affected, for example if the purpose behind the segmentation is to reposition the rm on the market based on existing products and activities. On the other hand, a larger part of the rm can be affected by the segmentation and selection of new segments by how the resources, activities, actors and offerings are combined. These affected areas could be among the value-adding activities besides marketing and sales, i.e. product development, production, procurement, logistics and service, as the rm might have to acquire new actors, activities and resources. In this situation, the

intent behind the segmentation could be to reposition the rms activities on the market or to select new markets, e.g. align the organisation with the market. In many articles on segmentation, the actual segmentation and selection of segments is seen in relation to the marketing department and to a limited extent as an approach or activity that has an effect on the entire organisation. Thus, when segmentation is discussed, it is often done with the existing organisation as a point of departure. As an example, the second dimension can be seen in relation to, whether the product is given beforehand, or whether it is a factor that can be affected. In marketing segmentation literature products are often viewed as given entities and not as variables. Products are regarded as already developed, and the rm has the task of offering customers the right products combined with the appropriate communication and distribution. However, according to Webster (1991), in industrial marketing strategy, the product should be seen as a variable, not as a given entity. The market segmentation should be an important and active part of product planning strategies. How the product is viewed in relation to the segmentation should reect the purpose of segmentation, whether it is made for marketing existing products and/or the planning of future products. But not only effects on the selling organisation should be taken into account in segmentation. Buyers will also be affected by changed segments. The selling organisation should try to imagine what kind of effects the changed segmentation will have for buyers with regard to changes in sacrices and benets. When only minor adjustments are made, the need to take customer reactions into account or even involving the customer may be low. When the sole aim is to strengthen the market position, the main thing to do may only be to inform customers of the ongoing changes. On the other hand, when the question of, which market to be on is raised, it will to an extensive degree involve customers and established relationships. In this situation well-established relationships may be broken, some may be changed more or less fundamentally, and nally new relationships may have to be created. This will affect how resources are used and may even require new resources. Also new actors may have to be involved or recruited and activity structures changed. The four situations in the contextual segmentation matrix The matrix below shows four situations characterized by different purposes for segmenting, creating different requirements. The four situations differ with regard to segment, what to do and how the result will be utilized, i.e. implemented. The situations are based on internal and external activities, resources, actors and how value is created. The matrix segmentation is still seen from the selling rms perspective, but it is taking effects on buyers and the commitments made in the relationships into account. In particular this will have an effect on how implementation is conducted (see Figure 2). Strategic level and creation of new offerings This section of the contextual segmentation matrix is intended to be used on a strategic level and in a context in which it is possible to affect creation of new value and customer portfolio, resource ties, actor bonds, activity links, etc. The fundamental task is to decide what customers the rm wants to serve. This is a situation that has a major

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effect on the future of the rm. Information is primarily gathered with the overall identity and brand of the rm in mind and to a lesser degree does it comprise considerations that have direct implications for the way in which the market offer should be composed. It is a matter of developing concepts and ideas for a more concrete plan. Such segmentation can take place when a rm starts, a new division is created, new technology is taken into use, a rm chooses to offer an entirely new product category or new markets are created. In this kind of situation the rm will be open to such fundamental questions as, who are we and what do we want? What customers to serve in what manner? Thus the rm will nd it important to get insight into what type of offerings the portfolio should consist of, and how value should be created. In this situation, it will mainly be a matter of establishing new relationships and trying to get a good picture of what customers could be interesting to relate to, and who will be willing to have relations. However, it is difcult beforehand to answer all these questions, when the rm has no working experience in the market. Nevertheless, it is important to have such insight. Over time, it may become necessary to re-segment the market. Reasons for re-segmenting include: . changed strategic objectives (buyer and/or seller); . new technology; . new competitors or competitors that have changed strategic objectives; and . change in regulations, e.g. laws and globalisation. When re-segmenting the market, a rm will ask the same fundamental questions as when making a new start. It is a major challenge, which includes creating new activities, obtaining new resources and including new actors in the selling rm, in the relationship and/or the buying rm. As example of a major challenge to a rm, the rm might have to establish and destroy relationships, which have been seen as important and this can create both internal and external resistance. That it is a major challenge to a rm, which is in line with Piercy and Morgan (1993), who make the point that the inner workings of the organisation in form of organisational structure, information and reporting, internal decision processes and corporate culture will be affected. This could also be the case for customers and the relationships with customers (Weinstein, 2004). In this situation, the risk of not succeeding is quite high, and as reported in many segmentation articles, rms have problems implementing segments (Abratt, 1993; Hlavacek and Ames, 1986; Mitchell and Wilson, 1998). The reason could be that the rms do not fully understand the major implications of selecting new segments.

Figure 2. Contextual segmentation matrix (CSM)

Operational level and creation of new offerings In this category of segmentation, the segmentation is made with a specic yet still future offering in mind. In relation to individual offerings, further research into the selected segments will be made. Even if a good segmentation has been affected at the strategic level, it cannot be expected that the specication of the individual future offerings has been uncovered. This type of segmentation is desirable when a rm intends to develop a new offering, e.g. extend the product line or undertake major updates of an existing product. The segmentation is used to dene the market for a new offering, in order for the offering to be specied and later serve as the foundation for decisions on how to target the market. An important aspect of the segmentation is positioning and differentiation of offerings in the segments. Thus a central point in the segmentation can be expected to be specic customer needs, but the segmentation should also create the foundation for specic marketing activity considerations. In such situations, segmentation could be considered a deepening of the previous segmentation. For some rms, this will be a further segmentation, for others it will be the central one. To sum it up, it is very much a question of nding out how resources should be used, activities specied, which actors should be involved internally, how customers act in relation to the same factors and how relationships should be developed for supporting the selected segments. Strategic level with existing offerings The goal here is to segment for marketing, distribution and sales at a strategic level. The segmentation is made, when a rm feels a need to more fundamentally evaluate the situation of the rm, create a connection in its offerings or adjust the marketing activities, so that the organisational base connects to and assists the value creation better. The purpose could be to reposition the rm and its offerings in the mind of the customers. This type of segmentation is often affected, primarily as a marketing activity, with little or no involvement from other departments. However, as the implementation of the segments affects the rest of the organisation, it is recommended to share information with other functions. In this situation, segmentation is made on a basis where the organisational set up in the organisation is to some degree taken for granted. On the other hand, it is clear that the task is to identify how the organisation can get a better grip of the situation by making some adjustments, e.g. position itself better or even go into new segments. For example, offerings may be changed in the way they are communicated or distributed, or some aspects of the offerings may be changed. This might lead to some adjustments of the internal organisation primarily in the marketing, distribution or sales functions. At the same time, this might involve changes in the exchange, relational and proprietary values. By reconsidering the rms position on the market, the rm will have to be aware that it might be less attractive to some customers and more attractive to others. The perception of the repositioning is both a function of the intended repositioning by the seller, and how the changes are perceived by the customer. The rm needs to look more critically at the way it has been positioning itself and the way it approaches its customers. The type of customers addressed may need to be

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changed and the market offerings (products, logistics, cooperation forms) may have to be redesigned. Operational level with existing offerings In the nal category, the focus is on implementing the segments found on the more strategic level. This could relate to adjusting and planning the market offers, i.e. the price, promotion, distribution, etc. A concrete example could be making plans for the sales people of what to do within the different segments or in relation to a direct mail campaign. In such a situation, the segments are fundamentally seen as given, but the challenge is to get as good descriptions of the segments as possible or a ner segmentation. This might cause descriptions to be changed due to more valid information about the segments. Due to ongoing interaction, the seller and the buyers will learn about each others offerings and preferred values, and it will possibly lead to clearer, richer and more useful descriptions. In particular, the task is to operationalise the identied segments. If the chosen segments are to work as anticipated, it is important to orchestrate the selling team as intended. This means that knowledge should be obtained by the actors involved in the external and internal relations and procedures should be developed. It is very much a matter of ne-tuning the exchange, relational and proprietary values, rather than making changes. Exemplication based on a case The case below illustrates some of the issues above as well as it illustrates that it can be problematic for a rm to select and penetrate new strategic segments. A large Danish industrial rm develops and sells electronic equipment for manufacturing rms and OEMs. The rm has experienced a high degree of change in the technology it utilizes in its products as well as on the market. On the market, new users and applications have continuously arrived and new demands that the products must meet have arisen. The rm started developing, producing and selling its products in the mid 1960s. The rm operated in the food industry, which was one of the leading users of applications at the time. Through close relationships with two major rms, the rm had developed its knowledge of customers application needs. On the basis of this knowledge and built-up competences, the rm could develop and penetrate other segments with similar needs. Over the years, the rm has developed a few other close relationships that have brought the rm into other industries. In 2000, the rm decided to make a new strategic segmentation in order to get a better match between the market and the needs for both marketing and the rest of the organisation. The rm had experienced that the existing segmentation was more suitable for marketing and sales, and less for planning and specifying future products. Actually the segmentation was not very useful for product development as it was not possible to clearly distinguish between different segments, and on basis of this specify segment dedicated products. The segmentation was based on a strategic level so that it could form the background for selecting future customers and planning future offerings. Based on a segmentation of the market, the rm chose to serve new customers and gave up some segments that had previously seemed large, growing and promising for the rm, but now it was obvious that their demands were far from those of other

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customers and the rms competences. The selection of segments was approved and implemented by management and became fundamental to the rms strategy. However, six years later the rm had given up one of the new segments and reintroduced one of the old ones. One of the new segments was successfully introduced into the organisation. There are several reasons for this change and for what could be seen as a partly unsuccessful attempt to change focus. The rm had chosen to move into a segment that had needs related to segments the rm already handled with the existing product programme. Furthermore, it had acquired a rm that sold supplementary products, and could be a lever for penetrating the segment. However, as the rm worked further with the segment, it realised that the products needed within the segment were different and raised demands to the rm for acquiring a new resource base, new activities and new actors. Based on the existing resource demands, the rm did not have the necessary time or nancial resources to develop the needed products. Another important factor was that the rm did not manage to nd customers with whom it could cooperate to develop the needed knowledge of customers applications needs. For several reasons a second segment was reintroduced. Firstly, the rm had developed relationships (not close) with several main actors in the industry, who continued being loyal to the rm and asked for further development of their products. The customers had a good contact inside the rm as well. Secondly, a great part of the users in the segment had moved part of their production to Asia and there was an increased demand for the low performance products handled by the rm. Thus the resources and competences acquired by the rm were still serviceable. However, there is still a need for further development of the rms products, in order for the rm to handle the applications needed in the segments. This raises demands for the rms resources, activities and actors, and it has proved difcult to full these demands internally. Finally the rm managed to implement and handle a new, selected segment. It was a segment that implied a completely new approach as it was developed in close cooperation with customers and was based on orders. The rm created a completely new department to take care of development, marketing, production and logistics focusing on this segment. However, the department was still not as successful as expected, as it was a major change for the rm to move from an approach in which it had an arms length relation to most of its customers, to a focus on developing the products in close cooperation with customers. The case clearly shows that the rm is affected by its previous choices and the resources and competences that it has built over time. The few close relationships that the rm has established are important to the knowledge of the industry and the rm has managed to use this knowledge to gain access to related segments. However, the rm has to give up a selected segment as it has limited knowledge and cannot get the close relationship as leverage to the insight into the needs of the new selected segments. Furthermore, the case also demonstrates that it can be difcult to break already established relationships. The segmentation made was intended to be in cell 1, but based on resources and actor bonds, the rm managed only partly to refocus the organisation and instead moved towards the strategic marketing-based cell and that repositioning required minor adjustments in existing resources, activities and actors. The only situation in which it succeeds in refocusing, is when it establishes the

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department where it develops customised components based on customers individual needs. Here the rm succeeds in creating the new resources, activities and actors and the customer relations needed. A nal reason for the lack of implementation was that the new segmentation structure had to compete with the old structure in the marketing department and the existing structure in the organisation. On one hand it could be said that the company should have changed the organisation to be able to reach the intended aims of the strategic segmentation. On the other hand it may be a process, which was useful for the rm to nd out how much it takes to penetrate a new segment. Conclusion Although building a matrix for segmentation, which captures both value and relationship thinking, is complex, it contains a fruitful understanding of how rms could work on a solid foundation, which may give fewer problems with implementing the selected segments. As Datta (1996) pointed out, a good understanding of how a market is, or how it can potentially be segmented, should no longer be a matter of interest to marketing analysts alone. It should be a central concern of top management and strategic planners as well. Following these lines the four different situations for segmenting were described and discussed. The matrix has made a distinction between the strategic and operational levels and the degree to which new value is created and has shed new light upon the importance of having a clear purpose behind a model. Furthermore, it was shown that different purposes may have different ramications to the rm and be more or less easy to implement depending on the degree to which the changes in the rms activities, actors and resources are needed. Likewise, changes in established relationships have to take place or new ones have to be created. From a managerial point of view, the matrix helps to address segmentation more adequately by making the purpose and ramications of segmentation clearer. The assessment of the selected segments should include consideration of the following questions as value is seen as an important building block for understanding the needs and wants of both the customer and the seller. In line with this, it is possible to address the following three questions differently, depending on the purpose and ramications, as described in relation to the contextual segmentation matrix: (1) Assessment of the value created and sacrices made within the present segments. What value and sacrices are created today for the seller, the buyer and in the relationship? (2) Assessment of possible value creation and sacrices made in future segments. What value and sacrices could be created for the seller, the buyer and in the relationship? (3) What changes in the value creation and sacrices made are necessary to penetrate and handle the future segments? What changes should be undertaken in the selling rm, the buying rm and in the relationship, to obtain the value aimed at and what will the sacrices be? Yet another issue is the order in which a rm will affect segmentation. The need to segment may occur for different reasons as described in relation to the contextual segmentation matrix. In principle, it is possible for a rm to segment for the rst time in all four situations. It is, however, presupposed that the rm operates in a market that

is already developed. If the market is under creation, the starting point will usually be what market to be in. After making the decision of what market to be in, the next step should be for the rm to decide how it wants to address the market. At a later point in time, the rm could nd it necessary to more fundamentally reconsider the market segmentation or alternatively ne-tune its market position. From a theoretical point of view, the matrix is interesting as it brings attention to six important issues which have not been researched in depth until now. First, in some instances, segments may have emerged over time due to learning effects both by the selling and buying rms. Resources often have to be obtained, offerings developed and relationships established. This can be a time-consuming process as rms do not always know from the beginning what their needs are, and sellers do not always know how their offerings will be taken into use. In other words, markets are not given identities as it is presupposed by marketing literature. Thus rms may have to re-segment at a later point in time to get a better understanding of the segments they are handling. Second, segments are not just penetrated overnight, but they will often develop over time due to the nature of resources, activities and actors in and between rms. Differentiating between the three types of values (exchange, relational and proprietary) offers a fruitful way to address this issue. Sellers and buyers choices will be made based on both earlier commitments and potential future value and sacrices. Third, buyers will differ according to how close they want to get to the seller and visa versa. Due to resource constraints and strategic intent, the seller and buyer may have different views on the each others importance, which may cause difculties in making the found segment work. It is not only a matter of choosing and being chosen, but also for what purpose! In extension of this, the question is also, how many other rms is it possible and expedient to have close relationships with? Fourth, the developed matrix pinpoints these three issues by not leaving a fourth issue out: the dyadic nature of business markets. Overall, the point of view behind the matrix is still an inside-out-perspective, but it makes the seller think about, how the buyer may evaluate and decide. Strategizing becomes a matter of taking the mutuality of decision-making into consideration. The fth point relates to the question of, whether it is possible to talk about relationship management or not. It has been the premises in marketing that the seller can dene the use and the content of the marketing mix. By shifting perspective and dealing with relationships, the question of mutual or independent strategising becomes an issue, i.e. the degree to which the rm can make independent strategic decisions. Not many contributions have shown how mutual relationship management can be undertaken. E.g. many of the contributions in portfolio management have either exclusively had the perspective of the seller (Turnbull and Zolkiewski, 1997) or the buyer (Bensaou, 1999). There seems to be no easy answers to this. Wilkinson (2006) has indicated that strategising may be more about adaptation, learning and decentralised control, where strategies emerge in the interaction between rms. In this perspective, segmentation will be a matter of more or less deliberately made choices both in the selling and buying rms. One type of relationship-based segmentation could be to segment in order to nd customers that would be interested in having close relationships, but not necessarily to let the customer participate in the actual segmentation of the market. A more radical approach is to let the customer participate

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in forming the segments. This could be the case, when the customer has a saying in the choice of segmentation bases. Very close customer involvement in the segmentation process will in reality have the effect that the customer has inuence on how the rm denes its role in the network. Trust (Blois, 1999) will be of importance, as customers may get very close to how the focal rm actually views its customers and chooses to address its customers. The sixth point raises the discussion of, whether segmentation is considered as evolutionary or revolutionary in nature. As stated in segmentation literature, it is often assumed that rms can choose more freely between the different identied segments. However, based on the discussion above, segmentation becomes more evolutionary in nature where rms over time adjust their resources, activities and employees or reposition their employees in order to move into new segments over time and create new relationships here. In theory it is possible, to have a more revolutionary approach to segmentation and the selection of new segments. But this revolutionary approach presupposes that it is possible to make radical shifts in the resources, activity, and actor constellation. If Wilkinson (2006) is right that business networks are examples of complex, adaptive, self-organizing systems a revolutionary approach is problematic. It is a question of whether a revolutionary approach is valid at all, and it is also a question of whether it is possible to use the revolutionary approach, as it may have obstacles connected to it. According to (De Wit and Meyer, 2004) examples of such obstacles are resistance in the organisation that can prevent the effort in form of psychological, cultural, political resistance, competence lock-in, etc.
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Sollner, A. and Rese, M. (2001), Market segmentation and the structure of competition: applicability of the strategic group concept for an improved market segmentation on industrial markets, Journal of Business Research, Vol. 51 No. 1, pp. 25-36. Thomas, M.J. (2000), Commentary: princely thoughts on Machiavelli, marketing and management, European Journal of Marketing, Vol. 34, pp. 524-37. Turnbull, P. and Zolkiewski, J. (1997), Protability in customer portfolio planning, in Ford, D. (Ed.), Understanding Business Markets, 2nd ed., Dryden, New York, NY, pp. 305-25. Ulaga, W. (2003), Capturing value creation in business relationships: a customer perspective, Industrial Marketing Management, Vol. 32, pp. 677-93. Ulaga, W. and Chacour, S. (2001), Measuring customer perceived value in business markets, Industrial Marketing Management, Vol. 30, pp. 525-40. Webster, F.E. (1991), Industrial Marketing Strategy, 3rd ed., Wiley, Toronto. Webster, F.E. (1992), The changing role of marketing in the corporation, Journal of Marketing, Vol. 56 No. 4, pp. 1-17. Weinstein, A. (2004), Handbook of Market Segmentation: Strategic Targeting for Business and Technology Firms, The Haworth Press, New York, NY. Wilkinson, I.F. (2006), The evolution of an evolutionary perspective on B2B business, Journal of Business & Industrial Marketing, Vol. 21 No. 7. Wilkinson, I., Young, L. and Freytag, P.V. (2005), Business mating: who chooses and who gets chosen?, Industrial Marketing Management, Vol. 34, pp. 669-80. Wind, Y. and Cardozo, R. (1974), Industrial market segmentation, Industrial Marketing Management, Vol. 3, pp. 155-64. Wind, Y. and Thomas, R.J. (1994), Segmenting industrial markets, Advances in Business Marketing and Purchasing, Vol. 6, pp. 59-82. Further reading Cheron, E.J. and Kleinschimdt, E.J. (1985), A review of industrial market segmentation research and a proposal for an integrated segmentation framework, Research in Marketing, Vol. 2, pp. 101-15. About the authors Ann H. Clarke has a major interest in business to business marketing, segmentation, and innovation. She has previously published in Industrial Marketing Management. She is the corresponding author and can be contacted at: acl@sam.sdu.dk Per V. Freytag, whose current research interests centre around relationships, portfolio planning, segmentation, benchmarking, pricing and sourcing has co-written a number of research- and textbooks and his research has appeared in a number of international journals among these are Journal of Business & Industrial Marketing, Journal of Purchasing Supply Management and Industrial Marketing Management.

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