Wouldn't it be nice if we all shared the same view of the world? No more arguments. Everyone in full agreement. Marvelous. The trouble is that it's really quite tricky seeing things from someone else's perspective. Take Volvo Construction Equipment for example. It make lots of great products and does everything possible to promote them to the market. But customers don't always share the same enthusiasm for wheel loaders, or haulers or… well…anything individual machine. What they are interested in is finding ways to move, dig, lift, shift, compact or whatever it is that they do. It just so happens that construction equipment is the solutions to their jobs they need to do.
Dealer salesmen understand their customers' needs and do their best to offer them the right package of products to solve their problems. But manufacturers don't always make it easy for them. The salesman has to work out which are the most appropriate products for the application from several different brochures, and it can get all horribly confusing. Wouldn't it be better to have one sales document that had all the most appropriately specified machines for a customer's industry - be it forestry, demolition, infrastructure etc?
What is described above is part of a bigger idea called segmentation, in this case into industrial groups. Segmentation Theory proposes that groups of customers with similar needs and buying behaviours are likely to demonstrate the same response to a proposal. There are lots of ways to segment markets, geographical, demographical or behavioral for example. But the segment you choose must be measurable, big enough to be worth the effort, stable and be able to get into contact with. "You can segment customers into those with blue eyes if you want, but that wouldn't be very helpful," says Thomas Bitter, Volvo CE's director of product portfolio planning. "The segments you choose have to be useful."
Customer driven market segments
Thomas is leading the process of changing Volvo Construction Equipment from a product category approach (wheel loader, backhoe etc) to customer driven market segments. Volvo tried to create a unified segmentation approach a decade ago, but the philosophy never really took hold. That's not to say that segmentation doesn't happen - it does, but not in a sufficiently coordinated way. "We have to make the lives of our customers and dealers as easy as possible," says Thomas. "Rather than promoting individual products, Volvo is going to bundle the entire offer in this segmentation approach.
"By segmenting our customers we can direct our energies much more effectively," believes Thomas. "Analyzing customer needs allows you to get a much better view of the real size of the target market. For example, of 100 potential customers 20 may not want premium machines - therefore the market is not 100 but rather 80. Knowing this helps us to target our marketing and research and development resources much more effectively.
"By having a common approach to our target customer areas we can also more effectively meet our strategic objectives," continues Thomas. "Targeting segments that desire premium products, premium brands and superior customer care will boost sales, income, market share as well as reinforcing the brand reputation."
Although there are no 'right' segments, it has been decided that Volvo Construction Equipment should divide its total customer base in terms of industrial segments. This structure we call the Field of Opportunities.
Having decided that is how the market is segregated; the next question is to decide if Volvo ought to be active in all segments. The answer is No, neither Mining nor Agriculture & Landscape are presently areas of focus for the company. Of those that we do want to target each has been given a 'segment champion', someone who will help to learn more about the customer group and the products it needs in the future. This will help prioritize the most attractive segments in terms of meeting the strategic objectives, and also influence what segment-specific products are developed.
Although there is much left to decide on how this philosophy is implemented, it is clear that Volvo is now working and talking in terms of industry segments.