It's Not Luck - Eliyahu M. Goldratt [54]
“No,” says Brandon. “I think I can come up with many others. But tell me, what is your definition of segmentation?”
“Here it is,” I show him. “ ‘Two sections of the market are called segmented from each other if and only if changes in prices in one section do not cause any changes in the other section.”
Brandon reads it again. “So, you don’t mean just niches?”
“No,” I agree. “Niches are just part of my definition. I am talking about the fact that a company can take actions to effectively segment a market that right now looks uniform to them. Of course, provided that this market does contain sections with different needs.”
“Keep on,” Jim says.
“I must emphasize,” I continue to explain, “that these actions to guarantee segmentation are very important. Look what happens when we don’t do it, when we do have only a single price, no matter what it is. Do you agree with the following statement: ‘Imposing a single price enables customers who have a high perception of value to pay a low price.’?”
They agree.
I continue, “At the same time ‘Imposing a single price trims away customers for whom the price is too steep relative to their perception of value.’ ”
“What you are actually telling us,” Brandon concludes, “is that most companies don’t take advantage of the vast potential inherent in market segmentation.”
“Precisely.” They catch it much quicker than I was able to derive it. I suppose they have more experience than I do.
“Alex, what you are telling us is that due to lack of actions to segment we have UDE number ten?” Jim jumps to the next conclusion.
“Bravo!” I cannot hold back my admiration.
“What is UDE number ten?” Brandon asks.
I put my finger on the sheet and read, “ ‘Most new outlets and most new/improved products eat into the sales of existing outlets/products.’ And I’m not saying it lightly. I spent quite some time this morning going over some cases where it did happen in my companies. In each case, if in parallel with launching the new outlet, I had taken some specific actions to segment the market, I could have minimized the damage.”
“We’ll take your word for it,” Brandon says.
“Try to do better in the future,” Jim pats me on the back.
“Now you see the next step,” I continue, eager to finish. “From what we said, it is obvious that ‘Marketing is not oriented to take advantage of the most promising and almost virgin direction—that of market segmentation.’ ”
“Almost virgin,” Jim chuckles. “In a little while he will write, ‘a little bit pregnant.’ ”
I throw him a nasty look.
“No offense, Alex. Just joking. I do appreciate where you are leading us. It is obvious now. Many companies are trying desperately to find new marketing ideas. We all know how difficult it is to come up with innovative ideas in a well-beaten direction. Everybody is trying to do it. While at the same time few are attempting to aggressively segment what seems to be a uniform market. We are simply blinded by the notion of a single price. You are absolutely right.”
“Now that everything is tied together we can easily find the core problem,” I declare.
“How?” Jim is still left with some curiosity.
“Trace the arrows. See which entity is the cause—directly or through other entities—of all the UDEs.
They bend over the tree, tracing the arrows down. They do it for a while. Then Jim raises his eyes, “Congratulations, you have made it. All our listed UDEs (and probably many more that we haven’t listed) are derivatives of one statement. ‘Managers are trying to run their companies by striving to achieve local optima.’ And I’m not going to say that I suspected it right from the start.”
“So what’s next?” Brandon asks.
Before