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Tuesday, March 27, 2012

No. 25: Do not forget market and customer segmentation, anytime (March 27, 2012)

Management
Such gloomy news items as the failure of Elpida Memory and the heavy deficit of leading consumer electronics makers are widely discussed in media, and these miserable results are attributed to the overemphasis on the selection and concentration strategy. However, the misery of the leading consumer electronics makers is because of the lack of market and customer segmentation. It provides a good lesson that unless a company divides products, markets, and customers into segments before implementing the selection and concentration strategy, it will get involved in price competition and have it results badly damaged. Hitachi, once dubbed as a sinking big ship, has recovered dramatically because it abandoned unprofitable business fields and concentrated its resources only on profitable and highly prospective business fields. This is the selection and concentration strategy in the true sense of the word.

The same is true of Elpida Memory. The company put its resources exclusively to produce high-performance and high-quality products at a low cost to satisfy the requirements imposed by the former NTT group companies. Today, consumer electronics and semiconductors are highly commoditized. Doubtlessly, highly commoditized products have a tough game in the age of global competition even through they are high in quality and performance. It is hardly possible for Elpida Memory to compete successfully with competitors from the countries where labor costs are terribly lower than in Japan. In addition, data and information of a product race around the world instantaneously to allow them to underprice their products, like it or not.  

It is totally the geocentric theory centered by Japan to think that high-performance and high-quality products offered at a low price will be readily accepted by consumers worldwide, enabling a company to achieve a sales increase. The Japanese market is just one of the markets on the earth, and the global market does not go around the Japanese market. As Samsung of Korea is doing, companies competing in the global market have to station their employees in countries around the world to know the requirements local consumers in an honest way. Samsung’s great presence in the global market is the results of these efforts. Highly appreciated Japanese yen is just one of the factors that deteriorated the results of Japanese home electronics makers.

In addition, it is absolutely necessary to study if the new market is suitable to a company. Kodak is said to have failed because of the overemphasis on the selection and concentration strategy. However, the real cause of Kodak’s failure is that the printer market is too small for such a big company as Kodak to do business. A company cannot achieve good results in a market that is too small in comparison to its company size. In a similar way, a company cannot do well in a market that is too big in comparison to its company size. As proverb goes, the crab makes a hole suited to its shell (Cut your coat according to your cloth). It is vital to study the strength of your company and the size of a new market carefully before cultivating or participating in a new market.

Even in today’s severe business environment, Iris Ohyama and Kobayashi Pharmaceutical are growing quite rapidly. These two companies focus on how to avoid excessive competition. That is, they set up a business domain not from the industrial field but from the phrase “the business to create something new that consumers want to have in their life. The business domain of these companies is neither the manufacturing industry nor the pharmaceutical industry. Coincidentally, they are ex-wholesalers. It may be said that they know well how to understand the needs of consumers because they used to be wholesalers.

The days have come to define the business domain of a company as they show. In the past, NEC achieved a dramatic growth with the help of its famous business domain “C&C (Computer and Communication)” that means the business based on the merger between computer and communication. NEC, however, has deteriorated its results drastically partly because it was not able to create a new business domain to succeed the C&C. It is rather hard to increase sales only in the business domain of the home electronics manufacturing in today’s business environment where globalization is developing fast, like it or not.

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