I interviewed Richard Sherman who discussed Segmentation is the Key to Survival in the 21st Century.
It is great speaking with you again, Rich. Last time we were talking about the trends in supply chain for 2017, and as we were talking, you were discussing segmentation analysis. My question is what makes it a critical issue for the future?
That's a great, great question, Dustin. Again, it's a pleasure speaking with you again. I think the best way to characterize the markets are changing in 2017 and beyond is, there's a gentleman by the name of Joe Kraus who is a dot-com pioneer. He currently is with Google Ventures, and he got quoted in a BBC Finance article maybe a year or two ago. But he said,“The 20th century was about dozens of markets of millions of consumers. The 21st century is about millions of markets of dozens of consumers.”And that's a major transformation in thinking because we go back to the 20th century, and we had mass marketing and, basically, you could go after very large segments of millions of customers. Today, you've got millions of segments of dozens of customers. And so the internet and mobility is basically creating an era of personalization.
Whatever you sign on to Amazon, it's going to suggest to you different purchases based on your past behavior. We're seeing more and more push-ads to your smart phone based on your behavior. So we're collecting more and more data. I know we talked about this a little bit last week and the week before, but big data is what's driving a lot of things, because the new internet infrastructure is giving us an infrastructure that is very, very dada-rich, which enables us to do this mass-personalization or personalized customer experience, if you will.
Why is that important to a supply chain person? Well, if I'm basically marketing and selling to individuals, that means I'm going to have millions of deliveries as well. So as I talk about personalization in a marketing perspective, I'm also talking about personalization in a delivery perspective, because not everyone lives in the same type of location. So you have urban last-mile delivery, which is very different than suburban last-mile delivery, which is very different from rural last-minute, last-mile delivery. So there are certain zip codes in this country that nobody wants to ship to because the population is so sparse, and then at the same time, there are other zip codes that nobody really wants to ship to because the population is so dense.
So it's critical that companies really look at, first of all, their products. They have to segment their products in terms of the different attributes. How easy are they to deliver? Are they transportation-cost heavy? Are they easily mailed, for example? Or easily parcel packaged and shipped? How attractive are the products to a particular market segment? So understanding your market segments becomes really critical. If you're selling high-value, high-priced items with high shipping costs into a lower-income segment, you're probably not going to be successful.
So it's critical to understand the different market segments and how consumers and customers behave within those segments so that you can begin to tailor your sales, marketing, and supply chain or delivery characteristics and attributes to those particular segment attributes and the revenue that you choose to derive from that.
Profitable supply chain response is going to be critical to companies' success in the future. That means that I have to be able to shape demand to certain segments because if I have a price-sensitive segment that I'm marketing to, I'm going to want to provide to them low-cost distribution and delivery options. I may want to incent them to pick the product up in a store. So I may want to price my items a little differently based on what the accepted delivery method is by a particular segment. So that segmentation becomes critical to laying out a supply-chain network strategy and a fulfillment strategy. Should you outsource your fulfillment, for example? Are you selling to segments that are sufficiently small enough that you're not going to drive the level of revenue that's going to enable you to afford a highly distributed network for last-mile deliveries? And in that instance, you may want to consider outsourcing even to an Amazon, who we really have to question whether they're in the retail business or the fulfillment business or in the internet marketing business.
But knowing those segments, knowing what the characteristics and attributes of those segments that you're serving, are quickly becoming the fiber of corporate strategy. Picking the right segments, picking the right delivery methods by segment, incentivizing those customers or consumers within those segments to elect the most profitable response to you, while at the same time maintaining your competitive position within those segments, are the keys to survival in the 21 century. So in the absence of segmentation, you're probably throwing darts against the wall or throwing something else against the wall and hoping that it's going to stick. And there's a really good chance that extinction could be in your future.
Any other questions, Dustin?Or does that make sense to you?
Yeah. Are there any significant obstacles to taking action on making this change to be doing segmentation like this?
That's a great question, and clearly -- and I think we've talked about this in the past, but it's good for people to remember -- master data management is really becoming the business foundation for growing in digital markets. So having the data right... If you have masses of data of incorrect data, if your data quality isn't there, all the analytics in the world isn't going to help you. So getting your data right is critical. Getting your data-collection infrastructure is critical. And one of the big barriers here is the level of collaboration with your customers and with your suppliers.So you have to have a high level of collaboration. In the industrial business-to-business space, you have to have a high level of collaboration with your channel partners, because they are going to be the ones that are going to provide you the data that you need to do this level of analytics.
On the other hand, if you're capturing data direct from the consumer through opt-in programs, through mobile apps, through various Google data and sourcing your data from the various search-engine providers, etc., you've got to be able to have a highly collaborative relationship with them to have access to that data. So collaboration is a barrier. In my book, I talked about the key to leader city is collaboration, so you have to have a high level of collaboration. You have to get the data right. You have to have a good foundation of master data management in order to support the analytics that you need. And then, obviously, you have to make sure that you have analytic and insight capabilities within your staff. Or, again, you may want to consider outsourcing those analytics and insights to the various [inaudible 00:09:25] service companies that provide those services. Does that answer your question?
Yeah, definitely. Thanks for sharing today, Richard. I look forward to our continued discussions on the important trends in supply chain for 2017.
That sounds excellent, Dustin. It's always a pleasure to share with you and with the overall Kinaxis community.
About Richard Sherman
Senior Fellow, Supply Chain Centre of Excellence at Tata Consultancy Services