Strategic Analysis and Planning with MATRIX V5
Tutorial Step 2 - The Segmentation Matrix

The Segmentation Matrix was proposed by Michael E. Porter in his celebrated book ‘Competitive Advantage’ first published in 1985. In it he proposes that an industry can be arranged as a two dimensional array of ‘Buyers’ on the X-Axis, and ‘Product' or 'Service Variety’ on the Y-Axis.

Normally most users do not have a problem defining the Products, Services, or Capabilities that they offer; however, understanding the characteristics that distinguishes one type of Buyer from another generally causes more difficulty. Often such a ‘vision’ only follows a detailed analysis of the way in which markets are structured through detailed Market Ecosystem and Value Mapping exercises.

Note that one of the cells in the Segmentation Matrix opposite is labelled as 'Null' indicating that no activity, competitive or otherwise, takes place in this segment of the market.

Once completed, the segmentation matrix provides a firm foundation upon which to study opportunity ‘Attractiveness’, since the potential offered by each segment is likely to vary due to differing market sizes, levels of competitive activity, ease of access etc. It also provides a firm foundation upon which to study ‘Competitive Positioning’, since the value drivers within each segment could be different, and indeed competitors may well change from one segment to another. For these exercises Porter's Five Forces and Value Chain Analysis may respectively provide useful techniques.

The Segmentation Matrix And MATRIX V5

MATRIX V5, the software application for business strategists, faithfully builds upon Porter's concept as the backbone of the modelling process, albeit that the nomenclature has changed. On the Z-Axis, the term 'Industry' (refelcting a supply driven model) is now replaced with 'Market' (to reflect a demand driven model), 'Products' (or 'Services') are displayed on the X-Axis, and 'Buyer Types', or more correctly 'Segments' of the market are displayed on the Y-Axis. The resulting Product / Market / Segment opportunities are known as 'Niches'. Note, users should not become overly concerned about nomenclature at this stage. A considerable amount of flexibility can be applied to the definition of 'Market', 'Product' etc, and notionally, the different axes are interchangeable to suit the modelling exercise.

Whilst MATRIX V5 will support an unlimited number of Markets, Products and Segments, for practical reasons the number 'entities' should be kept manageable. Remember, 10 of each could potentially generate 1,000 Niches, and keeping track of such a large number within the model may prove difficult. Bigger models can be 'nested', and more information about this approach can be obtained from Market Modelling Limited.

To display the Segmentation Matrix exactly as shown opposite, click the 'Segmentation Matrix' button (above) which is located on the toolbar.

The Host Company is addressing three Markets (‘Europe’, ‘North America’ and the ‘Rest Of World’). The selected Market - 'Europe' - has been split into three user-defined Segments (‘Industrial’, ‘Educational’ and ‘Hobby’), addressed by three Products (‘Metallic Assemblies’, ‘Composite Assemblies’ and ‘Plastic Assemblies’). Note that four of the 'Niches' have been defined ‘Closed’ by the user. The Host Company will NOT be operating in these areas. Data relating to a 'Closed' Niche is not taken into consideration in underlying calculations.

Each Niche is colour coded, the colour being utilised in all of the subsequent analyses. Note, the user has full control over the colour ascribed to each Niche, and also control over the Market, Product and Segment 'labels'.

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