Customer Segmentation:

The First Critical Task of Strategy

Reasons for Customer Segmentation

z Don’t commoditize your customer. You should not

treat every customer equally.
z Customers are different in many ways:
- Needs
- Capabilities
- Business economics and strategies
- Willingness to engage in business with you
- Demographic characteristics: size, profitability,
participation in various vertical markets, geographical
coverage
z The most attractive customer usually is the one that
has the greatest gap between its needs and your
ability to satisfy them.
Criteria for Customer Segmentation
Among the most critical dimensions for customer
segmentation we have:

Customer Attitudes
- Castrol - How we want to treat the customer
Customer Needs and Degree of Self-Sufficiency
- Unilever de México - Segmentation by channels
- Siemens Power Generation - Segmentation by needs and
type of customer
Different Degrees of Value Added
- Waste Management Co. - Different degrees of customer
bonding
- DMK - Different degrees of customer bonding
Customer Behavior and Their Buying Practices
- Synthes - Different customer buying patterns
 DMK:
Outsourcing Information Technology from China

Task #1: Customer Segmentation

 Customer Segmentation
Tier 1: Exclusive Partner Tier 4: Body Shoppers
• Japan based orgs requiring • Transactional relationship to provide
outsourcing of IBM mainframe supplemental staff without much end -
applications client relationship
System Lock-In
• Opportunity for customer lock-in
• IBM JV • Existing customers: IBM
• Existing customers: GE Japan, JBCC,
AIG

Total Customer Best

Solutions Product

Tier 3: Project Solution Seekers

• Full project ownership and solution
Tier 2: Strategic/Integrated Partner delivery responsibility without
• Long term symbiotic partnership with established (but potential) for long-
high value added term client relationship
• Existing customers: GE China, GE US, • Existing customer: Toyota, Honda,
Kawasaki, Unisys US prospects, Dept. of Transportation
China
 Customer Segmentation
Business Dimension for Tier 1 - “Exclusive Partner”
Customer Dimension Description

Products Critical partner to client providing highly integrated, customer specific, high-
value added turnkey solutions for legacy mainframe applications in
Japanese market
Services 24x7 Maintenance of mission-critical mainframe legacy applications.
Application extension through analysis, design and development of new,
integrated modules.
Customer Japanese Corporations in Financial Services, Insurance, etc. industries

Channels Direct, Referrals from highly satisfied existing clients

End Users Japanese Corporations, Japanese Government organizations

Complementors IBM (as an h/2 and s/2 partner), existing clients, Accenture

Unique Competencies 1. Combination of deep knowledge of mainframe applications and deep

understanding of Japanese culture (not available to other companies in
China.
2. Very high level of quality (only CMM level 5 and Six-Sigma company in
China) combined with all the other cost advantages available to Chinese
companies not available anywhere else in the world.
 Customer Segmentation
Value Proposition for Tier 1 - “Exclusive Partner”

Value Proposition
Element Description

Experiences Seamless extension of Client team with integrated culture, skilled

technologists with deep understanding of clients business.

Value Delivery Systems • Dedicated client-focused team immersed in all aspects of client’s culture
• Network integration to seamlessly extend client environment
• Open communication of all relevant information on both sides
• Executive sponsor, CEO oversight, an full corporate reach
• CMM and Six-Sigma delivery methodologies for delivery
• Value added reselling of hardware and software for one-stop-shopping
Value Appropriation • Value gained by customer: Superior ROI, improved time-to-market,
Security, Resource stability
• Value gained by DMK: Exclusive long-term relationship, higher margins,
predictable revenue
• Value shared by both: Shared IP, shared learning, shared risk
 Customer Segmentation
Business Dimension for Tier 2 - “Strategic Partner”

Customer Dimension Description

Products Long-term relationship with client to provide customized and integrated

solutions across multiple business units

Services • T&M and Fixed price application development across multi-phase projects
• Joint application development enabled through deep understanding of
client culture and methodology
• Dedicated retained teams as extension of clients IT organization

Customer GE US, GE China, Kawasaki, Unisys

Channels Direct

End Users N/A

Complementors Other GE partners, IBM, other software partners, Accenture

Unique Competencies 1. One of 12 exclusive outsourcing vendors or GE

2. Six-Sigma/CMM level-5 quality combined with China’s cost advantage.
 Customer Segmentation
Value Proposition for Tier 2 - “Strategic Partner”

Value Proposition
Element Description

Experiences Integrated teams of skilled technologists with deep understanding of client’s

business

Value Delivery Systems • Dedicated client-focused teams fully rained in clients methodologies and
processes
• Joint development plans
• Cross-training and periodic two-way knowledge transfer
• Business Relationship Manager, CEO oversight and full corporate reach
Value Appropriation • Value gained by customer: Superior ROI, improved time-to-market,
Security, Resource stability, Shared risk, Continuous improvement
• Value gained by DMK: Access to client network as sales channel,
credibility, learning
• Value shared by both: Co-development of shared standards and processes
 Customer Segmentation
Business Dimension for Tier 3 - “Project Solution
Seekers”

Customer Dimension Description

Products Individual project solutions without committed long-term relationship

Services T&M and Fixed price application development of discrete projects

Customer Toyota, Honda, Department of Transportation China, US prospects

Channels • Direct
• Consulting partners such as IBM
• Strategic partners such as GE
End Users N/A

Complementors IBM, GE, other software partners, Accenture

Unique Competencies Six-Sigma/CMM level-5 quality combined with China’s cost advantage.
 Customer Segmentation
Value Proposition for Tier 3 - “Project Solution
Seekers”

Value Proposition
Element Description

Experiences End-end-end delivery of a project with high quality and competitive price

Value Delivery Systems • Structured processes and teams with high quality of performance
• Ability to quickly ramp-up on clients business and culture
• Process for seamless transition at end of project
• Dedicated project team manager with executive oversight
Value Appropriation • Value gained by customer: Experimentation , learning, flexibility, reduced
time-to-market, high quality, ROI
• Value gained by DMK: Opportunity for long-term relationship, ROI, learning
• Value shared by both: Shared learning in business domain and new
technology
 Customer Segmentation
Business Dimension for Tier 4 - “Body Shoppers”

Customer Dimension Description

Products Individual resources to supplement existing project teams and fill skills gaps
(transactional)
Services • T&M and retained resources for fixed time durations
• Provide specific technology development skills on projects

Customer IBM Japan, NEC

Channels • Direct
• Consulting partners such as IBM
End Users Corporations

Complementors N/A

Unique Competencies 1. Consulting partnerships

2. Technology skill differentiation
 Customer Segmentation
Value Proposition for Tier 4 - “Body Shoppers”

Value Proposition
Element Description

Experiences Supplement team with individual resources and fill gaps with skill expertise

Value Delivery Systems • Strong bench that can be tapped on demand

• Mix of skills and expertise

Value Appropriation • Value gained by customer: Resources of demand and skills on demand
• Value gained by DMK: Opportunity to up-sell, learning, improved bonding
• Value shared by both: Exchange of skills
 Synthes
Segmentation According to Customer
Behavior and Their Buying Practices

Task #1: Customer Segmentation

From the Customer Segmentation to
Strategic Agenda
Value Proposition

Bundle of Competencies
System
Lock-In

Strategic Positioning
Total Customer Best Product
Solution

1
2 Mission Statement
5 3 6 4
Scope
Customer
“From” “To”
Classification

Strategic Thrusts
Customer Segment
Tier 1: Exclusive Partner
Tra
Tier 2: Strategic/Integrated Partner
Tier 3: Project Solution Seekers
Tier 4: Body Shoppers
Trauma
Service and
Sterilization
Department Staff
OR Staff

Synthes Surgeon Patient

Hospital
Administration Insurance

Buyer Groups

Who is our customer?

Who makes the decisions for traumatology implants and instruments?
Trauma Customer Segmentation
Customer Tier Description
• Working at University Hospital, Teaching
• High number of procedures
• Active surgeon with own core specialty
– Large segments of specialty within his/her
influence
(1) • Respected among peers
• Active in research & development
Professors & Opinion – Publications
Leaders – Active as scientific speaker
• Independent!
• Loyal because he/she is convinced of superiority of
products
• Respected by hospital administration
• Key decision maker regarding implant suppliers

(2) • Bond to competition

• For reasons of:
Non-User – Strict budget control
(high volume) – Clinical practice/teaching schools
• Using high volume of implants

• Innovative
• Ambitious; Go beyond daily business
• Interested in research & publication
(3) • Looking for recognition from:
– Opinion leaders/professors
Young High Potential – Peers
– Industry (financial sponsoring)
• Need to have a “godfather”
godfather”
• Preparing/Learning to be a specialist
• Looking for R&D support (financial, implants, etc.)
Trauma Customer Segmentation
Customer Tier Description

• Negotiating body for a group of hospitals

• An organization designed to increase the
purchasing power of hospitals and to optimize
(4)
purchasing and administration costs for hospitals
Buyer Groups • The one paying the bill
• Focus on bundling (products, logistics, tenders)

• High volume
(5) • Synthes makes high turnover with them
• Broad range of procedures
“Massmarket” Surgeon • Mostly large public hospitals

(6) • Community hospital

Low Volume & Local • Use commodities/standard products
• Buy single items from all products
Hospital
(7) • E.g., Education of projected end users
Patient
(undergoing elective surgery)

How do we bond with these different customers?

Trauma: Tier 1 Prof. / Opinion-leaders
Business Dimension Tier 1: Professors / opinion-leaders
Products Full range, pioneer products

• Facilitate education, provide and support access to AO

Services • Support for R&D (financial, implants, documentation & engineering)
engineering)
Customers • ~ 250
Channels Direct - Sales consultant and sales manager relationship
- Project leaders (Product manager & engineer, top
management)
(occasionally))
- Support CEO, Senior Mgmt (occasionally
End users Polytrauma and high degree of complication

Complementors • AO Network
AO - grants/fellowships
- AO International education (table instructor)
- AO publishing
• Powertool business
• Access to reference hospitals
• Software provider (documentation, digital services)
services)
• ORP staff
• Scientific publications
Unique Competencies • High end products
• Development and engineering capability
• Technical education at all levels (from sterilisation departments to
surgeons)
• Logistics / loan sets
• Highly trained consultants (clinical and pro duct specific)
product
Trauma: Tier 1 Prof. / Opinion-leaders

Customer Tier 1 Value Proposition

Professors and opinion
leaders

Set of experiences we will Provide latest innovative clinical solutions in a collaborative spirit
provide to the tier

• Sales force (experienced & highly qualified)

Set of value delivery • Innovative products
systems needed to • AO Foundation networking
provide the experiences • Davos course experience and AO research center
• Engineering development capacity and know-
know-how
Value appropriation • Value gained by the customers:
- Recognition by peers patient and industry

• Value gained by us:

- loyalty & input
- support for development & sales/teaching

• Value shared by both:

- productive partnership
Trauma: Tier 4 Buyer Groups
Business Dimension Tier 4: Buyer Groups
Products Full range of proven products

• Logistics and payment conditions / long-

long-term contracts
Services • Bundling through BUs
• Customized Info Package
Customers According list of countries

Channels • Sales consultants

• E-Business Manager
• Logistic Manager
End users Full range of patients

Complementors • Powertool,
Powertool, Spine, CMF
• Electronic healthcare market places (GHX)
(GHX)
• Provider of hospital Management Systems
Unique Competencies • Completest range of proven products
• Competitive prices
• Technical support by highest sales network
• Logistics
Trauma: Tier 4 Buyer Groups

Value Proposition
Customer Tier 4
Buyer groups

Set of experiences we will Dealing with a professional one-

one-stop-
stop-shop for osteosynthesis and
provide to the tier powertools

Set of value delivery

systems needed to Regularly updated info package (catalogue,
(catalogue, prices, surgical techni
techniques)
ques)
provide the experiences

Value appropriation • Value gained by the customers: rebates based on volume

• Value gained by us: increased market share, long term contracts

• Value shared by both: less administration
Spine Customer Segmentation
Customer Tier Description

• Host Site for Spine Fellowships

(1) • Publish Clinical Papers
• Usually Based in Academic Centers
Surgeon Thought Leaders • High Profile in Spine Community through
educational seminars, society meetings, etc.
• Usually work with competition
• Working in private or university practice

(2) • Completed Spine Fellowships

• Use more than $500,000 of implants
High Volume Spine • Based in spine centers
Surgeons • Usually in private practice
• Generally well compensated

(3) Likely To Become High Volume or Thought Leader

• Doing Spine Fellowship or relatively new to spine
High Potential Surgeons practice
• Rarely in Residency

(4)
Part Time Spine Surgeons < 50% Volume is Spine
Spine: Tier 1 Surgeon Thought Leaders
Business Dimension Tier 1: Surgeon Thought Leaders
• Catalog Products
Products • Custom Devices
• New Technology Developments
• Educational Courses as faculty `and to send others to attend
• Fellowship Support
• Research Support
Services • Test Markets
• Clinical Documentation
• Outcome Studies
• Specialty Study Groups
Customers See separate attachment

Channels • Sales Management

• Senior Spine Management
• AO Spine
• Product Development Involvement
• Professional Services
• Local Sales Consultant
End users Surgeon

Complementors AO Foundation, MTF, Societies

Societies,, Trauma, CMF, HCOL, Business
Dynamics, Study Groups

Unique Competencies • Principles Over Product

• Local Clinical Expertise
• High Quality Educational Offerings
Spine: Tier 1 Surgeon Thought Leaders
Customer Tier 1 Value Proposition
Surgeon Thought
Leader

• An association that feels new and special

• Sense of community between many surgeons with each other and with
with
Set of experiences we will AO Spine and Synthes Spine
provide to the tier • Influence on Product Development
• Involvement w ith new technol
with ogies
technologies
• A reliable partner to support their spine programs
• Fellowship Association and Financial Support
• Outcomes/Database Service and Financial Support
Set of value delivery • Product Think Tanks / Development Groups
systems needed to • Educational courses and symposiums
provide the experiences • “New AO Spine”
Spine”
• Remuneration for Services Rendered / IP
• Research Funds
Value appropriation Value gained by the customer
• Identify with larger community
• Ego reward as part of development , education
• Support for larger program
Value gained by us
• Influential surgeons associate new technology development with
Synthes
• Upcoming spine surgeons look favorably upon Synthes Spine
Spine: Tier 2 High volume spine surgeons
Business Dimension Tier 2: High volume spine surgeons
• Catalog Products
Products • Custom Devices
• New Technology Developments
• Educational Courses to occasionally teach and to attend
• Fellowship Support
• Research Support
Services • Test Markets
• Clinical Documentation
• Outcome Studies
• Specialty Study Groups
Customers
Channels • Sales Management
• Senior Spine Management
• AO Spine
• Product Development Involvement
• Professional Services
• Local Sales Consultant
End users Surgeon

Complementors AO Foundation, MTF, Societies

Societies,, Trauma, CMF, HCOL, Business
Dynamics
Unique Competencies • Principles Over Product
• Local Clinical Expertise
• High Quality Educational Offerings
Spine: Tier 2 High volume spine surgeons

Customer Tier 2 Value Proposition

High volume spine
surgeons

• Association with Synthes Spine

Spine that feels special
Set of experiences we will • Sense of affiliation between Surgeon, AO Spine and Synthes Spine
provide to the tier • Feels company listens to ideas
• Involvement w ith new technol
with ogies
technologies

• Outcomes/Database Service and Financial Support

Set of value delivery • Product Think Tanks / Development Groups
• Educational courses and symposiums
systems needed to • Remuneration for Services Rendered / IP
provide the experiences • High attention from local sales consultant
• Visits from senior sales management
Value appropriation Value gained by the customer
• Recognized by AO Spine and Synthes Spine
• Ego reward of being valued by company
Value gained by us
• High volume surgeon likely to use many of our products
• Protects business from competition
• Builds brand loyalty to Synthes Spine
Recent Trends for Synthes in Customer
Segments
Buyers:
• Individual hospitals & small hospital groups
• Large hospital networks (e.g. Kaiser)
• Group Purchasing Organizations (GPOs)
Trends:
• Consultants, accounting systems and agents increase price
transparency
• More salaried doctors working for hospitals vs. per case
surgeon entrepreneurs decreases surgeon decision making
power
• Electronic marketplaces starting to gain critical mass

Synthes Philosophy:
• Preservation of direct customer relationship
• No membership in value added networks (e.g. GHX,
Novation)
Lessons from Customer Segmentation

z The customers’ behaviors and buying practices often provide

relevant criteria for segmentation.
z This allows you to detect the special needs of each customer
tier, which are translated into specific value propositions.
z Your segmentation does not need to be limited to the actual
customer (the one who pays). It might also include relevant
complementors.