Adhesive Classification and Some Further Thoughts on Market Segmentation

Posted on 11/19/2012 9:21:12 AM By Jeff Timm

Recently the ASC announced a collaborated with Europe-based FEICA and China-based CATIA to release the 2012 ASC-CATIA-FEICA Adhesives and Sealants Classification Manual.

The manual provides a common set of market definitions and product categories that can be used to represent the adhesive and sealant industry worldwide. It is the first time that China, Europe and North America have a harmonized classification manual.

Looking over the various adhesive categories and segments reminded me of an article I wrote back in 1995 for the June/July issue of Adhesives & Sealants Industry magazine entitled “Segmentation – A Strategic Way to Look at Your Business.”  This segmentation marketing approach has been used successfully by many packaging companies.  The segmentation idea is an outgrowth of Harvard Business Professor Michael Porter’s ideas on achieving marketing power by (1) becoming the lowest cost producer, or (2) differentiating the offering, or (3) dominating a niche, but not all three.  If the lowest cost producer route is not available to your offering then the marketing effort must divide your business into select market segments adding value to each segment by differentiation.  By segmenting the offering -- the selected combination of product programs and services -- one can find ways to achieve differentiation, generate greater market share, attain higher profit margins and add value to your offering.

Primer on Segmentation:

How do you differentiate your offering to add value and create the competitive advantage you need to achieve your business goals?  You begin by segmenting your customer base.  Segmentation is the process of selecting:

  • Groups  of customers with common values
  • who will react about the same way to your offering.  They
  • will  represent a target important enough to justify a strategy
  • where you can profitably create different offerings.

A segment can be whatever you choose to call it.  However, customers in the segment must be able to identify the value of your offering.   Create segments wherever you think you can gain a competitive advantage.  Segments are niches where you expect rewards for your efforts.

How do you go about segmenting your business?  First, you must understand the environment through the marketplace point of view.  A market is defined as a group of similar customers with common needs or the ultimate consumer of your product offerings.  To acquire the point of view of the marketplace, you need to understand the value-chain concept (sometimes also called the market, distribution or value-added chain).  Once you have developed the value chain for your business, you can begin to "uncommodify" your product offering.

The first step is to track your product offering through the value chain:

  • Where does your product go?
  • What type of customer buys your product?
  • Who are your customers?
  • Who are your customer’s customers?
  • What markets do your products serve?

Once you have identified how your product channels through the value chain you can begin to look for segmentation-classification themes.  Once the segmentation process begins, there are several different segmentation-classification themes you can choose from.  Note that no single segmentation-classification theme is preferred or better than the next.   Use the one that works for your business.

Segmentation-classification themes are as follows:

  • The product or class of product that you are selling; for example:  EVA thermoplastics.
  • The product or class of product that your customer is making with your product; for example:  adhesives, sealants, coatings.
  • The manufacturing process where your customer is using your product; for example: emulsion polymerization, coextrusion tie layer.
  • The application technology using your product; for example:  hot-melt, water-based.
  • The application equipment applying your product; for example, Potdevin label paster, Nordson hot-melt applicator.
  • The role your product plays in the product that your customer is making; for example: filler, antioxidant, tie layer.
  • The general classification (such as SIC codes) assigned to the end-user of your customer's product; for example:  government, industrial, automotive, consumer, packaging, construction or DYI.
  • The specific application classification assigned to the end-users of your customer’s product; for example, carpet-backing adhesive, carton side-seam and closure adhesive.
  • Your customer's values; for example:  price-only buyer, full partnership seller customer relationship.
  • Your customer's function in the value chain; for example:  distributor, adhesive formulator, wax blender.
  • Qualitative factors; for example:  growth prospects, share, and competitive strength.

As you look at each segmentation classification theme, identify the smallest set of groups where the groups are:

  • Distinctive enough for meaningful differences in offerings;
  • Substantial enough to justify additional costs of tailored offerings;
  • Identifiable to permit efficient marketing communications and sales;
  • Measurable to allow performance tracking;
  • Durable enough to persist until rewards of differentiation are realized.

After you identify meaningful segments, you need to determine if you can profitably create different offerings.  For this, you need to return to the value chain and look at the connecting links between the chain levels as well as the activities within each segment block.

Look at each segment you have selected and analyze your position in each segment.  Identify the following five value-adding areas:

  • Selling price
  • Value in use
  • Competitive situation
  • Service
  • Quality

Areas where changes can occur from what you are currently providing are where you can derive value and competitive advantage.  Note that the change does not always have to be positive or an increase in something.   Many times, taking away something not valued can lower costs and add value to your offering.

Assign a metric to each segment in the five value-adding areas.  Use an example of EVA-based hot melts.  Assume that adhesive formulators are using a 28% EVA with a nominal melt index to produce an EVA hot melt.  If you were the EVA supplier and sold your product to the formulator, you might price the polymer to achieve a fair return and be done with it.  You can easily identify what would happen if you raised or lowered this price metric.  However, you can identify value and adjust your offering accordingly if you dig deeper into the value chain and learn what types of products your formulator customer is producing, you might be able   to segment your offering.  For example, you might learn that the EVA is going into a standard packaging-case carton-closing adhesive formulation as well as a home-hobbyist glue-stick application. The glue-stick application might demand three times the selling price of the case-closure adhesive.

You can differentiate your EVA for the glue-stick end-use by offering EVA in colors or clear, furnishing an advertising bonus, or uncovering other benefits that add value.   Now, you can command a higher price or larger market share to advance your business.

Understanding and applying a segmentation strategy can help in differentiating your offering.   The goal, of course, is to differentiate your offering to distinguish it from the competition.   The customer will then perceive or realize a higher value.  Remember perception is reality.   As a result, you will reap rewards for this value in profits, market share, margin or whatever business goal you are trying to achieve.

(1)Market Driven Strategy” by George Day

NOTE:  The views and opinions expressed in the Packaging Blog are solely those of the blog author and do not necessarily reflect the views and opinions of the Adhesive & Sealant Council (ASC).

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