Xiameter's needs-based segmentation strategy and business model innovation

Xiameter Case Analysis

Advantages of Needs-Based vs. End User-Based Segmentation Strategies

Suggestions for Xiameter Product and Pricing Strategies

Advice and Recommendations

Xiameter's success as a subsidiary of Dow Corning is predicated on the successful differentiation of an entirely new business unit based on the concept of reducing operating expenses and passing on the savings to the customer. The Web-only, highly automated approach to order fulfillment, complemented by a reduced product lien footprint and terms of sale that stressed velocity over complexity were also what many customers of the company were looking for (Bloemhard, 2012). Where Dow Corning succeeded and others have failed with e-commerce strategies revolved around the key factors and decisions that shaped the business model and marketing strategy for Xiameter. The advantages of needs-based vs. end-user-based segmentation are evident in the success of the Xiameter e-commerce strategy. These advantages o being needs-based are analyzed in this paper as well. The rapidly changing nature of the competitive environment is also discussed in the context of Xiameter's product and pricing strategies. These specific aspects of product and pricing are evaluated in the context of Ron Fillmore's greatest question in the case, which is whether the company should modify its business model or not. This analysis concludes with a series of recommendations and advice for Rom Fillmore as to the future direction of Xiameter. He has ample reason to be optimistic as the case alludes to, as the future of chemical purchasing will increasingly be mobility-based, a perfect transition for Xiameter to selling on smartphones and tablet PCs including the best-selling Apple iPad (Bloemhard, 2012). All of these factors speak to the efficiency of innovation processes within Dow Corning and the exceptional level of upper management support for the innovation process (Bacheldor, 2005). The determination and support shown by the CEO and senior management team are pivotal in the success of Xiameter.

Analysis of Key Factors and Decisions that Shaped the Business Model and Marketing Strategy

Galvanizing all aspects of success of the Xiameter business unit and its many implications on the Dow Corning supply chain, pricing, distribution, selling and service is the steadfast support of its senior management team. Making it clear that Xiameter was not to be taken lightly and the company would not fail, the CEO set a very solid foundation of change management early in the process. This commitment took even the most difficult factors and decisions and put them into a context of achievable challenges, defining a tone of determined effort. The decision to move forward with the Xiameter was extremely risky as Dow Corning was departing from its core strengths of a high service-based, high priced model of delivery of products. Dow Corning at the corporate level has long been seen as a trusted advisor in the chemicals industry, one capable of leading innovation and adoption within any new product area (Hunter, 2002). The decision to move quickly into a price-drive marketplace, supported by senior management, signaled that the top leaders of the company from the CEO down realized that pricing pressure and competitive threats were successfully attacking their core business and they would need to address it.

The second significant factor was the decision to modify the supply chain to support a low-cost series of chemical products that would be sold exclusively through the Xiameter subsidiary (Seewald, 2008). This also proved to be a significant strain on the company as they had build a series of relationships predicate don higher-margin, more exclusive products that were aligned with their specific approach to selling. The traditional Dow Corning approach to defining the high-end of the chemicals products market with a high-touch sales model had proven to be exceptionally effective in moving these products quickly, and the internal production processes fine-tuned to support selling high-margin, customizable chemical products (Seewald, 2008). It is remarkable that given the depth of commitment to the vision of Dow Corning being the market leader in their high-end chemical markets that they would choose to experiment with a low-end approach to selling entirely online. This decision transformed the company as it showed how well Dow Corning could manage a multi-brand strategy however.

The third decision was choosing to not engage in a price war with their existing product lines with competitors encroaching on their core markets. This was brilliant, as it would have drastically drained their core business' gross margins and profitability, leading to the collapse of entire segment of the company. This would have also led to the attracting of adjacent competitors who believed they could move into Dow Corning's customer base (Rozin, Magnusson, 2003). The decision to not engage in a price ware also led to the urgency and intensity to make Xiameter a success. The decision to pull back and not engage in a price war paradoxically gave the Xiameter initiative, launch and ongoing investment the catalyst of support to be successful.

Fifth, the nuanced nature of the how quickly the Dow Corning customers were changing also served as the fuel to drive the Xiameter initiatives' success as well. As the case alludes to and eventually shows through the rapid adoption rate of the website and later, entire channel of selling online, customers were also interested in saving on transaction costs and time. The timing of the Xiameter launch was ideally suited to these changing customers' requirements and needs. While the case study does not specifically discuss this point, it is apparent and can be inferred from the cases' points that the customer base was also seeking a dual branding strategy for the company. In retrospective analyses of the Xiameter launch, the anticipating of these shifts in customer behavior was well -- timed and responded to with the right mix of product, services, terms and streamlined workflows all oriented to the customer (Seewald, 2008). Dow Corning was able to appreciate the signals coming out of the market while larger competitors completely missed them given the formers' acuity and focus on customer needs. Dow's extreme customer orientation also increased the probability of success for the Xiameter initiative (Minter, 2011).

Advantages of Needs-Based vs. End User-Based Segmentation Strategies

As the Xiameter case analysis clearly shows, needs-based segmentation is highly effective when completing market positioning of products that may potentially compete when an end-user-based segmentation model is used. This is the paradox that Dow Corning was facing as they chose to emphasize a needs-based segmentation model over end users. Choosing the needs-based segmentation approach that concentrated on Innovative Solutions, Proven Solutions, Cost-Effective Solutions and Price Seeker segments, Dow Corning was able to successfully align their product strategies, p[ricing, market positioning and over time, entire product roadmap decisions better to customers. The greatest advantages of having a needs-based approach to defining segmentation is the immediate relevancy products are seen as solutions, not just products alone competing on features. Needs-based segmentation gets products quickly out of being just based on a fact-based differentiation to being aligned with the unmet needs, wants, preferences and perceptions of customers (Rozin, Magnusson, 2003). For Dow Corning, who competes extensively in markets known for the depth of technical detail and analysis of product attributes, often written by and for engineers, the ability to transform their marketing strategies to concentrate on needs-based segmentation is significant. This approach to defining the key segments being served by Xiameter also immediately differentiates this specific initiative relative to many others who will revert to the easier differentiation strategy of relying purely on product and feature analysis (Rozin, Magnusson, 2003). It is nuanced, yet evident in the case that one of the primary factors in the success of the dual branding strategy is this concentrated on needs-based segmentation that allows Dow Corning to speak with the same personas (or customer personifications) that also buy their high-end products. The case illustrates this strategy has been very successful, alluding tot the fact that Dow Corning is capturing a greater share of spending by its customers after the launch of the Xiameter product line. Needs-based segmentation opened up the opportunity for the company to keep selling to the same customers while also seeking to create a new channel for themselves, one predicated on lower order fulfillment costs and a more efficient value chain (Seewald, 2008).

User-based segmentation also allowed Dow Corning to create product roadmaps that revolved more around the unmet needs of their present and potential customers rather than going lock-step into a cost reduction strategy. This drastically reduced the risk to their current supply chains as well as Xiameter's potential inapt on existing suppliers would have led to pressure on them to reduce their prices (Zubko, 2008). This would have also unnecessarily drained the profits out of the company, as existing suppliers would be considered the primary foundation for price reduction strategies of a price war. Dow Corning would have had no choice but push their suppliers to drastically reduce pricing, pushing suppliers for continual cost reductions. This would have led to Dow Corning eventually losing market share and the ability to finance growth over the long-term as well.

Insights gained through user-based segmentation also gave Dow Corning insights into hwo best they could create a multi-branding strategy as well. The greater the depth of insight and intelligence gained about customers from role-based segmentation the greater the opportunity differentiate on value and solutions over just price and features (Rozin, Magnusson, 2003). Dow's successful launch and continued operation of the Xiameter online selling initiative underscore how quickly the company was able to understand and act on user-based segmentation. Further, the specific segmentation criterion that Dow Corning created including Innovative Solutions, Proven Solutions, Cost-Effective Solutions and Price Seekers effectively can also be used for guiding products throughout each phase of the new product development process as well. Need-based segmentation anchors the product strategies to relevance with the customer base, and averts the conflict inherent in using a product-based segmentation model (Rozin, Magnusson, 2003). For all these factors, needs-based segmentation delivered greater insight and value into the definition and operation of the Xiameter strategy and ongoing execution.

Advice and Recommendations

The following are the recommendations for Tom Fillmore as he contemplates the next steps for Xiameter. First, there needs to be a more thorough needs-based segmentation plan put together that scales beyond the four segments as defined in the initial case study. Completing additional research and intelligence-gathering with respect to customers' unmet needs and expectations is critical to the future growth of the company. This additional needs-based segmentation will also drive additional product strategies aimed at increasing sales through the highly efficient and profitable Xiameter channel. This approach to product planning will ensure each product is precisely aligned with a series of needs in the customer base.

Second, pricing analysis combined with more effective use of the existing supply chain partners needs to be undertaken. The continual investments in supplier relationship management within Dow Chemical will pay dividends if Xiameter can scale beyond the current product line to encompass more products customers are eventually going to be need sold through this rapidly growing channel (Levely, 2011).

Third, Tom Fillmore needs to continually invest in new approaches and strategies for ensuring a high level of performance from supply chain operations, logistics and inventory management systems. Dow Corning is known to have an exceptional supply chain management system, and it needs to extend to an entirely new generation of products predicated on the lessons learned from Xiameter. Dow Corning learned how to penetrate regional markets using Xiameter (Seewald, 2008). They need to take these lessons and create a complete value chain for this brand, streamlining it for the specific needs of the customers who choose to purchase through this business model.