The essence of strategy is that it is a choice between two or more good options.
In developing a marketing strategy the choice to be made is of which segments of the market you should develop tactics to pursue.
The Directional Policy Matrix (DPM) is a tool for helping you determine what your preferred segments are. In completing a DPM you understand what you should invest in and the direction your organisation should take. The directional policy matrix helps you determine whether decisions made in the day-to-day running of the organisation are in it’s best interest.
The Directional Policy Matrix measures the attractiveness of a segment and the capability of the organisation to support that segment.
Attractiveness of a Market Segment
Evaluating the attractiveness of a segment should include but not be limited to, these variables:
- Size of the segment (number of customers, units or $ sales)
- Growth rate of the segment (a very important variable)
- Profit margins of the segment to the sales organisation
- Ongoing purchasing power of the segment
- Attainable market share given promotional budget, fragmentation of the market and competitors’ promotional expenditures
- Required market share to break even.
Capability of the organisation
Evaluating the capability of the organisation to meet the needs of the segments should include, but not be limited to, these variables analysed against the competition:
- Competitive capability of the organisation against the marketing mix (product/service, place, price and promotion)
- Access to distribution channels
- Capital and human resource investment required to serve the segment
- Brand association of the organisation in the eyes of the segment
- Current market share/likely future market share.
Scoring the Directional Policy Matrix
To score the DPM you need to know the goal of your marketing strategy. This may be, but not limited to:
- Profit lift
- Market share lift
- Value of the organisation if it were for sale.
Complete scoring the directional policy matrix in four steps:
- Weight the relative importance of each factor of attractiveness and capability in terms of its contribution to the goal of the marketing strategy out of 1.
- Allocate the respective weight of a total score of 48 points to each factor. e.g. if the weighting for a factor was 0.2 then the total points available for that factor is 0.2X48=10 (rounded up)
- Score each segment relative to the other segments in how much each segment meets the criteria of the factor. e.g. For the attractiveness factor ‘Size of segment’, in the example Table 1, score the largest segment 10 and the smallest segment 1.
- Plot the resultant score in excel and create a bubble chart graph where the size of the bubble represents the size of the segment for greater visual clarity when it comes to interpreting the analysis.
Below is an example chart for an organisation selling services.
Interpreting the Directional Policy Matrix
The directional policy matrix suggests tactics for each of nine sectors, as shown in the figure below.
The tactics for each sector descriptor are:
- Leader – Focus your resources on segments in this sector.
- Growth leader – Grow by focusing just enough resources here.
- Cash Generator – Milk segments in this sector for expansion elsewhere.
- Phased withdrawal – Move cash to segments with greater potential.
- Custodial – Do not commit any more resources to segments in this sector.
- Try harder –Determine if there are ways in which you can build your capability for segments in this sector for low levels of cash.
- Double or quit – Invest in your capability or get out of segments in this sector.
- Divest – Liquidate or move assets used in segments in this sector as fast as you can.