Use this framework to prioritise segments or new ideas
The Directional Policy Matrix (DPM) is a tool for guiding strategic policy. A company with a number of business units may want to know which deserves investment and which should be divested. Product managers may have a portfolio of products with different levels of performance and opportunities. Which of these products will be strongest in the future and are there any that should be dropped? The Boston Matrix is a useful tool for this analysis and the Directional Policy Matrix is a variation of it.
Marketers find the Directional Policy Matrix an essential business model for guiding their segmentation strategy. Not all customers are the same, but some do have similarities. The way that customers are classified according to their differences and similarities is “segmentation”. A segment is a group of customers with common characteristics that are relevant to the product or service they are buying.
General Electric together with McKinsey is credited with developing the first directional policy matrix in the 1970s. It is a tool to help focus on products or segments that are attractive to your company and where you have a strong competitive position.
The tool has two axes as illustrated below. In the example, two segments are obvious for focus – traditionalists and quality fanatics. There appears to be opportunities for “delivery buyers” if the company can improve its competitive advantage. The opportunities for company with price fighters and range buyers do not bode well unless something changes to make the segments more attractive and improve the companies competitive advantage. Unless these changes are possible, these segments will be deselected.
The DPM is a prioritisation tool. The two dimensions of segment attractiveness and business strength help managers focus on the key issues. It points to a strategic direction and therefore it is action orientated, hopefully leading to a more profitable company.
Some things to think about:
Use the directional policy matrix to focus your strategy.
The biggest opportunity is usually associated with improving your competitive strength. This requires you to know your strengths and weaknesses.