Outcome-Driven Segmentation
Tony Ulwick
Aug 27, 2009
By Strategyn CEO Tony Ulwick
Success in marketing is dependent on market segmentation and segmentation strategy – the ability to identify groups of customers who are so similar that the same product or service will appeal to all members of the group. Targeting a market segment that satisfies the basic tenets of solid segmentation theory dramatically increases the chances that a product or service will succeed, as it is more likely to connect solidly with the target customers.
Despite the importance of getting market segmentation right, many managers continue to adopt segment classifications that squarely target their products and services at phantom targets – internally defined segment classifications that are imposed on customers but in reality do not exist. This, not surprisingly, is a cause of many failed product and service efforts.
This problem is not new. Nearly 40 years ago, for example, Daniel Yankelovich wrote, “ we should discard the old, unquestioned assumption that demographics is always the best way to segment markets.” [See New Criteria for Market Segmentation, HBR, March-April 1964]. Despite what has been written, it is rare even today that a company employs a market segmentation scheme based on sound theory. This is why an effective segmentation strategy is so rare.
The reason for this is two-fold. First, many managers find it more convenient to group customers into attribute-based categories such as product type, price point, age, business size and other demographic or psychographic classifications because this type of data is readily available. Second, managers have yet to discover an effective method to identify truly homogenous groups of customers, offering them few alternatives.
Managers looking for a better way to segment markets must once again address the question that is most important and fundamental to this discipline: what is it that makes customers truly different? To answer this question, managers must look beyond the commonly used internal classification schemes and understand that markets are naturally segmented – from the customer’s perspective – based on what they want a product or service to do for them.
In Strategyn's study of new and existing markets, we find that customers – individuals and businesses – have “jobs” that arise regularly and need to get done. When customers become aware of such a job, they look around for a product or service that they can “hire” to get the job done. When shaving, for example, a man may “hire” a blade and shaving cream or an electric razor and after-shave lotion to get the job done. A woman may “hire” a hair removal strip or a hair removal lotion. Similarly, a customer wanting to avoid financial loss may “hire” an insurance policy or an options contract for protection. Understanding what job customers are trying to get done is the first step in creating an effective market segmentation scheme, but it is how customers want to get the job done that is the real focus of our segmentation methodology. Learn a new way to segment markets.
