Clayton Christensen offers a new way to think about market segmentation. He calls it “Finding the Right Job for Your Product”. His article makes many excellent points, and I will highlight a few that I think are particularly relevant to our readers.
But first, I differ with Clayton’s contention that his notion is substantively different from needs-based segmentation. He makes a subtle distinction between the two, but I contend that he is simply emphasizing that needs-based segmentation is more valuable than segmentation by industry, demographic or psychographic, etc. On that point I agree.
As Peter Drucker said, “The customer rarely buys what the business thinks it sells him”. From this key point, we can show that customers are trying to solve a problem in the context of a particular situation in which they find themselves. This is why they buy.
To understand why they buy, traditional data-based market research does not suffice. Rather, true understanding requires watching, participating and inquiring about why people do what they do. The most valuable place to look is your current customer base. They are often doing things with your product that you never intended and they are often working around features of your product you thought they cherished. Insights from how and why customers are using your current products (especially within specific situations), enables marketers to reposition what they have created to focus on solving those situational problems.
The next most valuable place to look is the people who did not buy your product, but instead bought a competitive solution. The key in this analysis is understanding the subtleties of how the product is being used within specific situations and how that is perceived to be more valuable than your product in that situation.
A good example of this is Kodak. When digital photography threatened their film business, Kodak jumped into the development of megapixel and megazoom digital cameras, a technological battle that would be difficult for them to win. When they conducted needs-based research, however, they discovered that a much larger segment (measured by need) of the market was more interested in entertainment and ease-of-use, not high quality pictures.
From that key insight, Kodak developed the EASYSHARE camera. This enabled Kodak to reduce their investment in expensive improvements their key needs-based segment was not interested in and focus on making it simple to do things like attach images to email. Kodak’s share of the U.S. digital camera market grew from 8% to 28%.
How do you segment your markets?
