While studying marketing strategy under Professor Peter Doyle at Warwick Business School in the 80s, the mantra was always “segment, segment, segment.”
As an aside, Peter Doyle had a very dry sense of humour. When I once put up a hand to answer one of his more challenging questions, he patiently listened to my answer and then said “Right answer, wrong question” to the engulfing laughter of many fellow students. At least, I tried!
So, when I recently read a quote in Harvard Business Review (originally published in 2005), saying ‘of 30,000 new products launched each year, 90% of them fail because of poor market segmentation”, the old mantra kicked back in.
I think the issue is that segmentation is often seen as a way of simply organising sales teams, rather than its fundamental purpose to identify, and then target, people with similar business needs.
Segmentation also has also been tied up with demographics, socio-economic groupings (A, B, C1, C2, D and E) and many other ways of grouping people together. Often, people look at markets as single, homogenous entities and take one approach; for example, reduce prices if it’s a commodity market. In addition, it overlooks the reality that, within many groupings, people do not look at value in the same way.
But it doesn’t have to be that way. Malcolm McDonald in his book ‘Value Propositions’ hits the nail on the head “…suppliers do not sell to organisations; they sell to people in organisations, and these people will inevitably fall into groups with different attitudes and behaviours, or segments”.
Even within ‘commodity markets’, there is a chance to differentiate and find identify different types of buying. Today, this process is sometimes referred to as identifying ‘personas’. The personas or ‘avatars’ describe the different needs and behaviours of different buyers. By tailoring your value proposition to the needs of the different personas, you can then satisfy their particular needs, demonstrate more value and therefore maintain margins more easily.
Clearly, this is easy to say and much more difficult to do. It needs deep analysis and full engagement with different customers to get some understand of how to identify different personas and buying needs but, I believe, the effort will be truly worthwhile.
Business has moved on considerably since the late 80s but one thing I do know. The words “segment, segment, segment” still ring true as they did all those years ago.