Sales and Marketing
Why Most Company’s Market Segmentation Strategy Doesn’t Work
Whether they are re-targeting existing products or services or planning completely new ones, most companies often start by segmenting their apparent markets and then position their offerings accordingly. This segmentation typically involves either dividing the market into product categories, such as a product’s function or price perhaps, or dividing the customer base into target demographics, such as age, gender or income level etc. Unfortunately, neither way works very well, according to Harvard Business School professor Clayton Christensen, who notes that around 95% of new product or service launches fail, largely because of the ways that markets are segmented or that customer needs are missed or because of incorrect aggregations in terms of the incorrectly identified categories or groups of customers. Instead of traditional market segmentation Christensen alternatively suggests that companies start segmenting their markets according to “’jobs or tasks-to-be-done” and in this brief article we will explore what this means.
Christensen suggests that the “tasks to be done” by a given customer is what they want to “hire” a product or service to help them achieve. In other words, customers want products or services to specifically solve a problem for them or to make a job or task easier to handle. In his MBA program, and described in his book “The innovator’s solution”, Christensen tells the story of a fast-food restaurant chain that wanted to boost its milkshake sales (as a high margin item). Initially, the fast-food chain followed the traditional path by analyzing its milk-shake buying customers and then segmenting them. This revealed that people bought its milk-shakes across several age categories (both in children and adults) and that they all had slightly different needs from a milk-shake in terms of flavor, smoothness, fruitiness etc. Despite the fact that several changes were made to the variety of milk-shakes made available as a result of this research, overall sales did not improve substantially and the company was back at “square one”.
With subsequent help from Christensen’s consulting business the approach taken was the one described above in which the analysis focused on what “job” the customer wanted a milk-shake to do for them or what problem it could solve. Although there were many jobs or tasks that the analysis uncovered, two broad classes of customers were revealed that accounted for the majority of sales.
- The first customer group (which accounted for 40% of all milkshakes sales) purchased a milk-shake first thing in the morning as a breakfast item (and often it was the only item bought) when commuting to work. These customers (most of which were adult people on their way to work) faced a sometimes long and boring commute in their car and needed a product that was easy to handle with one hand, and would not make things sticky or messy and would last as long as possible (and satisfy their hunger long enough to get to a mid-morning snack or even lunch). By appreciating this “job” the fast food company could consequently respond by creating a milkshake that was thicker in order to last longer and to be more interesting and even nutritional (with chunks of fruit in it). Milk-shake sales improved dramatically as a result of these changes, especially as word of mouth spread about these long lasting tasty new milk-shakes.
- The second large customer group (which accounted for 30% of all milkshakes sales) purchased a milk-shake at approximately 3 pm to 4 pm in the afternoon. These were predominantly a female parent with children who were looking to provide a drink to go with a fast food meal or snack purchase. Some milk-shakes were purchased by these parents but these were often left largely unfinished by the children as they were too thick and therefore took too long to drink before the busy parent wanted to go home. Knowing this “job” to be done, the fast-food company introduced a slightly smaller sized more liquid milk-shake in more flavors that could be consumed more easily and quickly. Once again, milk-shake sales rose dramatically and drew more parents into each restaurant after school, who were now much more willing to purchase a drink that could be finished (and was now worth the money spent on it).
This approach is straight-forward in theory but represents quite a change in customer research practices. In particular, it involves taking more time to analyze the actual use of a product or service by customers, including what they like and don’t like about it. It also involves talking to potential customers (which Christensen calls “non-consumers) who may be interested in buying a product or service if it changed sufficiently enough to deal with a problem or situation that they are currently experiencing. For example, making the new milk-shakes with a design that would fit in the car cup spaces and a better closure lid that would not easily dislodge when repeatedly picked up, helped many previous non-consumers (or ones who had bought lower margin coffee) to become thick milk-shake purchasers for the first time. It may well be therefore that we can not only lift revenues and profits substantially with quite minor changes to our offerings but start to advertise these products and services in more solution oriented terms on the packaging or as part of the branding name. And what’s more this can be a great way to stand-out from your competition.