A global company recently engaged the Strategyn team to help it segment a
core market in a new way. The company, a recognized leader in the space,
came to us with a hypothesis: they believed their
demographic/psychographic/attitudinal-based segmentation model was faulty
and wanted to apply an outcome-based (needs-based) segmentation model
instead.
They believed their segmentation model was faulty because
customers from each of the targeted segments purchased a mix of their
products—in other words, their products were not differentiated to address
any unique unmet needs in any segment. Consequently, they were struggling
to differentiate their offerings within these segments and were being
forced to compete on price.
We took the following steps to employ an
outcome-based segmentation process, a methodology Strategyn pioneered:
- First we analyzed the customer’s “job-to-be-done” and captured nearly
200 customer desired outcome statements (the metrics customers used to
measure success when getting the job done). - Next, we fielded a survey where a statistically valid sample of the
population (600 job executors) were asked to rate the importance of
each of the 200 outcomes and how well the solution they use today
satisfied each outcome. - Third, we used factor analysis and cluster analysis to segment the
market into groups of customers with different unmet outcomes. While 3,
4, and 5-segment solutions were analyzed, a 3-segment solution was
chosen. - Lastly, we used profiling questions we included in the survey to
understand what complexities caused customers in one segment to
struggle more than other segments when getting the job done. The survey
also revealed the degree to which the outcomes in each segment were
underserved.
The segmentation analysis revealed 3 unique segments of customers as shown
in the opportunity landscape below:
The first thing the landscape told us is that no segment of the customer
population was overserved. This means that a Disruptive Strategy would not
be fitting in this market as no segment would want a solution that gets the
job done worse for a lower price (see the
Jobs-to-be-Done Growth Strategy Matrix). Not all markets are threatened by disruption. This market was one of them.
Finding the Hidden Segment of Opportunity
The opportunity landscape revealed two segments that were appropriately
served and one segment that was underserved.
The “gold circle” segment (56% of the sample population) was comprised of
customers who purchased the most advanced product offerings. Our client had
significant market share (about 50%) in this segment and one product
offering in particular fit perfectly to address the needs of customers in
this segment. In reviewing the existing marketing literature for this
product, however, we noticed that the value proposition was misaligned—in
fact it aligned more with the needs of customers in the underserved
segment. This was causing confusion. We made recommendations that would
correct this misalignment and ensure the value proposition would resonate
with customers in the target segment. We also recommended a few product
improvements to address the unmet outcomes that existed in the segment.
The “gray triangle” segment (26% of the sample population) was comprised of
customers who had a different need priority—needs that were satisfied by
another product offered by our client. Again, our client had significant
market share in the segment. The recommendation we made here was to
fine-tune the value proposition and align it with the customer’s needs in
the segment.
The “red diamond” segment turned out to be the hidden segment of
opportunity. This segment (18% of the sample population) was very
underserved and our client’s market share in this segment was in the single
digits, a fraction of the share it had in the other 2 segments. The
segmentation model revealed a distinct hole in the company’s product line.
While this segment was underserved it was NOT willing to pay more to get
the job done better. This meant they wanted to get the job done better and
more cheaply, a situation in which only a Dominant Strategy would work (see
the matrix referenced above). The segment went undetected because it didn’t
fit the traditional profile. Users wanted improvements in the product’s
basic function but fewer bells and whistles demanded by users in other
segments.
This hidden segment represented a $150M opportunity assuming the company
could create a product for this segment that would enable it to achieve the
same market share it enjoyed in the other 2 segments. Filling this hole in
the product line represented a major opportunity for the company. All that
was needed was a stripped down version of the high-end product — a product
that offered more of the desired basic function, but with other features
that were unnecessary. Creating this product became the company’s number
one priority.
Outcome-based segmentation has been the key to success in opportunity
identification in many markets we have analyzed. Success in innovation is
often dependent on discovering a segment of customers with unmet needs.