Segmentation & Strategy

 

Segmentation is a huge subject with which I could fill several books, so I thought I would focus on the few key things about which I always think when I am working on segmentation and strategy. 

 Segmentation & Strategy: 

Three Important Truths.

1. 1) Segmentation is Not Deterministic; Its Probabilistic
2. 2) You Don’t Determine Customers’ Segment; They Do
3. 3) Segments aren’t Homogeneous; They are Heterogeneous

Research for Segmentation

I frequently get asked about how to do the research necessary to develop a segmentation model. On that front, I believe strongly in getting a nuanced understanding of customers. I hate flattening down their point of view to a single quantitative measure: What is their opinion of x as expressed by numerical ranking between y and z? I know that it is comforting to statisticians, and they are entirely willing to sacrifice business accuracy for statistical acceptability.

I favor depth of understanding over statistical rigor because the cost of rigor is often irrelevance — i.e., you get statistical significance about something that doesn’t really matter. Plus, any attempt to achieve statistical significance will drive you away from creating the future because the data can only tell you about the past. Statisticians tend to believe that you can figure out how to create the future from statistically significant data, but all you can do is determine how to perpetuate the present.

It is only by utilizing subtle interpretations of deeper, non-statistical data that you can get clues as to what might be the dot in the middle of a future circle/bowl. That means getting close to the customers, understanding their world, listening to everything they say, being beware of overly filtering. In addition, don’t obsess entirely about the average customer. It is important to explore the outliers because an outlier today might be mainstream tomorrow.

People also ask me about utilizing personas. I like the persona tool because it helpfully creates a vivid and inspirational image of the dot in the middle of the circle/bowl. However, personas have one downside to keep in mind and avoid. Undue focus on the persona can cause obsession on the dot in the middle when the real task is to make sure the circumference of the circle is as great as possible, and the bowl has a shallow drop-off in value. That means determining what motivates the choices of customers who aren’t near the center of the circle — i.e. the cooler ones as well as the hot ones. Focus on the persona at the dot can make that effort more difficult. So, use personas, but be careful when you do.

Practitioner Insights

Your job in segmentation and strategy is to find and satisfy a perfect customer who exists at the center of a circle with a circumference that is sufficient large to sustain a viable economic system, which requires a shallow rather than steep drop-off in value from that of the perfect customer. Pricing is a very tricky aspect of any business strategy. An acute understanding the value contour of the bowl will help you price to optimize the size of the circle.

Take segmentation seriously and have a positive and proactive view of the customers that you want to attract. But don’t be too precious about it and be very careful not to overuse statistically significant data. Segmentation is probabilistic not deterministic. And never forget that customers are in charge, not you. Leave the door open to the customers who you don’t think will find your offering attractive. Despite what you think, they might — and you don’t want to get in their way.

 

 

Roger Martin is a writer, strategy advisor and in 2017 was named the #1 management thinker in world. He is also former Dean of the Rotman School.