23. Market Segmentation for the Twenty-First Century

Marketers are challenged to keep pace with constantly changing consumer buying habits. Consumers are confronted with making choices from an enormous array of new products. The proliferation of new media and access to products and services through new channels has changed the way people buy. All these factors result in fragmentation of market segments and distribution channels and the need for new methods of market segmentation.

One approach that is highly effective is an extension of what marketers call observational research, but it adds a new spin that attaches consumer behavior with brand purpose. The result of successful branding and marketing is customer perception that a product or service has significant meaning in their life. This can only be achieved when marketers understand how a product is used and valued by customers. When you understand this, you can then define targeted segments and more effective marketing communication focused on those characteristics. Clayton Christensen, a Harvard professor and best-selling author, discovered a simple way to segment customers that companies are finding immensely valuable.

The premise is based on a statement made by revered Harvard professor Theodore Levitt back in the ’60s. He told his students, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” Despite the fact that marketers know this to be true, marketing is still focused on the features and functionality of the drill, not the hole. This causes misguided marketing messages and strategies and subsequently marketing is directed toward solving the wrong problem. The product is marketed in ways that is irrelevant to customers.

Christensen takes Levitt’s premise “that people just want to get things done,” and puts a new spin on it. He says, “When people find themselves needing to get a job done, they essentially hire products to do that job for them.”¹ It’s simple: If you understand the job that needs to get done, design the products and services to do that job, and market the product to reinforce how the product does the job, consumers will hire the product when they need to get the job done.

Sheraton Hotels is a good example of a company that offers an entire portfolio of products directed to various customer segments that are looking for different products and experiences to hire for a specific job. In this case, the job is to find a place to sleep in a hotel overnight that fits the customer’s need for price and comfort. Low-budget travelers might choose to stay in the Four Points brand, and business travelers may choose a Westin or a Sheraton because they love the “Heavenly Bed” in their home-away-from-home. Discriminating travelers who appreciate luxury can choose from the St. Regis or The Luxury Collection hotel brands. Hip travelers may prefer the W Hotel, or the new modern Aloft hotel brand. Travelers who are looking for a completely different experience may choose to stay at an Element hotel. This new hotel brand focuses on the attributes of balance, health and fitness, green and sustainability, and modular design so travelers can design the room space as they wish to use it. All of these brands belong to Sheraton; however, each individual hotel is branded and targeted to a customer segment who wants to get a specific job done.

A few years ago, I had the opportunity to interview Clayton Christensen following the release of his successful book, The Innovators Solution. He shared an interesting story about the way a company applied this concept to get a much better understanding of the job consumers hired their product to do for them. Here is an excerpt from the interview.

Why Is Your Product or Service Hired?

In the “Why People Buy” exercise (in Chapter 20, “Why Do Customers Buy?”), you created a working hypothesis about why your customers buy from you, and converted the attributes into benefits. As you look at these benefits, how would they translate to the specific job your customer is trying to do? Be as precise as you can and answer the following questions:

• Do my solutions provide what the customer wants?

• Do my products and services add more than what the customer wants?

• Does it do the best job in the market considering what customers want?

• How does my marketing communicate the outcome customers are looking for?

• What other ways can the customer get the job done?

• Should changes be made to my product, service, or marketing communications?

Think broadly about this last question because you will use this information later in the chapter to define substitute solutions in the competitive analysis. In Table 23.1 summarize the benefits that your product or service delivers. Then, define what job you believe your customers are trying to get done. In the third column, define substitutes and observations.

Table 23.1 Why Is Your Product or Service Hired? What Is the Job Customers Want to Get Done?

If this segmentation method stimulates questions (and it should!), you should add them to your primary research plan to increase your understanding of what customers want and what drives them to buy. Remember, your focused attention and efforts on this subject now will not only save you time later, but could potentially save you tens of thousands of marketing dollars that might be wasted communicating the wrong message.