→ Segmentation and strategy: three important truths
A thoughtful post about segmentation from Roger Martin. It’s a controversial subject in the marketing world, having been dissed by Byron Sharp and then written off by his adherents.
Martin reminds us that segmentation is something that’s driven by actual consumers’ actual behaviour, not your own analyses:
“That notwithstanding, customers decide what segment they are in, not you. Big box mass merchandisers (other than Costco, actually) took a while to figure that out. They thought their segment was low-to-middle income families willing to drive to a more distant retailer than their local supermarket to buy goods at a lower price. But Mercedes and BMWs kept showing up in their parking lots. They shouldn’t have been there! They weren’t in the segment. That is half right. They are not in yours, but they are in theirs. And you don’t generate revenues: they do!
“Customers decide whether your offering is a sports car, or not; a cool thing to order at a bar, or not; environmentally friendly, or not. While you are segmenting customers, customers are segmenting you. They create categories, put you in one, and consider you accordingly. You may think their segmentation is nuts, but it just doesn’t matter. Again, you don’t generate revenues: they do.”
He also warns against focusing too hard on the bullseye consumer:
“Many unsuccessful entrepreneurs design an offering that is extremely valuable to the perfect customer – typically themselves – but the drop-off is so steep that their idea collapses, not because it didn’t create value, but because the steepness of the drop-off makes it impossible to make the economics work. Successful entrepreneurs design their offering in a way that appeals to a much broader audience.”