Market Segmentation is Broken - PowerPoint Presentation

Slide1

Market Segmentation is BrokenSlide2

It’s hard to argue that our market segmentation methods are workingN

ew

products fail at the stunning rate of between 40% and 90

% Less than 3% of P&G’s new product introductions exceed first-year sales of $50 million Only 10% to 30% of the 30,000 packaged goods launched annually remain on store shelves just 12 months later

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“Why Most Product Launches Fail”, by Joan Schneider and Julie Hall, HBR April 2011

“Eager Sellers and Stony Buyers”, by John T.

Gourville

, HBR June 2006Slide3

So what’s the problem? Have market researchers lost a step?Have consumers become too difficult to understand?

Is launch execution simply not what it used to be?

3Slide4

Product and customer b

ased

s

egmentation methods are solving the wrong problemsSlide5

The problem with using products as the fundamental unit of analysis

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“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy Hall, HBR December 2005

People don’t want to buy

They want..

A clean floor

To pull an all-nighter

A 4pm snack to hold them over until dinnerSlide6

These same marketers..Segment their markets by product and price point rather than by the type of job

M

easure their market share by product

Benchmark the features and functions of their products rather than the features and functions of the jobs they’re doing6

“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and Taddy Hall, HBR December 2005Slide7

They then set to work offering more features and functions

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Reality: They improve products in ways that are irrelevant to their customers’ needsSlide8

Models that use customers as the fundamental unit of analysis suffer similar problems

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“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy Hall, HBR December 2005Slide9

Increasing milk shake sales at a leading fast food chain

Profiled the demographic and psychographic characteristics of frequent milk shake drinkers

Asked those who fit profile whether making the shakes thicker, more chocolaty, chunkier or cheaper would increase satisfaction

Modified their milk shakes based on feedbackTheir sales didn’t increase9

“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy

Hall, HBR December 2005Slide10

The company hired a new researcher to try the exercise again Slide11

A better way to think about market segmentation

Customers just need to get things done

When they have a job to do, they hire products to help them do it

Companies have two fundamental roles to play:Understand the important jobs that customers need help withDesign products that are precisely targeted to doing those jobsWhen customers find themselves needing to get a specific job done, they look for purpose brands to help them do it

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“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy

Hall, HBR December 2005

Jobs, rather than products or customers, should be the fundamental unit of analysis for any effective segmentation modelSlide12

The new researcher went to workSpent a full day in one of the company’s restaurants trying to understand the jobs that milk shakes were hired to do

Chronicled:

W

hen milk shakes were boughtWhat other products they were purchased withWhether customers were alone or in groupsWhether the shakes were consumed in store or taken to goAsked customers directly why they purchased their milk shakes

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“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy

Hall, HBR December 2005Slide13

Key findings40% of all milk shakes purchased in the early morningThese customers were alone

They didn’t buy anything else

They drank their milk shakes in their cars

Remaining 60% of milk shakes purchased at other times of dayCustomers were typically parents with childrenThey purchased full meals w/ with their shakes They ate their meals in the restaurant

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“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy

Hall, HBR December 2005Slide14

InsightJob #1Make long commutes more interesting

Alleviate hunger until lunch time

Job #2

Placate unruly childrenFeel like a loving parent

14“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy

Hall, HBR December 2005Slide15

This insight helps to explain the problem with customer based market segmentation models

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Output: One-size-fits-none solution

“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy

Hall, HBR December 2005Slide16

Optimizing milk shakes for each jobSlide17

Began by understanding the constraints of Job #1Needed something to last most of their commute

Needed something to alleviate hunger until lunch time

They were in a hurry and wanted to avoid lines

Wearing work clothes (Can’t afford to make a mess)One free hand to work with17Slide18

Understand the other products that were competing to do Job #1Substitutes

Bagel

Bagel w/ cream cheese or jam

BananaDoughnutsDrawbacksToo drySticky fingers/ steering wheel/ clothesDidn’t last long enoughHunger returns before noon

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“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy

Hall, HBR December 2005Slide19

Potential improvements for Job #1Make shakes even thicker so they last longer

Add fruit or other toppings to create additional anticipation

Make self-serve dispensing machines and sell prepaid swipe cards so customers can avoid breakfast lines

19“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy Hall, HBR December 2005Slide20

The new researcher identified potential improvements for Job #2 as wellKey observation

Parents finish their meals and wait impatiently while children struggled to suck the thick shakes up through the thin straws

Potential solution

Wider straws for children’s milk shakes

20“Marketing Malpractice: The Cause and the Cure”, by Clayton Christensen, Scott Cook and

Taddy

Hall, HBR December 2005Slide21

Jobs-based market segmentation generates additional benefits as well

O

ften expands the size of a market

Ex. Milk shake market is clearly smaller than morning commuter snack market which includes bagels, bananas, doughnuts and milk shakesMakes it easier for customers to find right productsHelps define the potential improvements that will be most relevant to the jobs that people need to get done

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SummaryNew products are failing at the stunning rate of between 40-90%

Primary reason is that product and customer based market segmentation models are improving products in ways that are irrelevant to their customers’ needs

Better way to think about market segmentation is to make jobs the fundamental unit of analysis

The purpose brands that emerge create greater opportunities for differentiation, premium pricing and future growth22