Towards Needs-Based Segmentation

Most companies try to segment their markets, and most do it badly. So many work for months to create a "universal" segmentation scheme, only to make things worse. Here is a better way to think about segmentation.

First segment customers differently than prospects. It makes sense to segment customers based on factors such as 1) total revenue for the account, 2) higher versus lower price plans, 4) products purchased, 4) potential revenue growth, and 5) length of time as a customer. These factors may reflect the different needs or value of customers. These types of segmentation can help the customer service team discriminate by the level of service -- phone versus email-only support, phone center hours, phone wait times, etc. Segmentation for prospects should help target the right messages at the right buyers, so separate prospects based on needs. Prospect segmentation can also help define which marketing channels to apply to which targets, which is more a measure of the revenue potential.

When thinking of needs-based segmentation, this article and video from Clay Christensen offers great advice. He calls his talk "Milkshake Marketing", and poses the question "for what task does the customer want to 'hire' the product or service"? This approach requires some fundamental thinking about the role of products, and goes way beyond traditional demographic analysis. It can lead to new insights about customer needs, and can target messages more accurately.

At the same time, marketeers must ensure their segmentation schemes are actionable. This may run counter to some of the Milkshake Marketing insights. But in the end segmentation needs to drive action programs, or else it is purely an intellectual exercise.

Create Demand for Your New Category

I often get pulled in to marketing discussions about whether to lead with brand or with category. We usually go round and round, and never resolve it. 

However, the book Origin of Brands puts this argument to rest and provides great advice around building a brand. The authors are Ries and Ries, the senior of which co-wrote the seminal marketing book Positioning.

Their premise is that brands (like species, thus the title homage to Darwin) are constantly splitting. For example, about 70 years ago computers were a single category. Now we refer to desktops versus tablets, and 7" tablets versus 9" tablets. Every sizable category may split if there is customer demand. 

As a result the authors recommend that marketers build their brands in the following way:

1. Name and create your new sub-category. Identify a sub-category that meets a need better than the original, broad category. 7-up did this when creating the "un-cola" sub-category for people who want a soft drink but not a cola. And Google did this by creating the 7" tablet sub-category, for people who want the tablet format of an iPad, but in a size that fits in the hand.
2. Promote your category. The authors recommend using PR rather than advertising for this. But I am confident they would recommend Social Media as well today, with the advent of Twitter, Facebook, and Google+. The key is to get the audience to want to buy they new sub-category. The authors use the example that a TV viewer goes into the kitchen to get a light beer, not a Coors Lite; they select the category they want, then grab the brand that best fulfills it.
3. Deliver on the promise as the best product or service in that category. Be the best company at delivering on all the customer expectations for your category. Make sure you are number 1 in reality as well as perception, and you never let that slip. 

By so doing, companies can win the "top rung" on the positioning ladder -- the core theme of Positioning. Owning the top rung of a substantial new sub-category is far more profitable than being an also-ran within a larger-but-established category. Some would argue that a new product should be 10X better or cheaper than the current options, or else there is no reason to launch it.

I believe this lays out an effective blueprint for marketing. Many of the examples in the book address consumer marketing, but I find the approach applies equally to business marketing. 

This approach also gives a real purpose to the use of social media. Many companies today lack focus for what they want to do with social media. Engage with customers? Promote their features? Share funny cat videos? The primary role of social media should be to create demand for the sub-category, rather than pump out the equivalent of product brochures on Facebook. That is why so many marketeers today embrace the idea of content marketing, which delivers value to the audience. 

What sub-categories have you created? Are you creating demand for your new sub-categories?

Lead With the Pain Points

I frequently share Dave McClure's rant about pain points (link to article) when I talk with CEOs and CMOs about messaging and value propositions. He points out the importance of taking the perspective of the customer and the need to consider the customer's pain points. 

Too often marketing presentations and pitches focus on the product features or the team. The pitches take the perspective of the presenter, rather than the audience. Sometimes they describe a big trend -- such as social or mobile -- suggesting everyone who rides the trend will win. Even when I see a list of benefits, they often lack context about the target customer, the use case, and the pain points.

Instead I encourage people to write pitches following this outline:

1. Who is the target customer, and what is the use case and current pain point? Think of this as a qualifying question, that the audience will be interested in hearing the rest of the presentation only if they match that target and can related to the pain point.
2. How does the product or service address that pain point? Specifically map the product benefits and features to the pain point. Avoid throwing in some pray-and-spray features hoping to broaden the appeal. Matching product to need is more important than providing a sea of benefits. 
3. Why is your company uniquely qualified to provide this product of service? Specify the experience, assets, or qualifications that tell the audience you will deliver. 

Give it a try. It takes some hard work. And it takes courage to aim each pitch at a specific target.