Segment Customers By Their Needs

Traditional market segmentation methods, including those I was taught when studying an MBA, focus on segmenting (a.k.a pigeonholing) customers based on criteria such as:

  • demographics (age, sex, marital status, income),
  • geographic (country, post code),
  • behavioral (attitude towards, usage of ) and
  • psychographics (activities, interests, opinions).

But as pointed out by Clayton M. Christensen, Scott Cook and Taddy Hall in the Harvard Business Review, “the methods that most of us learned to segment markets, build brands, and understand customers—are broken.”

Companies who don’t really know who their customers are, use traditional market segmentation to pigeonhole the general population into boxes, then measure which ‘boxes’ or pigeonholes are buying what they are marketfraudselling and which are not. They then look at the pigeonholes not buying and, again using the same criteria as input, devise ways to advertise to that pigeonhole. This isn’t very scientific and is one of the reasons behind the jibes often directed at marketing departments.

On the other hand, BMW – an Outside In / Customer Centric company – knows and understands that you should categorise customers based on their needs. In the BMW advertisement below, BMW is signalling to a particular category of customer, that this car has been built to cater for their needs. Watching the video, you might as I did, question whether you can go to BMW’s web site and ‘build your own car’. But you can’t (not more than usual anyway) and there is no need. BMW has already built this particular category of customers’ needs into this 3 Series model.

You may have also noticed the different types of people in the advertisement. They were from different countries, spoke different languages, both male and female, both young and old and varied employment situations. Yet they all had the same/similar needs in regards to the experience they needed to have.

Clayton Christensen describes this a similar way. What job are the customers hiring the product to do?

“The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” Peter Drucker

“Get closer than ever to your customers. So close that you tell them what they need well before they realise it themselves.” Steve Jobs

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