Why market segmentation fails in start-up ventures

That trying to sell to anyone and everyone is a recipe for failure is a well-known fact. Market segmentation techniques have been used for a long time now to narrow down on the target customers. We are often told that you must segment your market by demographics and buying behaviours to target your product or service to a particular customer need. We can segment on age, gender, social class or personal preferences to name but a few. Makes sense – different segments of the market have different needs and get their information from different places, obviously.

Actually, maybe not.

Conventional marketing techniques teach us to frame customers by attributes—using age ranges, race, marital status, and other categories that ultimately create products and entire categories too focused on what companies want to sell, rather than on what customers actually need.

Why is this misguided? Consider the case of one of this article’s co-authors, Professor Clayton Christensen. This excerpt is reproduced from the September 2016 issue of Harvard Business Review (HBR):

“[Clayton Christensen] -He’s 64 years old. He’s six feet eight inches tall. His shoe size is 16. He and his wife have sent all their children off to college. He drives a Honda minivan to work. He has a lot of characteristics, but none of them has caused him to go out and buy the New York Times. His reasons for buying the paper are much more specific. He might buy it because he needs something to read on a plane or because he’s a basketball fan and it’s March Madness time. Marketers who collect demographic or psychographic information about him—and look for correlations with other buyer segments—are not going to capture those reasons.”

Know Your Customers’ “Jobs to Be Done”

In the HBR article, Prof Clayton Christensen and his co-authors argue that the current market segmentation approaches don’t get the real reasons why people buy product and services. People don’t want a drilling machine, they want a hole in their wall.

The jobs-to-be-done framework, as mentioned on the ChristensenInstitute.org website is a tool for evaluating the circumstances that arise in customers’ lives. Customers rarely make buying decisions around what the “average” customer in their category may do—but they often buy things because they find themselves with a problem they would like to solve. With an understanding of the “job” for which customers find themselves “hiring” a product or service, companies can more accurately develop and market products well-tailored to what customers are already trying to do.

They suggest three key points about a ‘job to be done’,

  1. “Job” is shorthand for what an individual really seeks to accomplish in a given circumstance,
  2. the circumstances are more important than customer characteristics, product attributes, new technologies, or trends,
  3. Initially, jobs are never simply about function—they have powerful social and emotional dimensions.

‘Jobs to be done’ is also Design Thinking

If we take ‘Jobs to be done’ to mean what one is trying to achieve or needs that are trying to be satisfied, then these goals can be interpreted on different levels – professional, social and personal.

The primary premise of Design thinking is to understand the user and their underlying needs and to design products and services that respond to these needs.

‘Jobs to be done’ is not limited merely to the functional tasks to be executed but examines other factors that drive behaviour such as context and emotional needs. Were we to explore questions such as: What emotional needs are our customers trying to fulfil? What are their aspirations and motivations, what gives them a sense of self- satisfaction and how do they want to feel? How are they impacted by their environment and their social context and how do they wish to be perceived by their peers? – we would gain an in depth and holistic understanding of who they are and what they are trying to achieve and therefore be better equipped to develop a solution of value which they will embrace.

When we teach this framework to new Entrepreneurs, they define their target customer instead of their target market and know who they are selling too. And what to say to them.

 

The hard part for an innovative service to an unknown segment is to identify this need (job to be done) and establish how you are going to get to these prospects.

Our week 3 session “Develop Market Segment & Validate Customer Need” from the 8 week evening course Developing your entrepreneurial business will help you not only identify this niche segment but also validate the need and train on how to approach these customers.

If you are considering starting your business as an alternate to your current work, come and learn from best instructors in this business. Taught by executive education and entrepreneurial faculty from London Business School you can either

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Read in the next article: http://changeschool.org/where-to-get-the-money/

Held in London, the 1-day bootcamp and 8-week workshop have been designed for working professionals, and delivered by faculty who have not only helped grow businesses at King’s College London, London Business School, UCL, LSBU (Entrepreneurial University of the year, 2016) in the UK but also a number of universities, institutions, and governments abroad.

- Viren Lall