Can you answer the “Why” questions with your segmentation strategy?

Read these three quotes about customer segments and write down what you think about their definitions

It’s a higher-educated, higher-income user that resides in the Northeast. More often than not, the Greek yogurt consumer is a female. – Analyst on Chobani target segment

Verano (Buick’s new compact car) is primarily aimed at younger professionals, in their 30s, and empty-nesters accustomed to driving luxury cars but needing less space now. – Buick’s Product Markting Director

McDonald’s said that in Europe, “severe winter weather in certain markets negatively impacted the segment’s overall February results.” In the U.S., the company cited strength in the sales of Chicken McBites, Filet-O-Fish, signature beverages and breakfast items.

Say the word “Segment”, the responses would fall into a predictable range

  1. Industry verticals
  2. Size of enterprises served (Small, Medium, Large)
  3. Geographies
  4. Age brackets
  5. Education levels
  6. Gender
  7. Everyone

The first three are the most common (and arguably the only type of) segmentation practiced by B2B companies. In all these cases segmentation is done after the fact, to analyze the revenue mix (where is the revenue coming from) and not as a driver for product and pricing strategy. B2B segmentation is more about sales team design and marketing resource allocation than about customer driven product development.

The last five are the answers of those in B2C companies. Unlike B2B, here segmentation is not an afterthought. It is used to guide product strategy and product mix, as you can see from McDonald’s example and Verano example above. Undeniably this is a better approach than what is practiced by B2B companies. But let us stop and think about it for a moment

  1. Why do highly educated, higher income people in North-East prefer Chobani?
  2. Why is Verano attractive to both young professionals in their 30s and empty nesters?
  3. Why do McDonald’s US customers prefer its breakfast items?

The Whys cannot be answered here.

All the seven types of segmentation we saw above are based on externally observable factors vs. the intrinsic need of the customers buying the product. That is the problem with both B2B and B2C segmentation schemes. Businesses confuse externally observable differences and easily measurable distinctions with segmentation and fail to ask the most important question

Why will the customer hire the product?

Stated differently by Clayton Christensen

What job is the customer hiring the product for?

Everything else – the product mix, product characteristics, customer mix and their demographics, Geography – are at best secondary and at worst red-herrings.

Answering the Why question is the only right starting point for your segmentation strategy.

If you cannot answer Why you do not have segmentation.

I started this article with quotes, here’s another from a successful business man known for his basketball victories,

Because Republicans buy sneakers too – Michael Jordan when asked why he didn’t  endorse the Democratic Senate candidate against Republican Jesse Helmes