Use Needs-Based Segmentation for Innovation
Scott Burleson
kHUB post date: January 12, 2021
Read time: 12 minutes
Market segmentation is the process of dividing a market into smaller bits. For instance, you could segment by product, geography, customer type, value chain position, and so on. The variables of segmentation vary with the objectives.
Consider the following market segmentation schemes. First, we could partition a market by product type. For instance, if we work for lawn care equipment company, we might divide the market into walk-behind mowers, lawn tractors, and zero-turn mowers. Or, we could use a market segmentation scheme based on customer type, such as residential, commercial, governmental, etc. This would be helpful to create budgets for incentive programs. For another, we might segment by geography for sales purposes.
However, here’s the real question. For innovation, what marketing segmentation scheme should be used?
Market Segmentation: What’s the best way to sub-divide the market for innovation?
For innovation and new product development, a needs-based segmentation is best. This is because we design new products and features to address customer problems, or their “jobs-to-be-done.”
Consider the following from the book “The Statue in the Stone: Decoding Customer Motivation with the 48 Laws of Jobs-to-be-Done Philosophy”:
- Law #40: A market has two components: a job and a job executor.
- Law #41: All job executors within a market share the same list of Outcome Statements.
- Law #42: A market segment is a group of job executors within a market that shares a common priority order of Outcome Statements.
It should be stated that these laws are the author’s interpretation of one of the most significant innovation frameworks, Outcome-Driven Innovation, as created by Tony Ulwick.
The “Lawn Appearance” segment considers lawn care as an artistic endeavor.
All residential homeowners want to mow their lawn well. And therefore, they have the same list of desired outcomes. Does this mean that the group “residential homeowners who mow the lawn” is a market segment?
No, it doesn’t.
The problem is that some sub-groups will define “well” differently. It’s an easy point to miss. After all, we’re discussing the same category of person, the residential customer. Likewise, the job is the same, to mow the lawn. But still, various sub-groups may define success differently. That’s the distinction.
And it’s the beginning of knowledge about market segmentation. Bringing us to a question, then “What is a market segment?”
What is a Market Segment?
From Law #42, A market segment is a group of job executors within a market that shares a common priority order of Outcome Statements.
Let’s say that we have one group of residential homeowners, for whom the most important outcomes are:
- Minimize the frequency of visible clumps on the lawn
- Minimize the amount of variance around the desired grass length
Members of this segment have a perfectionist mindset about appearance. There’s little concern for anything else. In fact, they will sacrifice their time, their effort, and their treasure for a beautiful lawn.
Market segmentation gives us this group. This group that we call a “segment”. They’re a club of sorts. A club… with common values. Common priorities. Therefore, let’s name it the “Lawn Appearance” segment.
The “Fast Mowers” segment wants to finish quickly to pursue other interests.
The next group has different values entirely. In fact, their top priorities are to:
- Minimize the time to mow the lawn
- Minimize the amount of grass trimming to do afterwards
For this segment, it’s about time. They don’t care as much about appearance. Not as much as finishing ASAP. They just want the job done. Finished. Over with. Mowing’s a chore, not an artistic pursuit.
Let’s name this club the “Fast Mowers” segment. The segment name refers to the group’s theme.
Using Importance and Satisfaction Data for Segmentation
Note the Importance and Satisfaction data below (as generated within Blueprinter® software). First, let’s look at the data for the entire market. Then, we’ll look at the segment level. For the entire market, note the wide breadth of variation for each outcome:
Importance and Satisfaction data for the entire market.
Blueprinter software highlights the excessive variation with the darkened bar ends. This signals the existence of multiple segments within, and that we shouldn’t trust the averages scores for Importance and Satisfaction.
Meanwhile, note the graph below for the Fast Mower segment only. We now have tight standard deviations, and of course, a different priority order:
Importance and Satisfaction data for the “Fast Mower” segment.
And likewise, for the “Lawn Appearance” segment:
Importance and Satisfaction data for the “Lawn Appearance” segment.
If a product manager has access to professional data analysts, they can obtain an analysis such as what’s presented above. To be fair, the segmentation process can involve some trial and error, searching for the combination of data slices that presents proper market segments. When do we know if we’ve identified a market segment? We can be confident in this if we’ve found that our sub-group has a narrow standard deviation band.
Remember: Both segments are still parts of the same market
Members of a market have the same list of desired outcomes in common. A market segment has the same priority order of desired outcomes in common. Therefore, the Lawn Appearance segment still values the ability to “Minimize the time to mow the lawn”. Likewise, they’d also would like to “Minimize the amount of grass trimming to do afterwards.”
Along the same lines, the Fast Mowers segment would like to “Minimize the frequency of visible clumps on the lawn”. As they would also like to “Minimize the amount of variance around the desired grass length.”
Within the same market, the distinguishing characteristic of the segment is not the list of the outcomes, but the priority order.
Within the same market, the distinguishing characteristic of the segment is not the list of outcomes. It’s the priority order. Remember:
- Law #40: A market has two components: a job and a job executor.
- Law #41: All job executors within a market share the same list of Outcome Statements.
- Law #42: A market segment is a group of job executors within a market that shares a common priority order of Outcome Statements.
Needs-Based Segmentation is best but isn’t perfect.
In fact, the approach can present a challenge. Our needs-based segment will have common priorities. This is good. Thankfully, this guides everything related to NPD success. For instance, we have direction about what products to build, features to add, and how to market.
So, what’s the downside?
The downside is that while our segment is united by their needs, it might be difficult to determine who they are. That is, to take our “Fast Mowers” group, there may or may not be a correlation with age, geography, lawn size, education, or any other easily identifiable variable. This creates advertising challenges.
This challenge is most common counterargument to needs-based segmentation. However, product managers and innovators shouldn’t be dissuaded from the method. After all, it’s preferred to have a product that is desired even if challenging to find customers. The alternative is that we fool ourselves into believing generalizations to support our preconceived ideas. We know where that road leads.
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