Unsegmented?

While our firm, Silicon Valley Research Group, bills itself as a custom market research firm, the things we do for our clients generally fall into one of eight categories of service offering. A question I was asked at a conference recently is: If you were to pick only ONE market research activity to conduct for a client, which would it be? I took that question to mean, what is the most valuable market research activity a company can conduct?

I did not have to think hard for the answer-by far, the most important thing we can do or any market researcher can do for their clients is Market Segmentation. Why was the answer so easy? Because many of the market problems we have observed with companies stem from a lack of segmentation or poor comprehension of the key customer segments and/or basis for segmenting markets. Pick up the Wall Street Journal or any business periodical. Read about companies going though financial crises due to poor sales results, dig deeper and lack of understanding of needs of customer segments will surface, recent examples being Weight Watchers and Under Armor.

Theodore Levitt in his classic Harvard Business Review article "Marketing Myopia" mentions three key paradigms for marketers:

1. There is no such thing as a growth industry
2. Your product is not your business
3. Focus on your customers' needs, not your capabilities

All three address the need for understanding your key segments and the primary motivations and behavioral drivers of customers within these segments.

1. There is no such thing as a growth industry. While Levitt's article referred to traditional industries such as the contrast between seeing oneself in the railroad business (product-oriented) versus transportation (customer-oriented) the concepts have never been more relevant than today, as new technologies disrupt industries and companies. Blockchain will enable smart contracts which will disrupt the digital signature industry, currently considered an exciting growth industry, long before the industry reaches its full potential. Dollar Shave Club (acquired in 2016 by Unilever having only a handful of employees and a market valuation of a billion dollars) upends Gillette forcing it into significant price erosion. Social marketing and design thinking are the disruptors here. Are you keeping an eye on your flanks, regardless of how strong or dominant your market position may be? Look in your rear-view mirror, what do you see gathering speed? What business are you in? Like the railroads, Levitt spoke of, are you in the railroad business? Or are you in transportation. Your company’s self-identity is a make or break proposition which in turn stems from how well you have segmented and understood the needs and motivations of your marketplace. Do your customers need razor blades or a smooth shave? To digitally sign a contract or execute contracts quickly? Do you rent out services in the cloud or enable companies to serve their customers better? Segmentation not only contains the answers to these questions but helps define your company’s identity in a manner not limited by the current bounds of your "growth" industry and serves as a blind-spot camera for your rear-view mirror.
2. Your product is not your business. Customer centricity is also key here. Successful companies create platforms, not products. A case in point is Apple. Many have been critical of a lack of innovation since Steve Job's passing. However, a breakthrough product like the iPhone is hard to surpass with incremental improvements in each generation. Michael Jackson could never top the success of "Thriller", Christopher Cross's debut album was a hard act for him to follow. Looking at Apple's financial statements today, growth in service revenue is the key driver of the company's current financial performance and growth. Apple did not build a product, but a platform, the foresight was Steve Job's from day one and therefore not something the company had to scramble for in desperation for revenue growth, but solidly built into the company’s business model.
3. Focus on customer's needs not your capabilities. Goes without saying today. Plenty of wisdom and tools abound for designing around customer needs. Again, we stress segmentation as the starting point. The motion picture industry has experienced declines in worldwide box office revenues in recent years. In our conversations with some of the major studios a few years ago, we were astounded to learn the industry segments its markets along only four segments - under 25 or over 25, male or female. While this has evolved somewhat in recent years, we wonder how much of this decline is a result of "marketing myopia" and being out of touch with the changing tastes of their consuming public and an under-developed market segmentation map. Enter Netflix, Hulu, Amazon Prime into contested market space left open by the six major studios who once commanded over 90% market share.

Market segmentation research is foundational research. It takes effort, discipline and begs repeating every few years, which is why so many companies skip this step. Our admonition, of course, is don’t skip this critical step. We realize we are biased of course, but we’d like to think no more than your physician who admonishes you to eat right, exercise and lose weight!

Alan Nazarelli is President and CEO of Silicon Valley Research Group, a global market research and strategy development firm focused on the needs of technology companies.

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