The “Silent Killer” of Market Share
So, you have invested sweat and money into developing a great new product and now it’s ready for launch. Time for customers to get their hands on it and for you to see a return on all that investment. Thing is, it often doesn’t work out that way.
Everyone is looking at ways to improve product success rates. But do they understand the underlying reasons behind their lack of success? Are they asking the right questions?
Most research points towards a lack of market insight as the culprit behind lagging performance. But the inquiries into failure stop short of the real culprit.
Commonly-Cited Reasons for Marketplace Failure Don’t Go Far Enough
Doing a deeper dive into this “lack of market insight” cited above, these are the underlying causes of marketplace failure:
- Not understanding customer needs
- Fixing non-existent problems
- Targeting the wrong market
- Messing up the product’s pricing
In most cases, these are legitimate reasons behind lagging performance. Research budgets may have been inadequate. R&D may have discovered a cool-but-impractical product. The company may lack sophisticated pricing methods.
But companies who did a lot of these things right still under-performed. The real cause of their failure lies off the radar screen, which is why we call it “the silent killer.”
You Made Lukewarm Tea
Even the companies that do a large amount of sophisticated research often make a crucial mistake. They “average” the needs of very different kinds of customers and create one offering that is pleasing to no one.
We call this lukewarm tea syndrome. It’s the equivalent of finding out some of your customers like their tea hot, some like it cold, so you create something in the middle. It seems obvious that no one will like your lukewarm tea, yet so many business people recognize their own company in this analogy.
When you “average” your offering, you immediately see why the feedback you get from customers matches the oft-cited reasons for failure above. Customers see many features they don’t want or need in the offering, so they think:
- “Your company doesn’t understand my needs”
- “You are fixing problems that I don’t have”
- “You must be targeting a different type of customer than me”
- “You are charging a premium for stuff I don’t want!”
Needs-Based Segmentation Fixes the Lukewarm Tea Syndrome
Most companies segment their markets in some manner, but very few practice needs-based segmentation. In business-to-business (B2B) industries, most segment their markets based on the types of products they sell (e.g., “the capital equipment segment” or “the consumables segment”). Or they do it based on the “firmagraphics” of their customers (“the large hospital segment” or “the rural hospital segment”).
These types of segmentation (or,”classifications”) might help organize a company’s divisions or define sales territories, but they don’t give any insight into the needs of the clients and prospects in each designation.
The best way to segment your customers –even in B2B industries – is based on their underlying attitudes, behaviors and disciplines. It doesn’t have to be overly complex to be effective. For example, a powerful B2B approach could segment some clients who make their money based on efficient processes and low prices (“Efficient Operators”). A different segment could be clients who profit by customizing offers and charging higher prices (“Customer Intimates”).
How does this combat the lukewarm tea syndrome? For starters, you could look at market research from Efficient Operators separately from the responses of Customer Intimates. If you can only make one offer, you could decide if you were going to build it to please one segment or the other. Even better, if you can vary your offering for each segment, you would have a chance to delight each segment with a value proposition more in line with what they want.
Misperceptions About Segmentation
So why don’t more companies leverage needs-based segmentation? One reason is that most think they are already segmenting –but in reality they are simply classifying, as we describe above. They have never been exposed to the simple-yet-powerful methods for segmenting in a more needs-friendly way.
Another reason is that they don’t believe they can execute on a needs-based approach because the salesforce isn’t engaged in the process. However, in our experience, almost all of the segmentation strategies that involve the salesforce from the beginning succeed.
And some companies believe that even if they created an insightful approach, it would be difficult to execute and provide multiple value propositions for multiple segments. This is a costly misperception.
Even if you can’t change anything about your physical product, you can structure a unique value proposition by altering packaging, services, messaging or the types of information/consulting and pricing that surround a product.
B2B Segmentation In Action
As of this writing, many B2B firms are finding a post-pandemic segmentation opportunity. Some of their customers are in very dire economic straits (the “Bottom-Line” segment) while others are in a catch-up mode (the “Making Hay” segment).
Your lukewarm-tea-making competitors might be looking at the entire marketplace as needing financial relief, and thus cutting costs and slashing margins. But the needs-based company realizes that they can take a more nuanced approach.
You could create a very basic, stripped down version of your offering for the Bottom-Liners (“cold tea”). But you can also find some margin-enhancing ways to help the “Hay-Makers” get more done in less time (“hot tea”)
Through this approach, your customers in each segment will feel like their real needs are being heard and met, and that the price charged is equivalent to the value received. This more customized treatment reverses all the reasons cited for marketplace failure, and addresses the real culprit behind underperformance – treating everyone the same!