by David Youland, Senior Consultant
Luminas Strategy has worked with clients across multiple industries and has identified five key growth drivers and ten resulting key decisions that are practiced by best-in-class companies. We also believe that when faced with choosing what strategy approach and tools to use, simpler is always better. The five key growth drivers and corresponding key decisions developed by Luminas reflect the distillation of decades of working with leading organizations yet can be applied and implemented by any B2B organization.
One of these drivers is Market Segmentation and Pricing. We articulate a key management decision that supports this driver like this: We understand the needs of our target markets and can confidently meet their unique needs.
Market Segmentation is a marketing fundamental. Most businesses use some form of segmentation to make decisions either deliberately or by default. Segmentation and target market selection should be based on very detailed and granular views of customers and markets. Even within very mature markets, growth market segments exist that can be identified and targeted. Identifying these pockets of growth along with their needs and building the capabilities to serve them will result in solid growth opportunities.
When the notorious bank robber Willie Sutton was asked why he robbed banks, he replied with what has become known as Sutton’s Law, “Because that’s where the money is”. Good companies and smart marketers follow the money through market segmentation, honoring Willie’s legacy. Similarly, baseball great Ted Williams thought of the strike zone as a grid of 75 balls. He learned that choosing where to swing in the grid determined his batting average. The “happy zone” was in the middle of the grid.2 Analogously, you can divide markets and segments into a grid, where the customers you can best serve, exhibit the most growth or who will best appreciate your offers will live. This then becomes your “happy zone”.
For 21st century business leaders, a market map is a valuable tool to visually display this information. A market map is simply a visual display of information about the economic activity in a market from a customer perspective which helps to define the boundaries of a market. Maps have been used for centuries to depict representations of reality — the oldest known maps are preserved on Babylonian clay tablets and date back to 2300 B.C. Parameters in a market map include, but are not limited to:
- products / applications
- channels, geographies
- customer revenues
- value systems
- competitive landscapes
- industry structures
The best market maps are very granular in nature and can be invaluable in identifying attractive target segments.
Once attractive target markets or customer groups have been mapped out and identified, insights into the B2B customers’ needs within those target markets need to be identified. These are best obtained through in-depth interviews with customers, prospects and other participants throughout the value chain. These comprehensive interviews are different from sales calls and focus on collecting insights and learning about the hierarchy of both met and unmet customer needs by probing and listening. Typically, these engagements include between ten to thirty customer interviews. While these can be done in-person, over the phone or through video conference calls, the best discussions occur during face-to-face customer visits. Face-to-face communication, either in-person or virtual, helps to establish a rapport and can provide other opportunities to gain valuable information. They also can serve as a chance to conduct ethnographic research, where you can see your product or service in use. Listening to customers describe problems is an excellent way to identify customer needs of all types.
Customers’ needs are the holy grail of insights and thus are highly coveted by marketers. The goal of in-depth interviews is to elicit this information; this can be accomplished by having an unbiased non-judgmental mindset, asking open-ended questions in the right way, and capturing the information accurately. This type of exhaustive interview may look easy to conduct but works best when discussions are facilitated by trained interviewers. When properly conducted — in combination with robust market segmentation and targeting — in-depth interviews can yield impactful results.
A particularly insightful group of customers to question and to learn from are Lead Users. Lead Users are companies or individuals whose needs are far ahead of market trends. MIT Professor Eric von Hippel was the first person to study lead users as a source of innovative ideas. In several fields that he studied, more than half of all innovations or novel product or service ideas originated with users, not manufacturers.4 Luminas experts have decades or experience in leading these efforts to uncover customer and market insights.
Market segmentation is proven to help drive solid organic business growth and improved customer engagement. And the good news is that once this capability is established, it can and should be repeated.
To learn how Luminas can help you company with its organic growth strategy, contact us.