I’ve audited hundreds of strategies, and here’s what I saw — part 4
Reroute the billions spent pushing good products at the wrong people, and we’d wipe out poverty.
Poor customer segmentation is easy to avoid but hard to spot, which is why it’s so common.
Cheetahs and gazelles
A few years ago, I had a client—a company selling specialized equipment. My job was to help the CEO craft a new strategy.
The company’s leadership segmented its customers by industry:
- Construction companies
- Road construction and maintenance companies
- Facilities management companies
As always, we started with customer interviews. As always, the senior executives were skeptical at first, but later admitted the interviews were valuable.
They gained many insights, but the big one was that clients within each “segment” were different.
For example:
1. Small and large companies in any given segment looked nothing alike.
2. Companies of similar size across different segments, by contrast, were strikingly similar.
Both small construction companies and small road construction businesses needed super-fast service. They wanted to send a request at 4 p.m. and have the equipment on-site by 8 a.m. the next day.
Large companies in all industries were nothing like that. They planned their projects weeks in advance. They would send a request on October 2 and expect the equipment on-site at 8 a.m. sharp on November 21.
Company size influenced its employees’ expectations more than its industry.
Putting small and large companies in the same segment just because they were in the same industry was like lumping cheetahs and gazelles into the same biological category just because both have four legs.
Segmentation by age, gender, social class, industry, or location is a thing of the past.
Segmenting customers by the obvious solves the easy problem, not the right one. As H. L. Mencken said: “For every complex problem there is an answer that is clear, simple, and wrong.”
Need-based segmentation
Why do you need customer segmentation in the first place? To tailor your products and services to different customer groups.
But you can’t do it if the customers in each group have different needs.
Poor segmentation causes companies to waste billions on promo campaigns that’ll never work.
For instance, today my feed showed me ads for:
1. e-bikes
2. women’s underwear,
3. services to get you a neighboring country’s passport,
4. electric shavers (I’ve had a beard for nine years).
I’ll never buy any of these and have never shown interest in them. I only saw the ads because someone mis-slotted me into a “segment.”
In B2B, sales reps often work hard trying to sell products that fail to meet their clients’ needs.
It’s easy to avoid this mistake—just use need-based segmentation. Segment your customers by their needs.
· Customers who need instant service go in one segment.
· Those who care about product customization go in another.
· Those who demand ironclad deadlines go in a third.
· Customers who will do anything for a discount go in a fourth.
It took me a few weeks to persuade the company’s leadership to resegment their clients. They eventually made the change and have been thriving ever since.
In the paywalled section—available to paid subscribers and founding members of my newsletter—I also discuss the link between customer segmentation and the company’s organizational structure.