Thirty thousand new consumer products are launched each year and 95% of them fail — and this is after the marketers invested heavily to understand what their customers want.
The quote above is from a great case study Clayton M. Christensen published in the Harvard Business Review. Marketers spend billions on brand advertising each year, Christensen says. Still, many executives determine that building a new product is too expensive and ultimately they quit. Instead they try to cut costs through consolidating brands or acquiring brand equity that was built by someone else.
The questions Christensen set out to answer in his study are: What is wrong with this picture? Are the marketers too dumb these days? Are advertising agencies not creative enough? Is the consumer too complicated to understand? The answer is 'no,' Christensen says:
Rather, we think that some of the fundamental paradigms of marketing — the methods that most of us use to understand customers, segment markets and build brands — are simply broken.
When trying to improve sales of our products, we tend to turn to characteristics of our target demographic. Instead, we should be asking what use case (i.e. job) our product is going to fulfill and how well it does so.
We Segment Our Markets The Wrong Way
Market segmentation, Christensen says, defines the target toward which new products are aimed. It influences which products are developed, the features these products have and determines the competitors. However, very few managers actually give a lot of thought to whether their market segments are leading their marketing in right direction.
People segment their markets by age, gender, marital status, income, profession, industry and many other factors. Marketers and companies look at their market as a set of product and customer categories.
The problem with this, according to Christensen, is that customers' real world experience is different from the defined market. Things just happen to them:
Jobs arise in their lives that they need to get done; and customers 'hire' products for these jobs. What this means is that the job, and not the customer or the product, should be the fundamental unit of market segmentation and analysis.
While a customer with a certain characteristic may be more likely to buy a specific product, the characteristic is not what causes them to buy a product. Customers purchase a product because they have a job to do that the product will help them with.
Demographic data can't explain why a man would go out to the movies for a date one night and order a pizza and watch Netflix the next night. It's the same person, but these are two different jobs he has to fulfill.
We've all heard the saying, 'people don't want to buy a quarter-inch drill, they want a quarter-inch hole.' Yet marketers continue to segment their markets by the type of drill, not the hole.
Segmentation by Job: Hiring a Milkshake
Christinsen gives many examples of how segmentation by job works. The example that stood out most was the one about milkshakes.
A fast food restaurant wanted to improve sales of its milkshakes. The marketers defined the market by product (milkshakes) and segmented the market by demographics. They asked the people that fit the target demographic the best whether making shakes thicker, cheaper or chunkier would satisfy them more. Participants gave clear feedback, the product was improved, but there was absolutely no impact on sales.
Afterwards, the researchers turned to studying the 'job consumers were trying to fulfill' when they were purchasing a milkshake. It turned out that 40% of all milkshakes were purchased in the early morning. These early morning customers were most always alone and most of them got back into their car and drove off with the shakes.
As researchers observed the customers buying milkshakes, they asked them: 'Could you tell me what job you need to get done for yourself when you come here to hire the milkshake? What happens if you don't 'hire' a milkshake? ' As it turned out, most people bought the shake because they faced a long and boring commute. They needed something to make their commute a little more interesting:
They were not hungry, but knew that they'd be hungry by 10:00am; they wanted to consume something now that would stave off hunger until noon. And they faced constraints: they were in a hurry, they were wearing work clothes and they had (at most) one free hand.
It also seemed that other products they hired for this job did not work very well. Bagels were too dry, bagels with cream cheese or jam resulted in sticky fingers, bananas didn't last long enough to solve the boring commute issue, donuts didn't carry people past 10:00am hunger attack. The milkshake did the job better then any of these alternatives. It took people on average 20 minutes to finish a shake through a thin straw, which solved the boring commute issue. They did not get their hands dirty in the process, and they did not get hungry at 10:00am on day they 'hired a milkshake.'
The exercise above helped the researchers understand the job the product was hired for. They were then able to improve the product to do that job even better against not just other milkshakes, but also against its real competition: donuts, bagels, bananas, boredom.
How To Do This For Your Own Product
Once the marketers understood the job of the milkshake better it was clear that getting in and out without a lot of wait time was an important part of the entire experience of buying a shake. A self-serve dispensing machine was put in front of the counter with a prepaid swipe card payment device. Had they not truly understood the job they would not have known to integrate the product with the fast self-serve dispensing machine.
Christensen gives a number of other examples as well as some great tips to help marketers segment their markets by job instead of demographics. There are three simple questions Christensen recommends asking to segment your market by a job:
1. What's the job to be done, the basic problem the customer is facing, and the result that she needs?
2. What are the experiences in purchasing, using and living with the product that we need to provide in order to get the job done perfectly?
3. What and how must we integrate in order to provide these experiences?
You can buy the entire case study on HBR. Trust us, it's worth the $7.