... where visionaries, game changers, and challengers discuss business models
Some time ago I wrote about two reasons why I read and follow certain authors. There is something enervating in finding an author that shows you a way of looking at the world, a frame of reference that you haven’t previously considered that changes or expands your understanding of a subject. The second reason is where I discover an author who has articulated something that I have known or felt intuitively, but was perhaps unable to express clearly in my own right.
I am reading Rita Hunter McGrath’s new book The End Of Competitive Advantage, and I have been struck with how she lays out the thinking around the shift in segmenting customers and understanding their needs in order to align value propositions and leverage opportunities.
I am a strong proponent the job-to-be-done / problem-to-be-solved approach to developing customer insight and to segment customers. I use this approach extensively with my clients, in workshops and in speaking engagements. I have gone so far as to develop my own tool and approach (I have written about this previously here) to helping my clients understand their customers. What I lacked was simple, clear expression of why it is important to change the way businesses see customers and segment them.
The traditional approach to customer understanding has been based on the characteristics of the customers and segmenting them on demographic basis. To do this businesses rely on data about their customers, age, income, physical location, buying behaviours and so on. As options increase and markets are increasingly fragmented, this approach is becoming less and less effective at guiding decision making.
Increasingly the categorization of customers is based on a different set of assumptions about the customers and how they behave. A finer grained understanding of customers and their connections to products and services is needed. The underlying driver is the outcomes particular customers are seeking, and the alternate ways those outcomes can be achieved. This is the root of the job-to-be-done approach championed by Clayton Christensen, Mark Johnson and Tony Ulwick, and Rita McGrath.
The net effect of this change is a shift from data-driven segmentation based on the characteristics of the customers, to a motivation-driven segmentation based on the outcomes the customers are seeking through their jobs and problems. This is an important component of the Customer Development Model of Steve Blank, and is supported by tools like Alex Osterwalder's Value Proposition Canvas.