STAGE 1a) ANALYSE TODAY - CUSTOMER
“The purpose of business is to create and keep a customer.”
Peter Drucker, Management Guru
Our strategic analysis should start with customers. They define who our competitors are. The value they place on our company’s offering determines if we are profitable.
Even simple businesses have different types of customer - we need to understand these differences to avoid having our customers “cherry-picked” by competitors more focused on different customer needs.
Technologies and markets change, but the jobs that customers want their products to do are much more enduring - by understanding this fundamental job, we can imagine how their needs are going to evolve in future.
Questions to answer
- What “jobs” do our products do for our customers? Emotional and Functional?
- What are the alternatives customers will consider to do this job?
- What is the best strategic segmentation for us to use?
- What are customer needs? What are the buying factors customers use to decide what they will buy? What are differentiating factors? What are hygiene factors? How are needs changing?
- What will be the future attractiveness - growth rates and price sensitivity of different segments?
Whether we are a B2B or B2C business, we can’t consider each customer individually - we need to group similar customers together into segments.
How to segment our customers is a key strategic decision that will fundamentally shape how we look at the business. Many new strategies start from a new segmentation.
There are many possible ways to segment our customers - in B2B, by industry verticals, size, ownership of enterprises. In B2C, by demographics - gender, age, income, or lifestage. These are fine for tactical marketing efficiency, but they do not work well for strategic decision-making. Use a needs-based segmentation, based on the different jobs customers hire our product for.
A good segmentation will result in segments with very different needs and different competitor market shares in each. The sweet spot is to identify 3-5 discrete segments:
- With only two there is not enough granularity
- Six or more is usually too much complexity to manage
Once we have our needs-based segmentation, rate the overall attractiveness of each segment by assessing the following criteria:
- Future Growth
- Price Sensitivity - potential for high margins if we can successfully differentiate from competitors
Once we have a clear view of the present, start looking to the future - How are needs changing?