Demand Space Segmentation for Business Strategy
The Challenge
Segmentation can mean a lot of different things in the business world. Lifecycle segmentations often categorize buyers based on their previous purchase behaviors and are commonly used by CRM system managers. Attitudinal segmentation is often used to give creative flavor to consumer segments, with labels such as "Remote Working Conflicted Aspirants". While the use of clever vocabulary may impress some (usually the creator), these can fall flat in giving plain English instructions for how to use these to go to market. There are many other forms of segmentation, and the above are only examples of a couple of typical segmentation methods that are classically asked for and delivered. However, neither truly quantify the market opportunity and depict the right level of competitive and segment nuance to be effective.
Businesses need to size and segment their market. This is not optional. It should be mandatory in any business to avoid the pitfalls of narrow innovation, wasteful marketing spends, or misallocation of internal resources in a general sense. Of all the activities a marketer or researcher can undertake, solid market segmentation should underpin them all.
The Process: Building a Demand Space Segmentation
Demand Space Segmentation, for all the sophistication in its title, is really quite simple. The approach is intended to be completely intuitive and obvious, as opposed to black-box, algorithmic statistical segmentations that leave the user unable to unpack and explain it to others.
There are four pieces to a Demand Space Segmentation:
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Define and size all meaningful use cases in your market.
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Define all competitors in each (this may differ in each use case).
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Define and size all meaningful audiences for your category.
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Blend the analytics for the above
Define and size all meaningful use cases in your market
This exercise can be as intuitive or analytic as the user prefers. It is always a good idea to use research to first construct a 'comprehensive' list (need not split out the last 0.1% sized use case). Sizing these use cases can be done using external secondary data or primary research. It is crucial to examine the market, not just your business or consumers. Many business professionals get this wrong, as they examine only their own customers' behaviors and can miss the bigger market--a more common mistake made where the most available data (e.g. customer databases) becomes the "market truth".
Define all competitors in each (this may differ in each use case)
Again, we go back to getting a comprehensive list of competitors in the market. This can be part of the aforementioned research on the Category or from other sources. Here, the intent is to make sure you have the right list for each space. For example, McDonald's may compete with Taco Bell for dinner use cases/occasions, but the relevant competitive set for breakfast is likely very different.
Define all audiences for your category
Sometimes the lens the practitioner wants to take is the general audience. Sometimes it is very niche. It is always best to size these audiences and choose larger ones. Later, we'll describe the analytics, but as an example here, it's very intuitive arithmetic. An audience that is 10% of the market multiplied by a use case that is 10% of the market will elicit a very small 'demand space' to try and win. The fundamental goal here is to center the company on BIG opportunities, and that can only be done if audience sizing is part of the exercise. Another important aspect of audience development is to ensure the audiences are identifiable. This is especially crucial in a digital environment where data-driven models require inputs based on available characteristics.
Blend the Analytics
Simple cross-tabulations and tables, well presented, can be the best way to describe a demand space segmentation. For example, use cases may run across the columns and audiences on the rows. Then, market sizes and market share are described within each cell of the grid. This grid can sum vertically or horizontally, and the end-user is exposed to a variety of data that allows them to spot size, proportion, and other data-driven patterns that result in a better understanding of how to sequence market strategy.
The Outcome - Short and Long-Term Category Planning
One pitfall of other segmentation designs is the data and results are often truncated in an attempt to simplify things for stakeholders. However, this need not be the case. Most practitioners in business have at least a moderate level of data literacy, and if they don't, they probably should work elsewhere. Data literacy is imperative in today's marketing and strategy world.
Earlier we depicted a grid format for segmentation, which is intuitive, plentiful, and nuanced. It is not one thing, but rather, this sequencing of things, that is the roadmap for sustainable, long-term investments into the category. Users should look for short-term opportunities now, but should be able to easily add various demand spaces to quantify how much of the market they are addressing and how they will sequence efforts to win them all.
For more information or specific examples of Demand Space Segmentation deliverables, please reach out to us here
