Wednesday, September 16, 2015

Strategic Planning Analogy #554: Organizing the Closet

Jessica and Amanda both owned a huge amount of clothes—so many that it became hard to find the right thing to wear. Therefore, Jessica and Amanda decided to get more scientific about how they organized their walk-in clothes closets.

Because having a color-coordinated outfit was so important, Jessica organized her closet by colors. All the reds were put together, all the blues were put together, and so on. Jessica was proud of her decision. “Now, putting together a coordinated outfit should be a snap,” said Jessica.

Amanda took a different approach. First, she separated her clothes by season. Then within each season, she separated dressy clothes from casual clothes. “This should make it easy to find an appropriate outfit for the season and occasion,” thought Amanda.

So who do you think had the easier time finding an outfit?

As it turns out, Jessica had the more difficult time. Sure, all the reds were together, but there were so many of them to wade through. There were summer wear in reds, winter wear in reds, dressy clothes in reds, casual clothes in reds and so on, all mixed up together. Most of what she had to sort through in reds was inappropriate at any particular time or occasion. It was difficult to find the appropriate red items at any particular point in time.

By contrast, Amanda’s approach to sorting made finding an outfit much easier. She knew what season and occasion she needed an outfit for before entering the closet. Then, she went to the appropriate area where those types of clothes were located. It was easy to make the right choice.

Just because you organize your closet does not mean that it will help make your life simpler and more organized. Some organizational methodologies are just more helpful than others. Amanda, who organized by end use, had a superior system of clothes segregation than Jessica’s, which sorted by color.

The same is true in business. Businesses are told that things will be better if they segregate and specialize. However, not all segregation approaches are equally effective. Some are far more efficient than others. If a business chooses the wrong segmentation approach, it may deceive itself into thinking it is better off, merely because it went through the act of segmenting.

However, it may find itself in a situation like Jessica, with a segmentation scheme that provides no benefit, because it organized around the wrong factor (like color).

Therefore, before running your business through a complicated segregation and specialization program, make sure you are segregating and specializing on the most effective factors.

The principle here is that a segmentation system based on end use and occasion (like Amanda) is almost always better than a segmentation system based on people/customers. At first, this may sound like heresy. After all, the majority of publications on targeted business segmentation will focus on how to target particular customer segments. But, as we will see below, that is not the best system for these times.

Push Vs. Pull
The targeted customer approach was developed a long time ago, before the advent of social media and consumer empowerment. The idea was that you would choose a particular customer segment and then pitch your product to that segment. It assumed that the business controlled the conversation, both in terms of who was involved and what the message was. It was called “push” marketing, because the manufacturer was pushing the conversation to its intended target. It was a controlled, one-way discourse. In such a controlled environment, segmenting by customer made sense.

However, that world has pretty much disappeared. Customers now want a dialogue, which includes not only a two-way conversation with the manufacturer, but also adding in other voices, like blogs, independent reviews, consumer ratings, and the opinions of their friends. The manufacturer no longer controls the conversation. It is merely one voice among many.

Now, we are in a “pull” environment, where the customers decide whether they want to get involved or not. If they decide to opt-in, then they pull the product towards them. If the customers don’t want to opt-in, the manufacturer is left out. Because the company has pretty much lost the ability to control who wants to be in the conversation, it seems a little silly to think they can control the segmentation of customers.    

Customers Have Multiple Occasions
But even if you could still segregate customers, it’s not the best choice. This is because people do not act the same in all situations. Take food, for example. Your choice for the most appropriate place to get food can change based on the situation/occasion:

  • At the beginning of the month, when flushed with cash: A stock-up store.
  • When out of a couple of perishable items, like bread or milk: A convenience store.
  • When trying to impress a date or a boss: Higher-quality, more expensive food.
  • When trying to stretch your money at the end of the month: a hard-discount cheap store.
  • When needing a quick snack at work during a break: a vending machine.
  • When in a hurry: a fast food restaurant.
As you can see, the person stayed the same, but the best option did not. The best option for the same individual varied by occasion. So if you target a particular consumer segment, what are you supposed to offer, since it varies by occasion? Am I to be a combination large stock-up, small convenience, high price, low price store inside of a vending machine that is also a restaurant? There really is no way to capture a consumer segment, because the consumer segment is not consistent across occasions. It really isn’t a meaningful segment.

Occasion Segmentation
This is why occasion-based segmentation is a much better choice. It was a better choice for Amanda’s closet and will be a better choice for your business. There are three reasons for this.

First, it allows a company to specialize and become “best at” offering the solution to a particular occasion. Rather than trying to be that combination food mess mentioned earlier, you can focus on just one of those occasions and truly become the best. That way, when someone is looking for a solution to the problem associated with that solution, you will stand out as the best option and get the business.

And this leads directly into the second reason to segregate and specialize based on a solution. In a pull environment, the customer is the one making the choices, and they make their choice at the time of the occasion. They will go out into the social media space to figure out what is the best option for that occasion and then pull in the best option. The only way they will choose you is if you have specialized in such a way as to be the best at that particular time and occasion. So to win in the new environment, you need to own the occasion.

The beauty is that you are now open to all modern customers, not just a segment. Whenever anyone falls into the occasion you are specializing in, they can be yours. And given the modern digital tools, they will find you. Isn’t that better than proactively telling people you don’t want their business because they are not in your “customer segment”?

Take the Kia Soul. It was originally targeted to a young “first car” consumer segment. However, one of the largest segments buying the car is retirees. As it turns out, retirees drive less, need to save money (on fixed incomes), and don’t haul around a lot of stuff or people. The Kia Soul is a great solution to the majority of the occasions retirees fall into. Why write off retirees and all of their business because of a push marketing segmentation directed to youth?

Finally, a specialization based on occasion typically leads to operational efficiencies. By not trying to be all things to a consumer segment, you can save all the expenses associated with that. Hence, the occasion-based focus can be a more profitable approach.

In general, specialization and focus are good things. However, the benefits of specialization and focus vary depending on what you choose to focus on. In most cases, focusing on owning an occasion segment is more powerful than trying to own a consumer segment. Occasion-based segmentation is more in tune with pull marketing and the way consumers behave today. In addition, consumers vary their choices based on the occasion at hand, which implies that there really is no single way to please a consumer segment. Therefore, instead of focusing your business based on consumer demographics, focus on solutions for particular situation.

Every time you pick out your clothes to wear, remember that your choice is made based on the occasion for which you are wearing them. That way, you will never forget to run your business the same way—designed to be the best at providing a solution to a particular occasion.