Strategic Planning Analogy #554: Organizing the Closet

THE STORY
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.

THE ANALOGY

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
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.

SUMMARY
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.

FINAL THOUGHTS
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.

Strategic Planning Analogy #519: A Whole Foods Bag at Aldi

THE STORY
Last week, I was shopping at an Aldi supermarket. While there, I saw a shopper in the Aldi store using a reusable shopping bag from Whole Foods.

In case you are not aware, Aldi is a low end, no frills cheap store selling a limited assortment of private label products. By contrast, Whole Foods is a huge, high end store full of high quality organic and Vegan products. Whole Foods is such an expensive place to shop that it is often referred to by customers as “Whole Paycheck.” You could not find two grocery chains at more opposite ends of the spectrum.

But there it was before my eyes—a customer in Aldi who also apparently also shops at Whole Foods. She was well dressed and looked rather sophisticated—a cut above the appearance of many in the store. And she was purchasing low-end private label goods at Aldi using a Whole Foods bag.

I was thinking how strange that was until I realized that I was also shopping at Aldi. Maybe it isn’t so odd after all.

THE ANALOGY
A big part of strategy can be segmentation. Questions debated include “who should be my segment” and “how to appeal to that people segment.”

The problem is the “who.” Did that woman I saw at Aldi belong in the Aldi segment or the Whole Foods segment? It’s obvious that Aldi and Whole Foods are targeting two totally different segments of the grocery business. Yet this woman appeared to fit into both segments. Where should we put her? Which marketing message should she receive?

This is not just a problem for supermarkets. Problems like this crop up all the time in business, where individual consumers do not neatly fit into a single segment. In fact, large portions of the population usually defy simple classification into a single segment. They appear to exhibit seemingly inconsistent behavior, doing different things at different times in different ways. They seem so illogical—defying the logic of my segmentation scheme.

As we shall soon see, the problem is that we often focus on the “who” of segmentation when instead we should focus on the “when” of segmentation. Making this change will vastly improve the segmentation portion of strategy. The illogical will become logical again.

THE PRINCIPLE
The principle here is that superior segmentation is typically occasion-based, rather than individual-based. People react differently based on the situation or occasion. For example, the same individual may:

1. Buy one brand of beer when trying to impress others and a different brand when drinking alone.
2. Go to one kind of restaurant when eating with his/her kids and a different restaurant when eating with their boss.
3. Wear one type of clothing when going to work and another type when exercising at the gym.
4. Shop at a big stock-up grocery store at the beginning of the month just after getting paid, shop at a convenience store to pick up milk when running out in the middle of the week, and shop a cheap store at the end of the month when money is tight. 

Does this inconsistency in behavior mean that these individuals are illogical? Not at all. Every behavior is logical within the context of the particular occasion/situation.

1. When impressing others with beer, price is less important and image more important. Therefore, it is logical to buy a different beer than when drinking alone (when price is more important and image less).
2. A restaurant suitable and desired by children (kid-friendly food and environment) is not one suitable for business lunches with the boss (quiet and sophisticated), so one naturally chooses differently depending on who one is eating with.
3. A business suit makes no sense at the gym and gym clothes make no sense in the office.
4. The amount of money in one’s pocket, the size of the shopping list, and how much of a hurry one is in determines where one go for groceries. As these variables change, so changes the shopping destination.

Therefore, it is the wrong question to ask as to which segment I am in:

1. The image beer or cheap beer segment.
2. The child-friendly or boss-friendly restaurant segment.
3. The suit or sweats clothing segment.
4. The stock-up, convenience, or low price grocery segment.

I’m in all of these segments. It’s like the lady who is both in the high-end organic grocery segment (Whole Foods) and the cheap private label grocery segment (Aldi).

So does that mean that segmentation is worthless? Not at all. It just means we have to move from designing segments around “who” to segments around “when.”

If you look at the “when” of segmentation, then you are looking to own a situation or an occasion. You try to become the ideal solution for anyone whenever they find themselves in that chosen situation or occasion. At that point, that person becomes a part of your segment. And when that person moves on to a different situation, they fall out of your segment. You target the moment, not the person. When the moment is appropriate for your brand, you make your move.

Grocery Example

For example, I did not see that woman at Aldi purchasing any meat or fresh produce at Aldi. When she runs out of those products, that occasion probably prompts a trip to Whole Foods, because she values their extra quality, variety and emphasis on organic. And these attributes are important to her on fresh food.

But I suspect that in order to afford those expensive items at Whole Foods, she needed to save money on items where freshness, quality, variety and organic are less important. Thus, when the occasion comes up to buy basic staples, like rice or pasta or paper plates, she went to the store focused on low price—Aldi. This explains why I saw her in the pasta section at Aldi.

So the occasion/situation dictated which attributes were most important. Then the store which owned the attributes associated with that situation got the business—Whole Foods when the occasion required quality, variety and organic and Aldi when the occasion required saving money. As long as Whole Foods and Aldi continue to excel at their differentiated solution sets, they will win when a person’s occasion causes them to desire that particular solution set.

Steps to When-Based Segmentation

To succeed at when-based segmentation, you need to do the following:

1. Choose a situation or occasion where you can win (your position).
2. Build a business model that makes your brand the ideal solution for the problems most relevant to that occasion.
3. Let people know which occasion-based solution you are relevant for and why you are best qualified to solve the problems relevant to that occasion.
4. Do a good job of getting your brand inserted into the moments when the occasion is relevant.

For example, let’s say that you own a restaurant. The first step is to find an occasion to position yourself around. Let’s assume you choose to own the occasion of business lunches.

The second step is to build a business model that will give you superiority as a place for business lunches. So you start by doing research to learn what is most important when choosing a place for a business lunch. Perhaps the research says that the following qualities are most important: quiet area where you can hold conversations confidentially, close proximity to the office, ability to cater meals, food that has a sophisticated adult taste isn’t messy. Then you build your business to win on these attributes in terms of location, offerings, and skill sets.

Third, you make sure people are aware that you are “the best place for a business lunch.”

Fourth, you try to make sure you are inserted in the moments when that occasion comes up. For example, you may buy ads on search engines for terms like “business lunch.” After all, when people are looking up the term, they are probably entering that occasion. Perhaps you get in good with all the top administrative assistants in the offices nearby. After all, they may be the ones called upon to find their boss a place for a business lunch. If the admins control the choice, then you want to control them when the occasion rises.  

Finally, don’t get upset when all those business people drive home to their families in the suburbs and are not coming to you for dinner. Their situation has changed and they are no longer trying to solve the “lunch with boss” problem. They are no longer in your segment. Their meal needs have changed. And if you try to change your business model to meet these new situation needs, you can ruin your ability to win at the business lunch occasion.

Be patient. They will come back to work tomorrow. And many will need to solve the “lunch with boss” problem tomorrow. Just be ready when they drift back into your situation-based position.

SUMMARY
Segmentation is a key element of strategic planning. Usually, the best segments are those that are defined around situations rather than around individuals. The problem with individual-oriented segments is that individuals act differently based on the situation. Therefore, it is virtually impossible to create a solution that is best for all the situations a particular individual experiences. The better alternative is to choose a position revolving around a particular situation. If you own the best solution for that situation, then you will get the business whenever someone drifts into that situation. And don’t be upset when the customer drifts into a different solution and chooses someone else. Just be ready when they drift back into the situation where you can win.

FINAL THOUGHTS
Follow the solution to the situation, not the individual. If you follow the individual, you will become unfocused in what you offer as you try to be all things to all of their situations. By contrast, if you follow the solution to a situation, you will continue to get better at owning a point of focus.

Strategic Planning Analogy #257: Dated Thinking

THE STORY
The dating process has always seemed a bit odd to me. In many cases, people are dating in order to find the person that they want to spend the rest of their life with, someone compatible with their lifestyle. Yet, when these people are on a date, they are acting differently than their normal lifestyle.

For example, they may be a slob, but they dress up and clean up their place for a date, something they would not otherwise do. They may drink the cheap beer when alone, but consume the good stuff on a date. They may love to spend their evenings watching TV, but endure the theater and museums on a date.

How are you supposed to find someone compatible with your lifestyle, if you never live your normal lifestyle in their presence? It makes me wonder how many businesses would go bankrupt if people stopped acting differently on dates. And it does not surprise me that many are disappointed after getting married, because their new spouse stops the unusual activity from the dating and go back to their “normal” ways.

I am reminded of a story I heard from my high school guidance counselor. He said there was a woman who didn’t want the man she was dating to know she was wearing braces, so before her dates she would yank out her braces. After the date, she would push them back in. Ouch!!

THE ANALOGY
Dating is an occasion where people can act differently from “normal.” As it turns out, it is not the only one. It could be time of the day—like drinking coffee in the morning, but never in the evening, for example. It could be time of the month—depending on how close it is to when you last got paid. Behavior can change between when you are with your friends at home versus with your boss at work.

As it turns out, there typically really isn’t a “normal” way of life for a particular individual. The behavior changes based on the occasion. Each occasion creates its own type of normalcy. It is as if we take on a different role depending on the particular occasion. I may have my “Dating” role, my “Being at Work” role, my “Being a Parent” role, my “Being with Friends Role,” and so on.

There is actually more consistency in behavior based on a particular occasion/role than there is in the total life of an individual. For example, behavior on a date may be different than behavior when not on a date, but the behavior when dating is relatively consistent whenever the dating occasion comes up.

Therefore, when creating a strategy, it is better to target the relatively consistent needs for a particular occasion than to target inconsistently-acting individuals.

THE PRINCIPLE
The idea here is that strategies focused on occasion-based solutions tend to be more effective than strategies which target individuals. Individuals slip in and out of roles depending on the occasion. Their needs and desires change based on the occasion. If you try to target one individual all the time, your appeal will have varying degrees of success, depending on which role the individual is playing at a particular time.

As a result, even though there is much talk these days about being customer-centric, real success comes from being solution-centric.

Restaurant Example
For example, let’s look at how an individual, let’s call him “Bob,” uses restaurants. When Bob is on a date, he may be looking for a restaurant that is romantic, that would impress his date. When Bob wants a meal to eat while working late at the office, he may be looking for convenience, low price, and delivery services.

If Bob is having an important business dinner, he may want someplace which is quiet, where they don’t mind if you linger, and shows off his financial strength (i.e., expensive and snooty). When eating out with his children, he may want a restaurant that is moderately priced and kid-friendly. If Bob wants a meal when alone at home, he might skip the restaurant altogether and just nuke something in the microwave.

As a restaurant owner, what would be the best restaurant approach if the strategy is to target Bob? The restaurant would need to be romantic, quiet, kid-friendly, snooty, expensive, cheap, moderate, quick, lingering, and sells things to take home and microwave. Good luck on that one.

There is no single ideal restaurant strategy to target at Bob, because Bob’s needs and desires change based on the occasion. He wants a different type of restaurant for each occasion. If you try to create one restaurant appropriate for all of those occasions, it will not be able to be the best at any particular occasion. The irony is that a single restaurant specifically designed to meet all the restaurant needs of Bob would most likely be a restaurant Bob would hate to visit, because it would never be the best option for any of his occasions/roles.

A better restaurant alternative would be to stop targeting particular people and instead start targeting a particular occasion, like being the ideal restaurant for dating. That way, when Bob is going on a date, your restaurant will be the best choice for that occasion. It doesn’t matter that Bob would never choose you for his other roles, because you are no longer targeting Bob. You are targeting anyone who is looking for the ideal dating restaurant at a particular moment. If there are enough people drifting into the role of looking for a dating restaurant solution, then you don’t have to worry about missing the other occasions.

By choosing a particular occasion, you can focus on being the best at delivering the attributes most important to that occasion. You can downplay attributes less important so that you can afford to do a better job on the ones which are important to the occasion. For example, a dating restaurant could afford to do a more effective job of being romantic, because it does not have to worry about also trying to be kid-friendly. Your brand is strengthened, because it stands for something—the best choice for a particular occasion.

Other Businesses
This principle does not just apply to consumer activities, like eating out. This also can work in pretty much any business, including industrial businesses. For example, a steel supplier could focus any one of a number of occasions:

a) When you need a problem solved in a hurry/emergencies;
b) When you need highly customized and unique solutions;
c) When you need basic commodities;
d) When you are having cash flow challenges;
e) When your project is in a particular area, like the Middle East.

By focusing on one of these occasions, the steel supplier may not get all of the total business from Bob’s Construction Company, but they have a better shot at getting all the business from Bob’s Construction Company when it falls into that particular occasion.

Portfolio of Brands
If you want to satisfy more than one occasion, it is usually better to do so under multiple brands, with each brand owning a different occasion segment. That way, each brand can specialize and own that occasion in the mind of the customer. The individual brands stay pure and don’t get diluted by trying to stand for too many things.

For example, the Lettuce Entertain You Group operates 38 separate restaurant brands. Each brand has its own name and specializes in something different. There are brands for formal occasions, casual occasions, convenience occasions, and so on. Each brand is well known in its location for its occasion segment. And none of the customers really know about or care about the parent company name.

By contrast, the Chevrolet brand is slapped on cars meeting all sorts of different needs, from economy (Aveo) to sports car prestige (Corvette). For many of the cars in the Chevrolet lineup, I’m not sure I even know what need they are trying to solve (Cobalt?). Blandness and lack of brand focus is not a path to success.

SUMMARY
Successful strategies are usually based on being the best at solving some sort of problem for the customer. Consequently, even though there is a lot of talk these days about being customer-centric, real success comes from being solution-centric (or occasion centric). By focusing on a solution/occasion, one can become the best at the attributes most important to that occasion. The same cannot be said of a consumer focus, since consumers tend to drift in and out of problems, depending on the situation of the moment. There is no single strategy that is right for a consumer under all the different situations they encounter, and to try to meet them all under one brand can be a disaster.

FINAL THOUGHTS
Eventually, people like Bob may settle down, get married, and no longer be a part of the dating scene. Life-stage changing events like these can drastically change what someone like Bob is looking for. Therefore, trying to follow Bob through his life changes can be difficult, because it would require you to make drastic changes over time (for which you may not be capable of being the best at) and which might confuse the brand. It is probably better to stick to being known as the best dating restaurant, abandon Bob, and get the next generation of daters. For more on this, see prior blog.