The market segmentation scheme that a company chooses to adopt is a decision of vast consequence. It determines what that company decides to produce, how it will take those products to market, who it believes its competitors to be and how large it believes its market opportunities to be. Yet many managers give little thought to whether their segmentation of the market is leading their marketing efforts in the right direction. Most companies segment along lines defined by the characteristics of their products (category or price) or customers (age, gender, marital status and income level). Some business-to-business companies slice their markets by industry; others by size of business. The problem with such segmentation schemes is that they are static. Customers’ buying behaviors change far more often than their demographics, psychographics or attitudes. Demographic data cannot explain why a man takes a date to a movie on one night but orders in pizza to watch a DVD from Netflix Inc. the next.
Product and customer characteristics are poor indicators of customer behavior, because from the customer’s perspective that is not how markets are structured. Customers’ purchase decisions don’t necessarily conform to those of the “average” customer in their demographic; nor do they confine the search for solutions within a product category. Rather, customers just find themselves needing to get things done. When customers find that they need to get a job done, they “hire” products or services to do the job. This means that marketers need to understand the jobs that arise in customers’ lives for which their products might be hired. Most of the “home runs” of marketing history were hit by marketers who saw the world this way. The “strike outs” of marketing history, in contrast, generally have been the result of focusing on developing products with better features and functions or of attempting to decipher what the average customer in a demographic wants.
This article has three purposes: The first is to describe the benefits that executives can reap when they segment their markets by job. The second is to describe the methods that those involved in marketing and new-product development can use to identify the job-based structure of a market. And, finally, the third is to show how the details of business plans become coherent when innovators understand the job to be done.
Hiring Milkshakes
A “job” is the fundamental problem a customer needs to resolve in a given situation. To illustrate how much clearer the path to successful innovation can be when marketers segment by job, consider an example from the fast-food industry, where companies historically have segmented their markets along the traditional boundaries of product and customer categories.
When a fast-food restaurant resolved to improve sales of its milkshake,1 its marketers first defined the market segment by product — milkshakes — and then segmented it further by profiling the customer most likely to buy a milkshake. Next, they invited people who fit this profile to evaluate the product. Would making the shakes thicker, more chocolaty, cheaper or chunkier satisfy them more? The panelists gave clear feedback, but the consequent improvements to the product had no impact on sales.
Then a new researcher spent a day in a restaurant documenting when each milkshake was bought, what other products the customers purchased, whether they were alone or with a group and whether they consumed it on the premises or drove off with it. He was surprised to find that 40% of all milkshakes were purchased in the early morning. These early-morning customers almost always were alone, they did not buy anything else and they consumed the milkshakes in their cars.
The researcher then returned to interview the morning customers as they left the restaurant, each with a milkshake in hand, and essentially asked (but in language that they would understand), “Excuse me, but could you please tell me what job you were needing to get done for yourself when you came here to hire that milkshake?” Most of them, it turned out, bought their shakes for similar reasons: They faced a long, boring commute and needed something to keep that extra hand busy and to make the commute more interesting. They weren’t yet hungry but knew that they’d be hungry by 10 a.m.; they wanted to consume something now that would stave off hunger until noon. And they faced constraints: They were in a hurry, they were wearing work clothes and they had, at most, one free hand.
When the researcher asked what other products the customers might hire to do this job, it turned out the milkshake did the job better than any of its competitors. Bagels were dry; with cream cheese or jam, they resulted in sticky fingers and gooey steering wheels. Donuts didn’t carry people past the 10 a.m. hunger attack. Bananas didn’t last long enough to solve the boring-commute problem. In contrast, it took 20 minutes to suck a viscous milkshake through a thin straw, hands remained clean and stomachs were satisfied until lunch. It didn’t matter that the milkshake wasn’t a particularly healthful food because that wasn’t the job it was being hired to do.
Once it was understood which jobs the customers were trying to do, it became very clear which attributes of the milkshake would do the job even better and which improvements were irrelevant. How could they better tackle the boring-commute job? Make the shake even thicker, so it would last longer, and swirl in tiny chunks of fruit — not to make it healthy, because customers didn’t hire the milkshake to become healthy. But adding the fruit could make the commute more interesting — drivers would occasionally suck chunks into their mouths, adding a dimension of unpredictability and anticipation to their monotonous morning routine. Just as important, they could move the dispensing machine in front of the counter and sell customers a prepaid swipe card so that they could dash in, gas up, and go without getting stuck in the drive-through lane.
Understanding the job and improving the product on dimensions of the experience so that it does the job better would cause the company’s milkshakes to gain share against the real competition — not just competing chains’ milkshakes but donuts, bagels, bananas and boredom. This would grow the category, which brings us to an important point: Job-defined markets are generally much larger than product category–defined markets. Marketers who are stuck in the mental trap that equates market size with product categories don’t understand who they are competing against from the customer’s point of view.
Cars Or Offices On Wheels?
Automakers and their market analysts segment their markets into product categories such as subcompacts, compacts, mid-size and full-size sedans; SUVs and minivans; light versus full-size trucks; sports cars and luxury cars. They segment their customers along extraordinarily sophisticated demographic and psychographic dimensions as well. Yet the failure of these practices is glaring, because these segmentation schemes don’t reflect the jobs that customers hire a car to do. Millions, for example, hire a car primarily to be a mobile office. Most models sell fewer than 100,000 units per year, and their makers struggle to sustain premium pricing for any of the features that add cost to their cars. And yet, no company has designed a car that is optimized to do the mobile-office job that these millions of people need it to do. If the job were the unit of analysis for carmakers, it’s easy to see how they could differentiate a family of products in ways that mattered for those who hire a car to be their mobile office. The same customers who resist premium prices for features that are irrelevant to this job gladly would pay for electrical outlets, wireless access to the corporate customer relationship management database, a hands-free phone, a big-screen BlackBerry, docking stations, fold-out desks and organizing systems — all of which could differentiate the car on dimensions that would merit premium pricing.2 After test-driving model after model, many buyers who need to do this job conclude that there is little differentiation across the products in this market. But the products are consummately differentiable.
The Job of Differentiation
One of the most powerful benefits of segmenting markets by job and then creating products or services to do a job perfectly is that it helps companies escape the traditionalpositioning paradigm in which so many are trapped. The positioning paradigm posits that products in most markets can be mapped on a couple of axes, along which competitors have sought to differentiate themselves. In furniture retailing, for example, breadth of selection might be the metric on one axis, and quality of furniture might be measured on the other. The relative position of various automakers’ products can be similarly mapped. One axis might be product category (compact, mid-size, SUV, etc.), while the other might map the degree of luxury in interior features and décor. Differentiation-conscious marketers within the conventional positioning paradigm search for a vacant spot on such maps into which they can position new products.
The problem with the positioning paradigm is that even when marketers find open spaces into which unique products can be slotted, customers often don’t value the differentiation, and competitors find it easy to copy. The starting point on such maps of differentiation typically is occupied by products that have only the basic functions that customers need. “Disruptive” companies in that minimalist position then move “up-market” in pursuit of profit, copying features and functions of competitors’ higher-priced products. When this happens, features that once defined a differentiated, augmented product become expected in all products. This forces marketers to search for yet more “unique” features with which to augment their offering.3 A punishing fact of life on this treadmill is that when once-unique features of an augmented product become commonly expected, companies are saddled with the costs of providing those features but cannot sustain premium pricing for offering them. The root reason for this entrapment is the pervasive practice of positioning products in categories that are defined by the properties of products, so that “better” is achieved by copying features and stretching functionality.
When a company begins to view market structure by job, however, it can break away from the traditional treadmill of positioning and differentiate itself on dimensions of performance that are salient to jobs that customers need to get done. This differentiation seems to stick much longer. In furniture retailing, for example, most companies have been trapped in the traditional positioning paradigm whose axes variously measure breadth of selection, style and quality/price. However, it seems there are at least two fundamentally different jobs that arise in customers’ lives. One happens in the lives of people who have graduated from their starter home and now need to equip their longer-term residence with furniture they will keep for the rest of their lives. Retailers that customers hire to do this job indeed must offer broad selection and enduring style and quality. Their customers are quite willing to wait the two to three months often required for delivery of such furniture. The other job arises among customers who have just moved into a bare apartment or starter home.
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Acknowledgments
We thank Bob Leahey of InfoTrends Research Group Inc., Armando Luna of Blue Cross and Blue Shield of Florida Inc., Emily Sawtell of The McGraw Hill Cos. and Steven Wunker of Innosight LLC for their comments on drafts of this paper. We also thank Rick Pedi and Bob Moesta of Pedi, Moesta & Associates Inc. for allowing us to use disguised insights and examples from their work with these ideas.
REFERENCES
1. The descriptions of the product and company in this example have been disguised.
2. There are other job segments in the auto industry. The key reason why DaimlerChrysler AG’s early minivans were such a hit with customers was, we believe, that they were positioned on a job that arose in the lives of families — to interact easily and safely with each other while traveling together from here to there. Creating a job-focused product does not guarantee a perpetual monopoly, of course, and other automakers ultimately introduced their own minivans. It is noteworthy, however, that it took competitors years to introduce performance-competitive minivans. Because they were organized by product category rather than job, the minivans just didn’t fit with the way they were structured or thought about in the market. As a result, Chrysler’s market-share leadership persisted for over a decade. Another job that people hire a car to do is to express care and love for a spouse or a child. No car has the features and associated services bundled with it to do this job well.
3. See T. Levitt, “Marketing Success Through Differentiation – of Anything,” Harvard Business Review 58 (January–February 1980): 2–9 for a classic description of the augmented product concept. Harvard Business School professor Youngme Moon has written and taught extensively about the concepts in this section, and we thank her for “augmenting” our own understanding of this phenomenon through her articles, cases and teaching notes.
4. IKEA founder Ingvar Kamprad had a partial, intuitive sense of what some fraction of furniture buyers needed to do when they walked into a store. As he and his associates started the company and tried to help their customers, understanding of the job coalesced piece by piece. IKEA executives probably do not articulate their strategy as being focused on this job — most likely this insight resides in a tacit, cultural understanding. Our hope is that by articulating this model of jobs-to-be-done segmentation and illustrating it with companies like IKEA, whose strategies de facto mirror this model, we might help students and managers who weren’t blessed with the intuition (and luck) of Kamprad to deliberately find opportunities such as these.
5. P.F. Drucker, “Managing For Results” (New York: Harper & Row, 1964), 94.
6. These methods are recounted in C.M. Christensen, “Hospital Equipment Corporation,” Harvard Business School case no. 9-697-086 (Boston: Harvard Business School Publishing, 1997).
7. This information was provided by Michael Schulhof, former Sony board member and CEO of Sony Corp. of America for 20 years, during an interview in New York City in 2001.
8. Leonard, William J. Abernathy Professor of Business Administration Emerita at Harvard Business School, called this method empathic design. See D. Leonard and J. Rayport, “Spark Innovation Through Empathic Design,” Harvard Business Review 75 (November–December 1997): 102–113.
9. See E. von Hippel, “Democratizing Innovation” (Cambridge, Massachusetts: The MIT Press, 2006). This is the latest in a stream of insightful work from von Hippel.
10. The customer case-research method is described in detail in two articles by G. Berstell and D. Nitterhouse: “Looking ‘Outside the Box:’ Customer Cases Help Researchers Predict the Unpredictable,” Marketing Research 9, no. 2 (summer 1997): 5–13, describes the research process; and “Asking All the Right Questions: Exploring Customer Purchase Stories Can Yield Surprising Insights,” Marketing Research 13, no. 3 (fall 2001): 14–20, lays out the questions and interviewing approaches that customer case researchers use to develop case studies.
11. A. Bhide, “The Origin and Evolution of New Businesses” (New York: Oxford University Press, 2000).
12. For one such estimate, see D. Leonard-Barton, “Wellsprings of Knowledge” (Boston: Harvard Business School Press, 1995).
13. In many ways, this is a key message of high-tech marketing consultant Geoffrey A. Moore’s books. He contends that instead of selling a “product” at the outset, emerging companies need to find a customer who will pay a lot of money to the company to solve a critical problem for him. Then, and only then, does it have the privilege of “crossing the chasm.” In addition to his landmark book, “Crossing the Chasm: Selling High-Tech Products to Mainstream Customers” (New York: HarperBusiness, 1999), Moore’s other book that describes this most clearly is “Living On the Fault Line: Managing For Shareholder Value in Any Economy” (New York: CollinsBusiness, 2000).
14. This branding dimension of the jobs-do-be-done theory is described more fully in C.M. Christensen, S. Cook and T. Hall, “Marketing Malpractice: The Cause and the Cure,” Harvard Business Review 83 (December 2005): 74–83.
15. Unfortunately, subsequent to the educational experiences that in 1999 to 2000 enabled Kodak’s management team to take the digital business in this direction, Antonio Perez was brought in as the new chief executive officer after the retirement of CEO Dan Carp. With a more conventional mindset and no understanding of the problem of disruption, Perez combined Kodak’s film and consumer digital businesses into a single business unit. By 2006, the company’s share had dropped to an unprofitable 12%.
16. T. Levitt, “Marketing Myopia,” Harvard Business Review 53 (September–October 1975): 26–180.
17. We thank our friend Armando Luna, vice president of corporate marketing for Blue Cross and Blue Shield of Florida, for teaching us about the origins of market-segmentation theory, which we summarize here in our own language: The theory of market segmentation has its roots in economic theory relating to monopolistic competition; see W. Alderson, “Marketing Behavior and Executive Action” (Homewood, Illinois: Irwin, 1957); and H.J. Claycamp and W.F. Massy, “A Theory of Market Segmentation,” Journal of Marketing Research 5, no. 4 (November 1968): 388–394. The concepts of product differentiation and differential advantage emerged from this background and underpinned early market-segmentation theory. Because most economists’ analytical tools consist of techniques for analyzing large data sets, market researchers with this training spent their careers trying to show relationships between the attributes of customers and their buying behaviors. They would conclude that the variables or characteristics in the regression equations whose coefficients were statistically significant comprised the salient boundaries for dividing consumers into groups. The availability of data and the tools of analysis, in other words, shaped the insights to be sought. In the process, many marketers have forgotten what the theory of market segmentation was based upon from the beginning: that different people have varying needs that change from time to time.
