Market Segmentation Example

A great product manager is market driven.  Part of being market driven is understanding that not everyone in your market cares about the same things, even when apparently solving the same problems.  This insight is useful in any product management, but check out the power of market segmentation when applied to a commodity market.

Differentiating in a Commodity Market

In response to a question on Ask a Good Product Manager, Alain Breillatt of Picture Imperfect, demonstrates that he is a very good product manager.  When asked how to differentiate a product in a commodity market, Alain starts with the stock answer – differentiate.  He immediately scores points with us for talking about differentiated innovation.

It’s important to frame this thought in the triangle of consumer values – sometimes called the Value Mix. Consumers evaluate the benefits they gain from a product across three variables as described below.

Value Mix: A triangle with the points labeled Psychological, Functional, and Economic

This is an important framework to consider since with a commodity product[…]

How do you differentiate in an overcrowded market?

As we’ve referenced before:

Geoffrey Moore is a big thinker and author of , , and now . (Chasm and Tornado are two of my favorite books about innovation – great ideas, and quick reads). He recently posted an article – Top 10 Innovation Myths, that is in line with his new book and definitely worth a read. One of Mr. Moore’s points is that innovation isn’t the goal – product differentiation resulting from innovation is the goal. He’s absolutely right. An innovative way to minimize the window of an application isn’t likely to differentiate the product from it’s competitors. An innovative way to automatically validate requirements would be the proverbial better mouse trap.

Prioritizing Software Requirements – Kano Take Two

That makes all the difference in the world.

We really get excited when Alain applies some science to innovation.  He notes that companies have to differentiate on one or more of three axes – functional, economic, and psychological.  A commodity market is one where there is functional equivalence, and over time, all (significant) economic opportunities are removed as well.  That leaves psychological.  You have to segment your market, and appeal to the personas within one of those segments.  You can attack multiple segments, but you need to do it with multiple products.

It is easy to take on the task of discovering hidden requirements, developing innovative solutions to the same problems, and inventing economic advantage through process and product design.  But to apply insights against a commodity market is hard.  After presenting a theoretical foundation, Alain wows us with examples of “differentiated pencils” that blow us away.

One minor nit-pick: I’m not convinced that the differentiation he presents is psychological.  I believe he has found functional problems that are unique to the personas in the different market segments.  Perhaps it is a matter of semantics, and that these distinct capabilities really do manifest as psychological value.  Regardless, each approach creates value (solves a problem) for the customers in a market segment.

Pencils?  Really?

Alain’s examples are great – check out the article to see several, along with the rationale for each.

One other example to add to the mix: pencils for carpenters.  Carpenters use flat rectangular pencils (the wood is flat) because they rarely have a perfectly horizontal surface to rest a pencil on, and a flat pencil will not roll off.  The graphite inside the pencil is also larger, because carpenters tend to sharpen their pencils with a knife.  I learned this trick from my grandfather, who was a contractor for years, and when I was framing houses in college, everyone used flat pencils.  A ten-pack of pencils from Sears is $6.00, a much higher price than the dollar-a-dozen for the garden-variety pencil.

Alain’s examples provide comparable examples, really driving the lesson home.  Each market segment is defined with distinct problems, presenting an opportunity for a differentiated solution.

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