Segmenting your market by customer purpose

Building fit-for-purpose products and services

When buying products or services, we all have a purpose we are trying to fulfil — our "why". Customers understand their "why" and their selection criteria intuitively when they choose among the available offerings.

The same person can have different "whys" in different situations — and different criteria will drive them to different purchasing decisions.

Different purposes → different selection criteria → different purchasing decisions → different vendors

To understand what your customers expect and what keeps them coming back again and again, you need to understand why they choose your product or service. You need to understand their purpose — the customer's "why."

Failing to do so may challenge your business to satisfy or retain its existing customers or to find new ones. That should be your business's core strategic capability.

The Fit-for-Purpose Framework, unveiled by David Anderson and Alexei Zheglov in their recent book Fit For Purpose — How modern businesses find, satisfy & keep customers (which I highly recommend), brought a unique perspective on how to do market segmentation in times of extreme customer centricity. By customer purpose!

Identifying your customer purpose

The book suggests using customer and front-line staff narratives to identify your customer segments. I did that myself, and it's impressive how insightful those sessions can be.

I have collected over fifty different micro-narratives from our clients and front-line consultants on why they would engage in our technology practice. To give you more context, I did that exercise using the hat of the Head of Technology Services for Elabor8, which is a contemporary management consulting firm in Australia.

The best stories came in this order:

1. Asking my clients what their purposes were when they engaged us (Observation of facts)
2. Asking potential clients (a client from another Elabor8 practice) why they would engage us (Rich speculation of future)
3. Asking our front-line practitioners why they believe the clients they were currently working for would engage us (Contextualised speculation of the future)
4. Myself, from behind my screen, trying to imagine why would a potential client engage us. (Poor speculation of future)

So, by clustering all those micro-narratives, I have identified and named the following five market segments (by customer purpose):

Technology Strategy & Advice

Some clients are highly motivated to transform their way of working, but they don't quite know what parts need intervention and why. They seek transparency, clarity and guidance on how to conduct the transformation. They are also interested in what their peers are doing in the industry.

Software Lifecycle Improvements

Most clients need to make improvements in their software lifecycle. When that's the case, they usually need an expert to get the job done, usually in a short engagement. They might already have that capability internally, but those resources don't have enough capacity or the specific expertise.

Capability Uplift

This segment cares about continuous learning and continuous improvement as a means to promote innovation, technical excellence, and a strategy for talent attraction and retention. They look for ways to continuously pollinate new ideas, challenge the status quo and provoke new insights.

Practitioner coaching

Organisations in this segment recognise the need for capability uplift. Still, it needs to be aligned with software delivery because they are pressured to keep up with the ever-increasing demand coming from the business. They usually look for alternatives where people would come as practitioner coaches, introducing new mindsets, principles, practices and tools while delivering.

Staff Augmentation

They are not explicitly looking for capability uplift. Sometimes, there is a need to work around headcount limitations, and they value the flexibility of quickly ramping up and down, sometimes avoiding the limitations and inefficiencies of their internal processes.

Now, I can position ourselves with respect to each different customer segment.

• Some segments are central to our business, so I encourage and grow them.
• Some are important, but I might choose not to acknowledge their existence or advertise or sell directly to them. I could apply indirect tactics.
• Some are worth a neutral stance.
• Some are not our target segments. So we might consider switching them off.

Till the next time!

Marcio Sete