Differentiation and segmentation

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Back to world domination: Want to make $83 billion a year in 2016 and grow to $94 billion per year by 2021? Sell all the hair care products to everyone on Earth. Probably not something you’ll do, but you can get a glimpse into how it works at any major chain grocery or drug store near you. Dozens to hundreds of variations on ways to wash and wax and whatever for all kinds of hair.

Who takes home the biggest slice of that $83 billion? The people who successfully carve out out a desirable, defensible and unique position in prospective customers’ minds. Look around: Sea-breeze concoctions that prevent dandruff for men, coconut flower concoctions to ensure silky-smoothness for brunettes, and on and on. Maybe you know which one to buy; maybe you grab what’s on sale. You know what you need to know before you buy, and don’t spend much time thinking about it. Either way, someone is taking money out of your pocket on the way to that $94 billion in 2021.

How did you get here? Who’s going to take home the biggest slice of that $94 billion? It’s the people who successfully carve out out a desirable, defensible and unique position in prospective customers’ minds. Skipping over the history of Procter and Gamble and Jheri curl, what you see on the shampoo aisle is an exercise in:

  • Segmentation: the process of grouping potential buyers with similar behaviors and characteristics.
  • Differentiation: the process of making a product or service unique in the minds of its buyers or users

Differentiation creates coconut flower aromas instead of herbal sea-breeze aromas. Segmentation sets dandruff sufferers as a unique group.

Now, all you need to do is add Google and banner ads and …


That was consumer marketing, commonly known as “B2C” (business to consumer). If you’re an engineer working on a product alongside other engineers, which may in turn be bought by individuals or organizations with at least a modicum of technical depth, the shampoo example has now reached the limits of its utility.

Sure, $94 billion a year does seem like an attractive amount of income, and a good number of the people reading this book wash their hair regularly. But you won’t get a lot of money selling Thing 2.0 if you forget the differences we get into next. Allocate some of your cranium-based high-speed low-latency non-volatile memory to differentiation and segmentation; we’ll swap it back shortly.

How Consideration enables Segmentation

Remember the blue body-paint stunt in search of the Indian linguistics patriot architect who went to see The Princess Bride? A big part of that fail is that you had no idea how well your solution aligned with their problem. Neither did they.

The positioning statement we first formulated represents a working hypothesis about who might want your solution. In all likelihood, you could not call the main switchboard at a Wearable Device Technology company and ask for Vice President of In-line Accelerometers. And even if you did and they picked up the phone, you would get nowhere fast by starting the conversation with “Will this be cash, credit, or debit?”

Some time, some where, there’s some engineer looking at sources for in-line accelerometers. If you’re SUPER lucky, they Google it, you pay Google to serve up a link, and they click on the link you sponsored. Now what do you do?

If you said, serve up a web-page that reads “Select quantity; Select cash, credit”, you’d be wrong. What’s more, you don’t know if you’ve just paid $6.29 for a click from that very engineer, or two 9th graders who thought that an in-line accelerometer would help their skateboard go faster. If you made the mistake of putting a picture of Justin Bieber on that web-page you served and the 9th grader snapchatted it to their friends, well, there goes a lot of $6.29 clicks. Google laughs.

So let’s take a step back. How do you know you should be pursuing engineers who are seeking sources of in-line accelerometers? Positioning it doesn’t make it so — remember, until you achieve world domination and/or rake in $92B/year, positioning is just a working hypothesis — a hypothesis of who has a problem you can solve better than anyone.   

Working from the definition of segmentation, we would want to group potential buyers characterized by a common problem. How well do you think they understand their problem? It’s highly likely they understand it less well than you.

Your challenge during the process of consideration is to establish an improved understanding of the problem of their part, with the specific goal of persuading them to conclude you have the right solution. Understand how they learn about your solution to their problem, and you’ll understand how they grow an appreciation of the price you want them to pay.

Segmentation via consideration of the problem

Where does one begin? That should be obvious: “Step 1: Admit you have a problem.”

In the pursuit of attention from your likely target buyer, begin by segmenting those who have a problem you can solve from those who don’t. How do you know who they are? Because they are the ones looking for an answer to a problem. Your challenge is to see if they agree that it’s the one you can solve.

Will all the engineers who believe defining the problem is easy please stand up? I thought so. For those of you no longer sitting down, here’s what Albert Einstein said about that:

“If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it.”

So let’s then recast the AIDA funnel model, in its purchase variant, as a problem solving sequence.

  1. Your target buyer is aware of the problem
  2. Your target buyer is interested in the problem
  3. Your target buyer is evaluating what choice best solves to the problem
  4. Your target buyer is paying you to solve the problem

Each of these four phases helps further specify who you’re after, segmenting them from those who you can or should ignore. In its simplest form, not everyone who is aware of a problem is interested in solving it (world hunger, anyone?), and so forth.

Since interest is an initial condition that precedes evaluation, you can gauge the increasing level of interest based on the quality and quantity of attention you can get.

Since you know where they are searching (browsing with Google and not watching multi-lingual blue street artists outside the cinema), buying clicks on keywords that align directly with the problem you solve should net you a mint, right?

Nope. If it did, one or both of the following two things would happen:  

  • Pay-per-click keywords would be really expensive, because everyone and their sister would be outbidding each other and pouring more money on Google to get to those searchers with a well understood problem to hand over the money
  • Buyers would see in the search results that everyone offers the same thing, and try to find the thing that is lowest cost.

Here’s the bottom line with using consideration for segmentation. You are going to have to get those nice people with the money to agree that they have a problem you can solve, by helping them to define their problem and showing how well you understand it. The 21st century internet has a magic word for this: content.  

And then there’s one more thing: you’re going to have to show them why you not only understand the problem but have an absolutely more awesome to solve it than anybody ever. In a word: differentiate.

How Consideration Enables Differentiation

A little bit ago, we posited a relationship between attention and consideration. Since we already established that attention has value, you are going to have deliver value during the consideration process in order to earn successive levels of attention.

On the surface of it, there’s a direct mapping between consideration and education: one takes an interest, learns, and achieves mastery of a topic sufficient to spend money on it. In a world without critical thinking, this would be easy.

Hey! That’s not the world we’re talking about. Instead, we want to get smart people to share your understanding of a problem, and then work their way towards your solution to the problem. And of course you can’t simply end with “Ta-da! Buy mine.”

We’ve seen that by trading attention for value, you can elicit interest and commitment to your way of seeing the world. When you address smart people, you can elicit their interest by giving them new tools to do hard things. And as Albert Einstein just told you, defining a problem is really hard, so if you show them how to do that, you’ve given them something really valuable.

From a marketing perspective, engaging prospective customers in the process of problem definition begins with touching upon an agreed-upon hypothesis. When we established context in the positioning for comparison, we defined a problem as a shortcoming in some desired outcome.

That’s necessary, but not sufficient: in order to achieve world domination, we’re going to have to look at establishing why Thing 2.0 is better than two specific alternatives:

  • (a) Do nothing. It’s fine the way we are doing it. Goodbye.
  • (b) A competing version of Thing 2.0

Let’s start by overcoming entropy, i.e. the notion that you might possess a superior alternative to the status quo. The fact that this is in any way controversial is hard for many engineers to wrap their heads around. After all, it’s the rare engineer who can resist arguing with the proposition “If it ain’t broke, don’t fix it”; the proposition generally runs counter to the inner tinkerer that got them into engineering to begin with.

However, tinkering is not a risk-free proposition, your own engineering confidence notwithstanding. First, you might not be able to put the toaster back together (ok, not you, but some other engineer); second, there’s the non-zero time you spend dis-assembling and re-assembling the toaster, when someone could have been using that time to make toast. You need to clearly establish that there is a way in which Thing 2.0 overcomes entropy.

When Silicon Valley is at the center of the universe, it’s often made the case that innovation is virtuous for its own sake. And that incessant inventive curiosity has given us countless benefits, not even including e-commerce or Angry Birds. But you have to recognize that if you want people to give you their time and attention, you’ll be taking it away from something else. You’d better provide a good reason for them to do this.

Thanks to your positioning statement, you know exactly why Thing 2.0 is way better than that lame alternative they’ve somehow gotten stuck with. All you have to do is explain it to them, and it’s on to Step 2 of World Domination, no?

No. Because if you’ve seen a problem that someone out there has, the worst assumption you can make is that no one else knows this. Sure, there may have been a time when you could have retreated to The Island of Dr. Moreau and conjured small fantastic beasts, to start shipping them to Petco only after they’ve been housebroken. In today’s hyper-communicative world, you can assume your prospects are headed straight to their favorite neighborhood search engine to see if anyone else can do what you just promised. When they find something, you’re going to need a good answer.

Sounds tough, I know. But by now it’s pretty clear that this kind of competition stimulates a lot of really good thinking, and constantly creates more and more alternative solutions to new and existing problems. That’s probably why you became an engineer. Marketing helps by making sure you are on the right track pairing problems and solutions. Let’s look at how this works.

Combining segmentation and differentiation

Back in our discussion of the positioning statement, we established that there is a group of people who can benefit from Thing 2.0. We referred to it as the ‘frame of reference’. Implicit in the frame of reference is a combination of segmentation and differentiation.

The nominal definition of a market segment is a group of prospective buyers who share a common need. But that’s not sufficient for our purposes. A segment is also distinguished with by the value that they might place on solving that need. That value derives directly from the opportunity cost, i.e., the incremental cost to them of solving for their specific need.

(In classical economics, all transactions are driven by those instances where the marginal benefit exceeds the marginal cost of procuring that benefit. Back to Nobel Prize winners for a moment; 2016 Nobel Laureate in Economics Bengt Holmstrom used to say that whatever question you ask in economics, the answer is ‘opportunity cost’. Kahnemann and Tversky would observe that marginal benefit is not strictly ‘rational’, as people apply asymmetric biases and frame these benefits in a way that may not be logical).

In other words, while everyone agrees that Thing 2.0 does make the world a better place, not everyone will pay for it, and not everyone will pay enough for it to make it worth your while. By combining differentiation with segmentation, you can find that subset of everyone who agrees that Thing 2.0 is worth more than you charge for it.

It’s not unlikely that within your target segment/segments, there are different levels of value for the solution that Thing 2.0 provides. Imagine an auction, where each segment is a bidder; the segment that makes the winning bid is the one who thinks that they will still come out ahead at that price.

In this simple example, I’ve implied that segmentation is a single, unitary attribute, like height or appetite or cocker-spaniel ownership. In fact, segmentation is an almost infinitely complex exercise in constructing a common denominator set, because ‘value’ is not merely a single dimension tied to price, as in “cocker-spaniel owners prefer PHP to Python”, or “hungry people are indifferent to use of organic packaging”, or “blondes always pick silky-smooth conditioners over full-bodied all-in-one products.”  

To really make sense of segmentation, you need to blend characteristics at the individual level combine with organizational characteristics. These characteristics can range from how they pay (credit card or purchasing department?), how big the organization is, and most importantly in a technical sell, what other technologies make up their internal ecosystem of stuff.

This is what makes the combination of segmentation and differentiation such a powerful way to carve out a unique position in the prospect’s mind, such that no one else makes the shortlist. Let’s now look back at how to get on that short list.

Differentiation and segmentation for a considered purchase

Say you’ve got a solid working hypothesis of who you should be selling to and why Thing 2.0 is better than any alternative imaginable. Let’s return to the considered purchase.

We defined ‘considered’ as the opposite of an impulse buy, in which consideration takes place over a non-instantaneous, often non-sequential trajectory during which your candidate buyer evaluates over time the variety of aspects of your offer that they wish to evaluate.

If what you’re selling is valuable enough, a considered purchase will not be made by a single individual in consultation with nobody. Rather, they’ll consult with a variety of colleagues or peers in and around their workplace, each of whom brings a different element of functional specialization to solving the problem. Welcome to B2B marketing: it’s the Multi-Influencer Considered Purchase.  

The Multi-Influencer Considered Purchase is a mouthful, to be sure, but it’s as much a part of the modern organizational landscape as titles and business cards. There’s plenty of cultural denigration of this notion of ‘the firm’ — who doesn’t complain about politics, bureaucracy, HR-policies, staff meetings, quarterly reviews, cubicles, job interviews, reply-all and the endless source of material for Dilbert? There is a reason it’s called ‘work’ and you receive money for doing it.

But hang on, Rather than thinking of the Multi-Influencer purchase as a convention of professional meeting-attenders, think of it as 9-hour surgery. Ever heard of a surgeon who does all the work herself, from shaving body hair to anesthesia to “suction!”? I mean, if she was there alone, to whom would she yell “suction!”?

People organize to solve complex problems by dividing the work and combining realms of expertise. This is good news for you in tackling the work of marketing Thing 2.0, in two ways:

  • You’re going to have to reach more than one person in the organization to get the deal done, directly or indirectly
  • The people you reach are going to need to learn about your offer and why you solve it better than anyone else, by investing their time and attention.

The reason this is good news is that you already know at least half of what you need to get the many participants in the Multi-Influencer process to understand. Here are the four core elements of the marketing toolkit which you should apply to the customer journey.

  • Messaging: How you explain why Thing 2.0 is awesome, in a way that prospects repeat to each other and to others whom you have not encountered directly.
  • Audience Personas: Understand who these people are
  • Content: Structure the delivery of that information in a way that helps them become so expert in what you offer that they buy it
  • Analysis: Observe how they interact with the structured delivery of information to learn about how they value the problem

Why is it that you know only half of what they need to understand? (If you said “segmentation and differentiation”, make a note to give yourself a cookie). The reason is that in the course of their learning, you want to find ways to get them to disclose more and more of the context of their problem. The more you understand the problem from their perspective, rooted in the context of their world, the more likely they are to consider your offer of Thing 2.0 seriously.

If you think you know everything and you don’t need to listen to those nice people with the money before they give it to you, please start reading this book again from the very beginning. Or, to save time imagine you’re anesthetized on the operating table, and when the surgeon leans over you, she exclaims “Wow! I’ve never seen anything like this before!”

In the sections ahead, we’ll talk about Messaging, Personas, Content, and Analysis, what each of these involves, and how to tackle them.