Is segmentation a marketing or product planning tool?

     

Segmentation is often an area causing a lot of confusion or even unwelcome conflicts for product managers. In some organizations “Market segmentation” is seen as a pure marketing tool and would be the responsibility of the marketing department.segmentation-488507-edited.png

Indeed – if you search for “segmentation” you will find a lot of references related to marketing but not so many regarding use of segmentation for product planning.

In High Tech companies however – defining the best target market (based on a segmentation model) is key for being able to successfully define and develop profitable products!

So, how should I use segmentation as a tool in Roadmapping?

A stepwise approach

According to the Tolpagorni product management framework– “Insights” are critical for developing a successful product strategy. This strategy then is the foundation for further work with Roadmaps – or Roadmapping. You could say that Roadmapping and Creating Product Strategies are two perspectives of the same activity.

Inputs to Product strategy would be: Market insights, Product insights, insights into Legacy (= your current products, service and capabilities) and obviously insights into technology trends. Overall corporate direction is also critical as an input to product level planning.

Markets and Segments

Some companies have both Product managers and market/segment managers. The idea here is to clearly separate focus on products (PMs) and segments (SMs). The segment manager would look for product opportunities within her segment. This often means a combination of several products - possibly from several business units. The PM on the other hand would promote usage of her product across segments.

In High Tech companies focus is often on the PM – technology and product development is often the critical area. For some consumer products (food, clothing etc) – handling segments is clearly the first priority.

I would say that most successful High Tech companies we have been working with focus on product management – and very often the segment management role is distributed within the PM team.

At a heavy vehicles company the Product manager for a certain size of trucks would also take on the role as Segment champion for “the construction industry”.

This setup reduces unnecessary staffing and also inherent organizational conflicts.

Segmentation

Market = homogeneous group of customers with similar addressable needs.

Segment = clearly defined part of the market. Within each segment most buying/usage behavior is similar but also different from other segments.

Target market = one or several segments we can and want to address with our product

In Roadmaps we develop products for certain target markets.

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  1. Defining the market
    When working with product strategies and Roadmapping it is important to have a wide definition of your market. It is generally not about your product but the NEED of the customers. Now, we are talking about the “end user” and not necessarily of your first step in a distribution channel. You shouldn’t be in the “heat exchange market” but rather the “market of transferring heat from one media to another”

  2. Defining segments
    There are numerous books and articles on defining segments from a marketing perspective. Segments can be based on industry (telecom, medtech), geography (EMEA, US), business size (small/large enterprises) – in fact any kind of sorting making sense to your business.

  3. Selecting your Target market
    Out of all defined segments one (or a few) should be prioritized and selected for any given product development initiative. Portfolio management and requirements prioritization methods can be utilized in this step. Tools like Personas, The Value canvas, Value proposition design - can be implemented when defining your product offering in the Roadmap. We want to achieve a good fit to our selected target market!

  4. Development of the solution
    The product is designed with the target market in mind

  5. Launch to the target market
    Typically the product is first launched to the selected target market.

  6. Launch to additional segments
    Your segmentation model can be further refined – additional segments having similar needs can be identified. You can reuse the already developed product – but you might need new channels and marketing messages to reach the needs of the other segment.

Segmentation is a very powerful tool not to be confined to marketing domains.

On the contrary – segmentation is a necessary preparation step in order to develop coherent Roadmaps. Where should we focus our product development and launch resources?

In later stages – additional segmentation differentiation can be made when we want to address additional markets with our existing product!

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About The Author

Erik has extensive experience in product management, business management and development. Within the software, electronics and hardware, Erik has pursued commercial success.