Today’s open and connected world throws into sharp relief the true number and diversity of customer groups in every market. In truth, this diversity has always existed – it was just hidden because of industrial age market structures. These customer groups vary greatly with regard to their needs and their willingness and ability to pay to satisfy those needs. And they are continually morphing, changing and evolving. As a result, it is very important to identify each viable customer group, and to continually search for changes in existing groups as well as the emergence of new groups.
In order to do so, we need to disaggregate 20th century market definitions into a much more granular understanding of existing and potential customer groups. In practice, this usually means breaking down traditional market definitions into a great many different types of customer groups, based on differences in needs. Since markets today should be defined in global terms, traditional market definitions may camouflage hundreds or even thousands of niche customer groups that are each large enough globally to be an attractive market for the right business model.
Recent research by McKinsey & Company, Inc. (see Viguerie, Smit and Baghai’s The Granularity of Growth) indicates that, in order to truly understand market demand and competition, rather than defining markets at the level of billions of dollars in annual revenue, companies need to think of defining markets at the level of perhaps $50 - $200 million in annual revenue – for the entire global market. This level of granularity is a major change in thinking for most companies. A useful tool in this respect is IndustryBuildingBlocks.com, which offers data on over 12,000 markets, compared with around 1,800 markets in the US government’s official North American Industry Classification System (NAICS) system.
This market fragmentation has created enormous opportunities for companies, both in existing traditional markets and in completely new markets. In existing traditional markets, there are many groups of customers who are either only partially satisfied by existing offerings, or are not buying at all, because the “good enough” mentality of the 20th century, when customers had to settle for a limited range of choices, has disappeared. Today’s customers demand complete satisfaction of all of their needs – extending beyond features and price to branding, customer experience and more. This means that in any existing traditional market there are large numbers of customers willing to switch, or willing to become first time buyers, as soon as an offering comes into existence that more closely meets their needs and price points.
In addition, there are today a whole range of new customer groups and customer needs associated with recent innovations that never before existed. For example, in the past five years innovations in mobile devices, therapeutics and energy storage have created thousands of brand new customer groups demanding a wide range of new types of products and services.
Of course this has always been true of innovation - before air travel in the 20th century, there was no need for airplanes, airports, airlines and the myriad different customer groups and needs associated with each of these. The difference today is that the rate of global innovation is creating new potential markets literally every month. A recent example as of this writing is the launch of Apple’s iPad, which has unleashed demand for a wide range of products and services that were only partially understood previously, and that most people didn’t even consider until seven months ago.
In summary, if you think at the right level of granularity, there are today endless high potential customer groups whose needs are not currently being met by current offerings – and who could be your company’s route to greatness.
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