Comparing Target Markets to Situational Markets

Chapter 1: What is Experience Strategy?

In the first section of chapter 1, I argued that most of what people call strategic experience work is not strategic. In the second section, I called into question the foundational assumptions of value creation that undergird the CX movement, marketing, and even business strategy.

There’s a lot of unpacking that I need to do to convince you that the paradigm for traditional business strategy, as it pertains to customers, needs to change. I know. I know. Bear with me. I plan to lay out all of the evidence.

In the next four sections of chapter 1 I am going to draw comparisons between the old paradigm and Experience Strategy, as I see it. What I am going to present will not only make you better at delivering on customer needs. It will help you adjust your business models to a world of artificial intelligence, hyper personalization, abundance of offerings, and other disruptive forces that could sink traditional business models. While I will not clarify in these four posts how these principles will prepare you, I plan to explicate them in individual chapters.

A warning to those who fear new business terms. I will be coining new ideas. I’ll provide a glossary to help keep track. To those who spurn newly minted concepts, may I remind you that smart people do not put new wine into old bottles.

Let’s get started by comparing target markets with situational markets.

Peter Drucker once said that the purpose of a business model is to create a customer. By that, he meant that the model needed to create a need in the customer that could only be fulfilled by the company and generate ongoing loyalty. That was over 50 years ago. Most business models haven’t changed.

Clayton Christensen, perhaps the greatest thinker on innovation of our time, said that successful businesses must ‘skate to where the money will be.’ His point was that you don’t wait to create a customer. You anticipate what customers will want in the future.

Today and going forward, the purpose of a business model should be to identify near-future situations that people will encounter and turn those situations into powerful, value-creating, experiences for anyone who finds themselves in similar situations.

The first part of this book focuses on the four principles for doing experience strategy. Regardless of whether your company can deliver genius solutions or stack t-shirts on tables, these principles apply. Done properly, experience strategy will create the markets of the future and revolutionize business models.

To do so, a successful experience strategy answers four key questions:

·       How will the company grow?

·       What makes the business model compelling?

·       What describes the customer’s need?

·       How is value maintained over time?

We will hone in on the strategies throughout this book, but the answers are:

How will the company grow? By identifying situational markets, rather than traditional markets

What makes the business model compelling? By defining and executing your point of view

What describes the customer’s need? Customers always need the whole job done

How is value maintained over time? Customer value is in time spent

Again, to help clarify the differences between the old paradigm and what companies need today (and going forward), let’s compare how traditional business strategy answers the four key business questions and then how experience strategy does so.

Below is a table that we will discuss in more detail in each of the next four posts. It serves to show the similarities and differences between key foundational concepts of both types of strategies.

Comparing Target Markets to Situational Markets

Strategists think about their customer markets based on the outdated idea that each person represents a unit within a market. Today, many companies still use terms like a ‘mass market’ strategy—which means ‘all the people are customers’—and ‘segmentation’ strategies—or ‘only certain types of people are our customers.’ When companies think a ‘market’ = a certain number or type of people, they put artificial constraints on their solutions, with the most glaring being that certain solutions are only for certain people. These constraints hinder innovation and limit growth.

We live in a time of incredible abundance and dramatically increasing customer expectations. We need a new definition of what constitutes a market. Ironically, the answer seems to be the first definition of the word. A market is a situation in which a customer has a need and the company has a solution. Because of digital tools, the original idea of a market where people gather to buy and sell is alive and well—and always present. Therefore, anyone who finds themselves in a situation where they need a solution can and will find that solution immediately.

Let’s consider two very different types of businesses. When it comes to being in the picture taking business, which business model would you rather be in: Canon’s or Apple’s? Taking a picture is a specific need that arises in a specific situation. You find yourself with people you love in a place you want to remember — and you want to take a photograph to document the moment. It’s primarily the situation that drives most of the market for photos today, not a segment of people who care about photo quality and professional lenses. Sure, there is a market for Canon’s products. It’s just so much smaller than Apple’s. And that’s because only certain customers have needs for Canon’s products. Canon is actually limited by how it sees its customers.

It is when people are in a situation that they recognize the job they want to get done—and the experience they want to have.  One of the most important (or influential) articles ever written about strategy is “Skate to Where the Money Will Be” by Clayton Christensen, Michael Raynor, and Matthew Verlinden in Harvard Business Review (November 2001). In it they argue that integrated markets, where a few vertical companies make all the profit, are almost always replaced by disintegrated, flexible markets, where new entrants profit from a shift in customer expectations. That is, markets are not fixed. They are flexible. Customer expectations change. They have new needs that arise. In a follow up article published in Harvard Business Review (December 2005), “Marketing Malpractice” Christensen, Cook, and Hall show why companies become blinded by their success and cannot shift to new opportunities; they focus on segmentation rather than ‘the job to get done.’ The authors write, “the job, not the customer, should be the unit of analysis.” They argue that the reason so many products fail is because companies don’t understand the job to get done, thinking that if they do customer segmentation, they will be successful. They rarely are.

What has changed since they outlined jobs to be done theory, is that people can access tools to solve their problems in real-time. Like the Brooklyn home buyer or the gym goers, they don’t have to plan ahead for many situations. They can use instant tools to immediately address the situation at hand. And there are always new and different situations that arise.

During the 2020-21 pandemic, the world found itself in a very new and different environment. Situations like ‘when I need to talk to a doctor’ became ‘when I need to talk to a doctor and do it from my home.’ New situations arose for many more people:

·       When I’m working from home while taking care of my child

·       When our family needs a vacation, but we can’t fly

·       When we want to eat out but can’t go to a restaurant

These situations created whole new markets and business models.

Thus we see something that was clearly inferred by the ‘Skate’ article’s authors: jobs to be done change too, depending on the situation the individual finds themselves in. Joe Pine (2019) takes Christensen’s et al. (2005) insight several steps further. The author and originator of the role of customization in experiences today argues that there are no ‘customer markets,’ at least not as marketers tend to think of them. Instead, there are ‘markets within.’ He means that as a need arises for a person, a market is created. The company that can meet that person’s very specific need creates the exchange of value. And each time that happens a market is established. These ‘markets within’ the customer are unique situations that they find themselves in.

A situation is a set of circumstances that customers find themselves in. A situation is a moment in time in which an individual, responding to circumstances or context, has a need. Needs that arise in similar situations are often the same, and they can be anticipated and designed for. The most lucrative situational needs to solve for are common, recurring situations that most people experience.

With the advent of artificial intelligence and smart technologies, companies can begin to customize the experience to the specific situation a customer finds themselves in. So, if strategists want to formulate growth plans that capture more customer value, they need to start seeing markets as situations rather than types of people.

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