What Clayton Christensen Meant with His Milkshake Example
Chapter 2: Principle 1—Growth comes by Capturing Situational Markets
Hello All,
Many of you are likely familiar with Clayton Christensen’s milkshake example, but you may not have thought about the implications for what a market is. In my first section of chapter 2, I wrote about the blinders companies have on regarding their customers. Today, I’m using an example that many people know to show that situational markets have been staring all of us in the face for some time!
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What Clayton Christensen meant with his Milkshake Example
Perhaps no thinker has had a greater influence on business strategy today than Clayton Christensen. He’s passed away. But between 1999 and 2015, the Harvard professor literally changed both corporate and academia paradigms away from the Michael Porter world (five forces) to a customer centered world view, where customer needs reigned supreme. It was Christensen’s disruptive innovation framework that drove Intel to change their business model. It was Christensen’s work that Steve Jobs cited for his success with the iPod and the iPhone. Everyone in Silicon Valley knew and understood his work. And if you were an angel investor during those years, there was almost always a reference made to Clay’s work.
Clayton liked to tell a story about a little bit of consulting that he did for a restaurant company. He studied their customers who bought milkshakes. He used intercept interviews to gather his data and he asked one question: what did your hire this milkshake to do for you? It’s a funny question but like all great research questions it got people to think. In the morning, he talked to people who described the ‘job’ they hired the milkshake for as being entertainment for a long, boring commute to work. He then asked people in the afternoon what they hired the same milkshake to do for them. Often, they came with their kids and the milkshake was a way to bond as a family.
Christensen pointed to these two very different purposes for hiring a milkshake as growth opportunities. A company could innovate two totally different milkshake experiences and double their revenue. He also pointed out that often the exact same people hired the same product for different purposes. Let me restate this second point.
Often, the exact same people hire the same product for different purposes. And if you are a company who has created a persona segmentation that ties one usage to one segment, you will completely miss the opportunity to grow that product’s usage.
In my years as a researcher, I’ve often found that the people who buy a company’s product don’t look or act anything like the persona segmentation. They just have a need and they are smart enough to find a solution to fill that need.
Let’s go further into what Christensen meant by his milkshake example. He did not use these words, but he would have agreed with this explanation. More than an opportunity, the morning commute milkshake purchase represents a distinct market to go after. While the afternoon family milkshake purchase represents a very different market. Because it’s a very different job that the family is trying to do. These two markets can be identified, sized, ideated for, and designed for. Christensen associated the market for milkshakes with the job the customer was doing, not the persona segmentation. He focused on the ‘what’ rather than the ‘who.’
What drove the two different markets? Do people have inherent needs for milkshakes that differ based on the time of day? Or put another way, did they adjust their personal preference for milkshakes to the time of day? Do you imagine that most people say, ‘I’m a milkshake person and no matter what the situation is, I always want a milkshake.’
Just the opposite! The situation drove the need. The buyers chose the product because of the situation that they found themselves in. Morning commute doldrums is one situation. Afternoon family togetherness is a different situation. What will grow these two situational needs? That’s a question that an experience strategist should be asking.
Really quickly, let’s remind ourselves of a few more disasters created by persona segmentation. Remember all of the segmentation work that was done to identify who would want to shop using a smart phone? Or whether or not older generations would embrace digital tools? There was a period about a decade ago when companies spent billions to find out who digital consumers were.
Want to know why buying a smart phone from a telecom company may require you to call, go into a store, call again, and use an app? It’s because, during that time, the smartest people at the biggest telecom companies used persona segmentation to determine that some people (the who) would only want to use a store to buy a phone, while others would be comfortable doing so online, and still others would want to call in.
Because their persona segmentation led them to believe that these were very different need states that different people had the companies spent heavily to build all three channels and then later tried to link the various channels using ‘omnichannel’ principles. The result was a very complex process for sign up, purchase, set up, and troubleshooting. And backend processes that don’t align.
The phone companies did not anticipate that the very devices they were selling would convert almost all consumers into situational users. They could not see that the reason people chose a store over a website was because of a change in their situation, not their attitude toward smart phones.
Which leads us to one last example of how persona segmentation negatively affects value creation: Fixed stereotypes.
What the Sony case study has in common with the telecom companies stories—and let’s be honest, most big companies today—is that they rely heavily on fixed stereotypes about people in order to make massively important business decisions. ‘All Millennials behave the same.’ ‘Women are more likely than men to want to go into a store.’ ‘Small business owners are different from Mid-sized business owners.’ ‘Our customers are brand loyal because they care about our cause.’
Companies create these kinds of deductive reasons for their experience decisions because they believe that a market is a group of like-minded people. They think they will make more money by focusing on the ‘who’ than focusing on the ‘what.’
People are not fixed stereotypes. All women do not behave the same, even when segmented into smaller categories. All Millennials are not the same. And in today’s world, where personal identity issues and gender requirements are so important to people across the political spectrum, I think companies take a huge risk when they segment based on the ‘who.’
Click here for book outline with links to posts
This post about Experience Strategy Certification is also helpful.