Anthony W. Ulwick

The only way to discover segments of customers with unique sets of unmet needs is to segment the market around unmet needs.

Until now this has not been possible as customer need statements designed for this purpose had not yet been invented. Desired outcome statements defined around the core functional job make effective needs-based possible.

Customers have different unmet needs because subsets of customers often encounter added difficulties that the other customers do not face. These added difficulties create

additional unmet needs for that user. For example, in work we completed for Bosch, we discovered that some tradesmen who use circular saws to “cut wood in a straight line” (the Job-to-be-Done) had to make more finish cuts (for instance, to fit crown molding in a corner) than others. This means they had to make more blade height and angle adjustments. Because they encountered these additional complexities, they had unmet needs that other tradesmen did not have.

In work that we completed with an automotive company, we discovered that some drivers who were trying to “reach a destination on time” (the Job-to-be-Done) struggled more than others because they had to go to multiple locations during the day, rather than simply to the one destination.

Because they had to go to many places, they encountered many different traffic patterns and associated problems (backed up traffic, parking difficulties, etc.). These added complexities made predicting travel time (to accomplish the Job-to-be-Done) much more difficult. In other words, this group had unmet needs that other drivers did not have.

In nearly all the markets we have analyzed, some segments of customers struggle more than others to get a job done. We argue that this presents a unique opportunity—but to seize it, companies must segment the market using unmet needs (which we capture in desired outcome statements), and not demographic, psychographic, or behavioral data. Our Outcome-Based Segmentation methodology is executed in four steps:

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  First we analyze the Job-to-be-Done and capture all the customers’ needs in the form of desired outcome statements. (The special syntax of these outcome statements guarantees precision and comparability).
  
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  Next, we field a survey that is administered to a statistically valid representative sample of customers (usually between 180 and 3,000 customers). Their answers reveal how important it is that they achieve each outcome and how well the solution they use today satisfies each outcome. With this data we determine which outcomes are most under-and overserved. Under-and overserved outcomes represent innovation opportunities.
  
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  Third, we use factor analysis and cluster analysis to segment the market into groups of customers with unique sets of unmet desired outcomes.
  
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  Lastly, we use profiling questions we include in the survey to understand what factors cause complexity and make some customers struggle more than others to get the job done. The survey also collects information that reveals the degree to which the different segments we uncovered are underserved.
  

Why does all this matter?

If you do not know what underserved segments and desired outcomes exist, you will not know which growth strategy to pursue. You will be guessing at innovation and competing on

luck. Knowing if and why segments of customers have different unmet needs is the key to an effective market and product strategy. A new product will fail if it doesn’t address unmet needs in a segment of the market that is large enough to warrant the investment. A value proposition will fail to connect with customers if it does not align with unmet customer needs.

When we conduct segmentation analysis, we find segments of customers that are underserved (they have unmet needs), overserved (they’re getting extraneous features, perks, or services they don’t value), and appropriately served (all their needs are satisfied without any extraneous features). One market may be composed of three underserved segments, while another market may comprise three overserved segments. A disruptive strategy in the former case would fail, as no segment of the market is overserved. A differentiated strategy in the latter case would fail as no segment of the market is underserved.

Because no market is homogeneous, outcome-based market segmentation is an essential ingredient in the formulation of market and product strategy. The key is to discover meaningful segments—hidden segments that offer the opportunity for value creation.

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