Is fragmentation of markets a real problem?

Companies today are, after selecting and defining a market segmenting the market into smaller groups of customers that they then choose to serve. Market segmentation can be done in numerous ways, and is usually used in a way that explain the differences in the market in relation to the specific services and products the company is marketing.

One excellent article, and the rationale behind market segmentation was published by Journal of Marketing in 1956. The article was written by Wendell R. Smith, and explain that market segmentation, in those days, was an increasingly important tool be used for markets in which the company needs to accept that there are divergent needs. Before, firms were accustomed to strive in production for standardization and mass production.As Wendell R. Smith writes: “Segmentation is based upon the developments on the demand side of the market and represents a rational and more precise adjustment of product and marketing effort to consumer or user requirements. In the language of the economist, segmentation is a disaggregative in its effects and tends to bring about recognition of several demand schedules where only one was recognised before.”

As already discussed before there has been two different developments in marketing thought that has had its effect on the way segmentation is done. First, customers have been seen in increasingly more complex terms that has had the effect that more specific extraordinary needs and characteristics have been seen in customer bases. Second, companies have seen an increasingly urge from the customer side to be involved in the process of “production” to customize their services. These theme is currently referred in the literature as co-production meaning that both customer and provider is involved in the process of production that should result in value co-creation. Both of these developments has resulted in perhaps more fragmented marketing strategies, in which offering differentiation and personalisation is the core idea.

Differentiation and personalization is the antithesis to standardization, which stresses differences in the customer base. Nevertheless, complexity is in most companies a problem, and as 70% of 900 executives claims that excessive complexity causes costs, and also hurting profits. In those terms it is evident that it would be beneficial for companies to serve universal needs rather than fragment themselves into a range of needs that varies between different customers. Numerous publications, however, claim that differences between people are becoming larger, which in the final analysis requires the company to adapt to these differences. The market appears fragmented, especially if use customer as the unit of analysis, and basis for segmentation of the market. According to practice theory, people form their identities, needs and wants in practice. While people move between different practices, they appear from a company perspective very hard to understand, almost schizophrenic as they can change their views depending on what they are in the process of doing. Another problematic feature with most market segmentation is that they aim for a description of customers in a non-contextual manner. Customers are in that way presented on a general level as being of certain nature. Such descriptions may not be possible to do.

The fragmentation and contextual nature of customer behavior makes market segmentation rather difficult overall as a starting point for business development. One could, however, argue that difficulties with customer segmentation is not a “real problem”, but mere a problem of perspective. As discussed in this blog, being customer focused may be problem in contemporary society, but there are opportunities to see consumption, and segment markets in more stable and understandable ways. The way to approach to this is to simply de-emphasize the fragmented nature of customers, and turn the view on the market to more universal nominators that would help the company to focused on those issues that can constitute in practical terms a market for the company.

http://www.onniblogi.net/

The presentation held by Mika Pantzar and me is shortly discussed in Onniblog (in finnish). Look up also some interesting links to other blogs (Christian Lindholm, Former user experience guru at Nokia, and Marko Ahtisaari etc.)

Why is consumption practice important to understand from a company perspective?

Companies should take, not an reactive mode towards social and material dynamics, but a constructive role. Historically companies have been active in empowering and developing practices further, and will certainly do also so in the future. As this blog propose, it would be necessary for the company to understand and redeem a practical role in society. Hence, it is proposed that market can be viewed as practical, the service a company can actually be depicted as certain improvement of practices, and also innovation in a final analysis can be seen as innovation of social practices.

It is, however, important to first understand the dynamics of how practical life occur in the world, and maintain a necessary respect when trying to orchestrate the architecture of everyday life.

Practices are both the enabler and obstacle for business. In practice focused marketing, the practices of everyday life become the market that restricts and enables company involvement. Restriction in the sense that the prevailing practice in a certain practice can not in very few cases be radically changed. That means that technological solutions should in most cases not strive to change a practice, but more or less make the already existing practice work better. The technology planned is a failure, if it does not find its place in a certain practice. On the other hand a new tool or toy that is integrated into a practice and has made it more valuable will constitute a great market for the company.

One should also keep in mind that practices are formed not designed. practices are always developing in a historical manner in ways that may be hard to predict and understand. In many cases companies have been enforced to take the role as a provider of material, which then later has been transformed into clearly defined tools and toys by the customer. SMS is a good example of a tool that was first designed for a completely different practice than it finally ended up in. SMS was made as a tool for “keeping things in order” for business men, while the heavy use is happening as a form of “social play” for youth. In that way, it is hardly possible to design everyday life in all cases. And if it would be, practice design would be a highly dangerous tool that could be used by companies for unethical purposes.

A market viewed as a collection of practices needs to be approached in a comprehensive manner. In order for companies to be able to have an impact on the practical life of people and thus create a business, the company should be able to empower the practice in many different ways. As will be discussed later, the company should have their own practice for developing tools or toys, and also material for the customer to maybe design into a tool or toy. The company should have possibilities to affect the images and competence involved in the practice, and maybe also in some cases the physical spaces in which the customer is using the other elements.

KULTA the modeling of customers’ changing needs

(KULTA kuluttajien muuttuvien tarpeiden mallintaminen)

A project on modeling customer’s changing needs was kicked off today in Vierumäki. The project is a collaboration between Helsinki University, National Consumer Research Centre, and Helsinki University of Technology, and a number of companies.

Mika Pantzar and I had a presentation on the possibilities to use “practices as a basis for segmentation”. The argument was that practice segmentation would be a possibility to integrate markets rather than fragment them. I put below some of the slides that we used.

Mika Pantzar was in his part of the presentation stressing the dynamics of practices. How proto practices change into practices, and become at some point ex- practices.

He was also discussing amongst other things how practices come together into practice systems in which different practices are combined. This was illustrated with a magnificient animation ; )

This part of his work is developed together with Elizabeth Shove

My part of the presentation was on the research on cruising practices I did for my dissertation. I presented some ideas of how perhaps traditional segmentation and practice segmentation could be combined into a framework for managing companies in a consumption oriented manner.

I also presented some cases of companies that have approached the market in "search of universal and mundane practices" that through small practical improvements has proved to be very succesful businesses.

Our aim is to develop these thoughts into an article in the near future. This is, however, very much work in progress. The discussions in the workshop helped us in many ways to develop the thinking further. Thanks. I promise to answer or ask Mika to answer all further questions about our presentation. Feel free to post comments.

I referred in the earlier post to my doctoral dissertation. Here it is.

http://brunnen.shh.fi/portals/pubmanager/pdf/155-951-555-905-7.pdf

This was finalised in february 2006. I have used the mindset and method in several projects after this, and got very interesting results.

The basic logic of my thinking in the dissertation is the following:

- value is formed in consumption practices
- markets and services cannot be understood as "customers" or characteristics of customers, but should be seen as practices
- my empirical study was done on "cruise consumption" as an ethnographic study

I am in the process of writing a popular book on the same issues called "Practice Design" (working title). I am planning on developing the ideas for my book in this blog - I am very grateful for any ideas for the book...

Practice theory in DESIGN!!

Designers apply/ plan to apply practice theory!

This is also very new and exciting! I have not seen any publications in the field of taking a "practitioner" approach to practice theory before. A group of people in UK have a project called "designing and consuming: objects, practices and processes". They are approaching social practices from a designer perspective!

http://www.dur.ac.uk/designing.consuming/events.html#Anchor--Worksh-32410

I could not unfortunately participate in the workshops they had, but this is something you should keep an eye on. In the last workshop in the beginning of the summer they created a "Manifesto" for Practice Oriented Product Design (POPD).

http://www.dur.ac.uk/designing.consuming/wkshpjul06/popd%20manifesto.pdf

I am approaching social practices from a marketing perspective, which is a little bit different from this, but the basic philosophy is the same. Because of my background as a management consultant, I am focusing on a x-functional approach to markets rather than on "product design".

Below, an interesting entry in a blog concerning the differences between UCD (User Centred Design) and POPD. For those who do not know, UCD is probably the most interesting field of user oriented design this far. The problem with UCD is that it is still very much about "usage" and not "life practices". See the link below. The text is an excerpt from the blog.

Design Conferences

"In UCD the general approach is that users are creative and experts of their own living and doings. Methodologically, UCD typically picks methods from ethnography, but it was seen to be problematic that theories that inform ethnographic methods are not borrowed. Instead, theoretically UCD simply assumes that it is possible to design object-human relations. Finally, it was seen characteristic to UCD that it focuses on single product and, respectively, single user. Now, POPD is, of course, different. Shove told us to forget about the user and think about the practice instead. Practice was defined as a process of integration resulting in structural arrangement. Practice as an entity, in other words, is the focus of POPD, instead of user or product. Practice consists of integrated elements, which are material, image and skill. For reasons we can only guess, the POPD is interested in innovation (product innovation emerges when there's innovation in practices). On the other hand, the focus of POPD is on the routine ways of doing (which is not contradictory claim but they should elaborate their notion of practice in any case). POPD therefore acknowledges that "we are all POD's (practice oriented designers)", which, I think, outlines their focus group nicely: everybody and everything."

When I did my doctoral thesis, I was very much inspired by UCD. For instance books and articles by Karen Holzblatt is interesting and inspiring. But now after many years of pondering, I can see very clearly that there are possibilities to go beyond what UCD has promoted now for decades (I have not actually a clue when it started). From users to socially and culturally embedded human beings! Another important inspiration was activity theory, which I will return to in another post.

This is me.

Networked Economy - Bo Harald

Networked Economy - Bo Harald

Bo Harald has a very good point in his blog when mentioning that there is a need for effective learning in the market space, in order for "new practices" to come alive. Excellent point highlighting the biggest problem in marketing. Marketers are not putting emphasis on understanding how social phenomenon occur, but feel in many cases that it is more important to tell about the features of their products and services. His case of building systematically and long-term e-banking consumption practice for Nordea's (largest bank in Nordic countries) clients is a good case, of how people are prepared to take on new practices (if the practice at hand is valuable per se).

Concerning learning, I would especially put emphasis on "mundane learning" through imitation. Formal learning is out, as nobody seems to be prepared to open a for example a manual anymore. Professor Mika Pantzar has some good points about this. There is for sure need of more "thinking" in this field. I guess Teemu Arina's blog is a part of the developments happening in the field of pedagogics.

Elizabeth Shove is involved in a lot of interesting stuff on consumption practices.
She is professor in Sociology at Lancaster University. Check out this.

http://www.lancs.ac.uk/fss/sociology/staff/shove/shove.htm

Here can you also find the work she has done together with Mika Pantzar on Nordic walking, digital photography and floorball.

This is not very managerial, but it is easy to see how companies could utilise these kind of studies.

The more I read traditional marketing literature, the more evident is that marketing cannot match the needs of firms if it uses customers as its starting point, and object for activities.

My suggestion is that companies should service practices, instead of customers. This helps companies to bec0me less fragmented in the operations. Customers are very different, whereas practices can in many cases be universal.

For instance, the practice of listening to music, is a practice that is served very well by Apple (Ipod and Itunes). The practice related to this is not specific for certain segments, but an universal practices that a big portion on the population in the western countries are more or less involved in. The notion of mass practices gives an opportunity for mass products.

I am writing something on this, and searching for similar cases as Apple. Any ideas? Are there other companies that have been able to empower some universal behavioral logic, and does not need to fall into fragmentation and differentiation of products. Help needed.