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Apple’s a case study of great segmentation strategy


Here is a great article on the writer’s interpretation of Apple’s segmentation strategy.

I observed a lot of debates and they all pointed that it is inevitable that Android or Samsung or the group of them will beat the crap out of Apple.

But essentially, most of them are just walking in this great system integrator’s footsteps and ideas.

There is a myth, more of a meme actually, about the ‘inevitability’ of commoditization. It is a view of the world that sees things linearly, in terms of singularities, and the so-called "one right path."

In this realm, where commoditization is God, horizontal orientation (versus vertical integration) rules the roost. How else to define consumers, not in flesh and blood terms, not as spirits that aspire to specific outcomes, but rather, as a composite set of loosely-coupled attributes.

This mindset is compelling because it is simple and familiar, but it also leads to blind obsequiousness.

Historical edifices are held as indelible fact. "It’s Microsoft v. Apple all over again." "There has to be one absolute, dominant leader." "Open will always prevail — and should prevail — over proprietary systems." "Market share matters above all else. Even profits."

There is one small fly in the ointment to this ethos, however, and its name is Apple. (For a historical perspective on tech industry architectural orientation, check out "Waves of Power" by David Moschella.)

Apple’s gaudy performance relative to its industry peers

The following inconvenient facts must be an affront to the horizontal, commoditized, open, market share zealots. Apple has launched three major new product lines since 2001: the iPod (October, 2001); the iPhone (July, 2007); and the iPad (April, 2010).

The company’s stock is up 3,000 percent since the launch of iPod, 125 percent since the launch of iPhone, and 20 percent since the launch of iPad.

In that same time period, the major devotees of the loosely coupled model — Microsoft, Google, Intel and Dell — have been, at best, outpaced by Apple 6X (in the case of Google dating back to the launch of iPod) and at worst, either been wiped out (in the case of Dell) or treaded water (in the cases of Microsoft and Intel) in every comparison period.


Let me go a step further and make the forceful assertion that in the red hot mobile computing segment (inclusive of smart phones, media players and tablet devices), anything that Nokia, RIM/Blackberry and even Google Android are doing is simply orthogonal to Apple’s iOS-based device play (iPhone, iPod touch, iPad). Checkers to chess.

That is why it’s laughable that the latest meme du jour, "The Apps Lifestyle" — and believe me, it is a lifestyle — is ridiculously framed as a trend of the multi-vendor "cell phones" segment. Why? The clear-cut truth is that Apple’s iOS device platform is the staging ground of the Apps Lifestyle, something that ~90-percent of iOS device owners "get" to the point of it being intrinsic, assumed and embedded.

By contrast, maybe 15 percent of non-iOS device owners embrace The Apps Lifestyle, or even know what it means, and that’s probably being generous. Yet, this composite translates to 29 percent of all users (according to Pew Research Center).

How can you not confuse the tail with the dog, with that kind of framing?

The folly of conventional wisdom

Mobile-Handset-Share-Profits.pngTherein, lies the problem with conventional wisdom. Namely, that it’s conventional. It doesn’t think outside the box in terms of strategic imperatives, like building differentiation, growing margins or defensibility.

That explains why the top three mobile handset unit sales ‘leaders’ (Nokia, Samsung, LG) are outselling Apple in raw units an astounding 23.5 to 1, yet for all of that effort, combined they are garnering only 82 percent of Apple’s profit level.

Is it surprising, then, that the reward for achieving such distinguished leadership was for the CEOs at two of those companies (i.e., Nokia and LG) to get fired?

Let me net it out for you: Customers buy outcomes, they don’t buy attributes, and they certainly don’t pay a premium for it. Whether you love or hate Apple, recognize that they are an exemplar of this truth.

Analyzing Apple market segmentation strategy

In the real world of building products and attacking market opportunities, market segmentation is the process of defining and sub-dividing the aggregate, homogeneous market into addressable, targeted needs and aspirations buckets. Buckets that are in turn, thresholded by demographic, psychographic and/or budgetary constraints.

Market segmentation strategy enables a company to drive complete, unified product solutions that are harmonious with messaging, customer outreach, and channel strategies for selling and supporting customers.

In this regard, Apple’s product strategy is a study in market segmentation. Versus merely trying to stuff a product, burrito-style, with as many different features as possible, they target specific user experiences, and build the product around that accordingly.

Consider the recent iPod event in September, where Apple completely rebooted the iPod nano, rolled back the iPod shuffle to an earlier interaction model, and majorly forked the iPod Touch in a way that also speaks to iPhone positioning.

Mind you, each of these efforts represent major strategic iterations of successful products, not reboots of failed ones, so it speaks volumes about how the company thinks about its users, their workflows and corresponding segments.

Moreover, it underscores the integral-ness of continuously re-calibrating on the definition of the situation; not merely doing more for the sake of an added bullet point or to support a desired price point.

Does Apple have a perfect crystal ball on these things? The history of the nano and the degree of iteration of this generation’s shuffle, suggests that no, in fact, they don’t always have a perfect read. But make no mistake: While they may not always be right, they are never confused or haphazard in their approach, and that is the hallmark of sound market segmentation strategy.

[Read the rest @ O’Reilly radar >>]


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