Most executives don’t realize that segmentation is the heart of Apple’s astonishing rise in sales, revenues, profits and business rankings. The company has amassed more cash than the US government, earns more than two-thirds of the profits in the smart-phone industry, earns more than 50% of the profits in the entire PC industry, and become the number-one valued company in the United States.
The basis of this business success is Apple’s segmentation—they’ve segmented their products vertically (creating a product for each use case) and sold them at the right price for only the most profitable market segments. They identified segments that are willing to pay “more” for the specifics that Apple provides: the user experience, the quality of their products and the often-seamless integration provided. And they also, which is very important, simply ignore prospects who are not willing to pay their price. In fact, on the question of when Apple would bring out a $300 NetBook computer, Steve Jobs famously replied “Never. I just don’t know how to make a quality product at that price”. In that short sentence he summed up Apple’s whole business strategy, positioning and price strategy. Apple makes quality products for customers who are willing to pay more.
As a business strategy, segmentation is one of the most powerful and under-utilized weapons in the executive’s arsenal. But segmentation is not only for high tech manufacturers like Apple. It is just as important for companies as diverse as restaurant chains, software vendors, medical equipment manufacturers, business service vendors and stem cell companies. When companies look carefully at their buyers’ use cases, document the outcomes they wish to achieve, and define the segments that represent the best business opportunities, they then orient their products and services to serve these segments better than anyone else. They can then optimize their prices to capture the maximum of these buyers’ willingness to pay, and create bundles, options, services, content and unbundles, to serve them better than anyone else in their market, and collect the rewards of superior execution.