The targeting matrix is a fantastic tool that helps innovation teams select the right target customer for their innovations.
Choosing the right customer: The critical importance of customer focus
At MTI² we typically introduce innovation project teams to the concept of segmentation very early in the process of generating and developing innovation ideas. Once a project team has identified a few (say, two to five) customer groups (or segments) it could potentially target, we use a targeting matrix in order to quickly compare the critical pros and cons of each target segment.
The goal of the targeting matrix is to encourage teams to focus on a well-identified customer group (see also our recent post on why customer focus is crucial in innovation). By going through the exercise of completing this matrix, innovation project teams confidently decide which customers they should primarily target in a first phase. The level of specificity and focus of the matrix, enriches the team’s capacity to persuade senior executives of the clarity and attractiveness of the business case they are about to pursue.
Below we explain how you can also use the targeting matrix to make the right customer choice for your (new) product.
Michelin Tweel: Size, relevance and access
To clarify how we use the targeting matrix above, let’s use a case from one of our customers: Michelin’s Tweel, an indestructible, airless tire and wheel combination depicted in the picture below.
When deciding which customer groups (or market segments) to target, Michelin considered several options. These included (i) the car market, (ii) the off-road market (excavators, bulldozers, etc) and (iii) the ride-on lawn mowers market. The figure below summarizes how we can compare these different customer groups in terms of their size, relevance and access using the targeting matrix:
As the table above clarifies, the matrix addresses three critical questions:
· Market size: How large is the customer group?
· Relevance: How much value is the proposed innovation going to offer to customers in this customer group?
· Market access: How costly or effortful will it be for the company to reach and serve the customers in this customer group?
The exercise of completing this matrix requires you to discuss the trade-offs involved in choosing one versus another customer group.
The exercise of completing this matrix requires you to discuss the trade-offs involved in choosing one versus another customer group. Therefore, the targeting matrix reminds you of the importance of choosing a promising yet feasible customer group to target. In other words, it ensures you not to forget to consider market size, but at the same time prevents you from falling prey to a tendency to pursue very large markets even if these are out of reach.
How to do the scoring in practice?
When we help innovation teams choosing which customer group(s), or segment(s), to target, we typically start by asking teams to gather some basic information about alternative customer groups (research homework). Then, when we meet together, we break the targeting matrix exercise in three steps. Let us walk you through these steps.
Step 1: Market size
The first step is to write down the expected market size of each customer group that is being considered. Noting down measures of the size of different customer groups allows you to start constructing a targeting narrative for your idea(s) or product(s). Note that especially in early stages in an idea maturation process we use qualitative rather than quantitative metrics. Specifically, we often score a customer’s market size on a scale that ranges from very small (three minus signs: “ --- “) to very large (three plus signs: “+++”), with any number of minus or plus signs in between being allowed also.
Step 2: Relevance
The second step is to evaluate the relevance of your solution for each customer group. By relevance we mean the extent to which the solution fits with more or less critical needs of each potential customer group. Think about questions such as: “How badly would this customer group want your proposed solution?”, and “How important is the pain point you address for them [i.e., the customer group under analysis]?”. You should then compare the customer groups that are being considered in terms of their relevance. We typically do so using a qualitative scale ranging from very low relevance (three minus signs: “ --- “) to very high relevance (three plus signs: “+++”)
Step 3: Ease of Access
The third step is to compare customer groups in terms of ease of market access. At this stage, the critical question is if the firm already has a relationship with this customer group? Does the firm have sales channels? What about brand equity and awareness? How much do you know these customers, really? Again, we use three minus signs (“---“) to indicate a very hard to reach customer (no sales channels, no relationship, low brand equity) and three plus signs (“+++”) to indicate a customer group that you know well, have a good brand equity and/or relationship and sales channels in place (so a very good access).
As a final note, as mentioned above, in an early stage of the idea development, these comparisons should be made qualitatively (e.g., “small” vs. “medium” vs. “large”). However, as ideas mature and as you gather new data to quantify and validate customer’s market choices, it is important to start quantifying these dimensions more rigorously.
Key takeaway: It is not about the tool, it’s about the insights and logic…
When you use a tool like the targeting matrix and you map your customers along the three dimensions above, you reach a new level of understanding and confidence in your business case. You now have a well thought narrative. It is time to share such narrative with other people and test the robustness of your insights.
In sum, the targeting matrix helps you create a narrative that clearly explains your segmentation and targeting decisions. If evaluators of an idea understand your targeting choices, they’ll be better able to give you valuable feedback and more likely to understand why your project is worth their support and the resources you may be asking from them.