Maslow for Market Segmentation

September 4, 2008

It suddenly struck me today that I’ve never seen a visualization of a very obvious way to understand markets at the broadest level: segment all products and services based on what customer need they serve on the Maslow hierarchy. Though I’ve seen Maslow discussed in the marketing/sales literature, I’ve never seen a graphic like the one below, that actually draws the famous Maslow triangle with areas sized to represent dollar value of corresponding markets. I include in my broad notion of “market” the demand for things supplied by governments and organized religions, rather than private enterprise. Here we go. Should be self-explanatory. I’ve sized the areas in this example roughly based on what I think the market sizes are in a developed economy, and included examples of businesses that deliver products and services to that level in the hierarchy. Some explanatory comments follow, for tricky bits.

Maslow-Based Segmentation for Markets

Some Subtleties

1. Weird proportions: Ever thought about how it’s kinda odd that in developed economies, typically less than 5% of GDP is represented by agriculture? This model explains that — how an economy segments its growth depends on where on the hierarchy the bulk of its populace lies. If everybody is well-fed and safe, and the local religion is taking care of love/belonging and esteem/respect relatively well, chances are, the next billion dollars of growth in the economy will be around things like education or lifestyle. Partly explains why Facebook was valued at more than Ford, doesn’t it? Now you know why apparently frivolous stuff like cosmetics can end up being bigger product markets than more “fundamental” things.
2. Level-spanning: Of course, some products span the spectrum. A Big Mac is mostly a bottom-tier product, but a classy heirloom-tomato caprese salad at your local-and-organic neighborhood bistro is mostly selling self-actualization.
3. Technology constraints: prostitution may have been the oldest profession, but pornography didn’t explode in market size until the Internet became available. So evolution along the Maslow hierarchy is not reflected precisely in market structure — technology determines when the market will properly reflect certain needs (i.e. when the market can actually deliver to that need)
4. Government: The government tends to offer stuff towards the base of the pyramid. But some stuff like publicly-funded research universities and NSF, NEA grants belong at the top.
5. Religion: Viewed as information products, rather like the entertainment media, the output of religion is largely at the middle levels of the pyramids. I don’t think religion has much of a product-portfolio in the self-actualization end of the triangle. Not even the new-agey ones. They help you think about self-actualization, but you actually buy your self-actualization products and services elsewhere.
6. Complex products: Complex products like automobiles necessarily must fulfill needs that they create at levels of the pyramid outside of the ones they play in. Cars are primarily a top-level product for self-actualization (get you to work or school for self-actualization, help you drive around for pleasure). But by their very nature, cars have safety issues. So the marginal cost of building a secure car over a flimsy one is a cost to fulfill indirectly created security needs. Volvos would be bottom heavy on the pyramid.
7. Hidden economy: There are of course, free and pay-it-forward and gift economies that address a lot of needs. A tricky one is jobs. You get paid for jobs, but most of us get a good deal of our self-actualization needs met through jobs, reducing the demand for Porsches. How do you factor that in?
8. Enterprise markets: The markets for things like (say) milling machines and dump trucks are enterprise markets. I don’t really know how to Maslow-ize these. Some of these will scale in proportion to the overall consumer market (since both agriculture and fashion industry companies will need, say, payroll software). Other elements of the enterprise markets will be more closely linked to particular parts of their associated consumer markets (textile pigments and dyes are mostly used in fashion/decoration, so even though they are industrial/enterprise market products, they map to the triangle).

Any other thoughts occur to you? Anybody know of any economics or marketing books/articles that actually analyze the entire market this way (not just positioning/messaging for individual products/services this way, which is part of Marketing 101).

Should the BEA segment the economy this way? Maybe GDP growth should be broken down according to the pyramid. I recall the King of Bhutan wanted to track “Gross National Happiness.”

Anybody care to take a shot at guessing the actual area proportions of the pyramid for developed/developing economies?

If you liked this post, buy me a cappuccino!

Posted in Business, Culture, Economics, Thinking