Smith’s Hierarchy is a framework designed to help business professionals innovate and market products or services. Its purpose is to help us to think through the development of a product or service in a holistic way. It starts with identifying the customer segment and then the application of the brand positioning, product features and positioning, and product messaging.
During the research phase of writing the textbook Practical Marketing Essentials, I spent a significant amount of time reviewing the available frameworks used to structure innovation and product positioning. From that research, I recognized the need for a new framework that goes into greater depth. Greater depth refers to the combination of three areas:
The results of my research matched what I have experienced in my professional career. Often, variants and tiers are developed with little differentiation, which led to slow growth and the cannibalization of similar products. The outcomes of slow growth and cannibalization are wasted product development resources, lost marketing resources (time and money), and when sales teams or partnerships with third parties such as retailers are present, it may lead to a loss of trust in your innovation pipeline.
Smith’s Hierarchy begins with the target customer segment. The segment must be chosen in order to properly define and assess the hierarchy. The product may be specified at the beginning or end of the hierarchy assessment process. In a perfect scenario, the product would be the result of the assessment, but oftentimes these assessments need to be completed for products that already exist.
After defining the customer segment, the hierarchy follows the ‘funnel of thought’ starting with the highest-level customer aspiration or need. As the hierarchy follows the funnel of thought, it becomes more focused as the customer segment preferences are more tightly met.
In the framework, parallel to the funnel of thought, is the ‘layers of differentiation’. These layers may be relevant at any stage of the hierarchy. To create a compelling product, you must consider how these items manifest themselves and create differentiation for your product offering.
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The aspiration or need may manifest itself in a number of ways. The customer may have a clearly defined need such as a goal or a task that must be accomplished. Conversely, the need may be altruistic in nature where the customer may not be clear on if or what the solution may be but there is a longing for something. There may also be a need that isn’t recognized where a customer is content with the status quo without the expectation that something better could or should exist, for example, Uber disrupting the solution that taxis provided.
To illustrate solution type, think of a person who needs to get to work. This person has three viable options: drive a car, ride a bike, or take a bus. Each of these options demonstrates a solution type. In this scenario, it’s likely that the person knows his or her preferred solution. Customer segments may prefer different solutions, and their rationale may also differ. For instance, a person who prefers to ride a bike to work may be in the segment focused on healthy living. However, a person who also prefers to ride a bike to work may choose to do so because she cares about reducing vehicle emissions. Understanding customer segments will allow you to build products with benefits and features that are highly relevant to their preferences.
Once customers have selected their preferred solution type, they next must assess and apply limitations to that decision. Limitations are features or factors that are strongly desired. It’s a yes or no decision—if the product or solution doesn’t satisfy a limitation, it is removed from consideration. Limitations may come from necessity such as price range or it may come out of principle such as an electric drivetrain. A factor may not just be part of a product but part of the experience associated with the product or service. In a product purchase, a sales person’s lack of knowledge may be a limitation that leads a customer to remove the product from consideration.
Customers have narrowed their choices and feel prepared to make a purchase. At this level, a sale may close but there is the chance that customers may balk and return to a higher stage of the hierarchy. This could happen if customers realize the options available to them aren’t desirable, so they must reassess their limitations or perhaps solution type.
Appraisal features or factors aren’t as strongly held preferences as we saw in the limitations level. Here customers don’t look at the features as a binary yes or no decision, but rather appraise each feature and apply a value to it. The customers place a value on a feature, and if the cost exceeds that value, they will prefer a different feature or go without. Take, for instance, the color of a vehicle. The base color white is included in the current price; however, for $500 the vehicle could be painted blue. A customer may think that $500 is well spent on the blue color and select that feature.
Depending on the customer segment, factors and features may fit into either level of appraisal or limitation. For a specific segment, maybe a blue color car is a deal breaker and needs to be available.
As a customer progresses in the hierarchy, each of the levels is both consciously and unconsciously impacted by character fit. Character fit accounts for the values or characteristics that determine a customers’ aspirations as well as their desires that brands or products espouse. Some examples include, an American-made product, a luxury brand product, or an eco-friendly product.
For the stated customer segment, you must find a point of differentiation that will separate your solution from the competition. It may be the solutions’ unique ability to match character fit, or perhaps related to the benefit or reasons to believe. In a scenario considering the automotive industry, perhaps a USP is to provide a luxury automobile at an affordable price. This proposition would be differentiated from the rest of the luxury market that is premium priced.
The benefit provided to the customer must be considered and defined during the conceptualization of a solution. If a customer does not recognize the ability of the solution to provide a benefit, the customer will not find a rationale to purchase the solution.
Reasons to believe are often cited as points of differentiation. These are things such as efficacy claims, ingredients, materials, and manufacturing location. For an automobile, gas mileage, horsepower, towing capacity, rated #1 by a reviewing party, 5-star safety ratings, are all examples of reasons to believe that could create differentiation.
Put Smith’s Hierarchy to the test. Take a product or service that you work on. Define the customer segment, then progress through the hierarchy while also taking into consideration the layers of differentiation. Could the product be better? Is there the opportunity for a line extension or perhaps consolidation? Could the USP be stronger?
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