Stop the Chasing

Segmentation is a concept we learned in “Marketing 101”. However, in our consulting practice we rarely, if ever, encounter a business that’s given much thought to segmenting its market – even though it’s something you must do to achieve predictable and sustainable growth. Let us explain exactly what segmentation is, why it’s so important and how it’s done.

One of the mistakes we consistently see is marketing and sales efforts that are all over the map – businesses chasing anything that moves instead of focusing on a group of prospects who are most likely to buy from them.Consequently, marketing efforts are spread too thin and businesses don’t gain any traction or momentum. They conclude that marketing doesn’t work and marketing efforts are abandoned, which is like throwing the baby away with the bath water.

To gain traction and momentum, marketing efforts must be focused on those prospects – market segments – where you are most likely to succeed. You can’t be all things to all people, and our contention is that it’s better to be a big fish in a small pond and dominate your chosen market(s). Once you’ve achieved this lofty goal, dominating other segments will be much easier because you’ll know exactly how to do it. So segmentation is a key element in building a marketing system. But what is it?

Segmentation is simply identifying a group of prospects that:

  1. Have common needs or requirements and will benefit from buying what you sell.
  2. May respond similarly to a given marketing action.Are most likely to buy from you – because you offer a unique or superior value.
  3. The objective is to more accurately meet the needs of selected customers in a more profitable way. 

We call segments “sweet spots”, and by identifying these sweet spots you’ll be able to do a much better job of understanding your prospect. We’ll explain how this is done in a future newsletter, but for now we’ll concentrate on segmentation.How do we create segments? First, define criteria for the segment. Criteria are descriptors used to develop a group of businesses or consumers that have similar characteristics, needs or requirements, are looking for similar benefits and/or who base their decisions on the same buying factors. Examples for Business to Business and Business to Consumer descriptors are:

Business to Business 

Criterion 

Example 

Geography 

North America

Company Revenues

Over $ 25M

Industry

Food Manufacturer

Number of employees

Over 100

Number of Locations

More than 3

 

Business to Consumer

Criterion

Example

Age

25-39

Gender

Female

Household Income

Over $75,000

Interests/Hobbies

Sports

Education

High School or Higher

Use whatever criteria you want to create segments, it’s entirely up to you. However, there are a few things you’ll need to consider:

  1. You must be able to find a source of data for each criterion. If you can’t, it’s useless. I know I can find a source of data for “Company Revenue”, but it would be very difficult to find companies that have employees whose average height is less than six feet. If you can’t find a source of data, get rid of the criterion.
  2. The more criterion you use the better. The more criterion you use, the more specific the segment. The more specific the segment, the more focused the marketing efforts can be. The more focused the marketing efforts, the greater the probability of success. Your marketing communications is more likely to hit the mark if you create a segment of women between the ages of 25 and 39 who are married, have children and are stay at home moms, than if you simply target women between the ages of 25 and 39. 
  3. The less segments, the better. If you can meet your growth objectives by targeting one segment, versus 2, 3, 4, 5, etc., your marketing efforts won’t be spread nearly as thin. The more focused the marketing efforts, the better. Unfortunately, targeting only one segment usually isn’t enough to achieve growth objectives. Which brings us to point number 4.
  4. Make sure the total market opportunity generated by your segment(s) will allow you to achieve your growth objectives. A simple example is if I want to grow revenues by $250,000, and the average sales size is $10,000, I’ll need roughly 25 net new customers. If I create a new segment that has 100 target companies – based on my segmentation criteria – and I expect to secure 10% of them, the total opportunity for this segment is $100,000 (10 sales at $10,000 each). Is this enough to meet my growth objective? No. What do I do? The options are 1) eliminate some of the criterion to increase the number of prospects and make the market opportunity bigger 2) create another segment 3) reduce my growth objective.

All are viable approaches, and you’ll have to decide which is best for you. The key point is to make sure the total market opportunity created by your chosen segment(s) is big enough to achieve your growth objectives. Segmentation focuses your marketing efforts on those prospects who are most likely to buy from you – if you offer the best overall value. By understanding your total market opportunity, you’ll ensure you’re targeting enough business to achieve your growth objectives.

Once your segments are defined you’ll be in a position to develop your Positioning and Differentiation Strategy, which is the next step in building a Marketing System.

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