Hitting the Mark – Precise Segmentation

In the professor’s perfect world, where everything matches right up with the textbook and the theory, our market segments would be perfectly defined and exclusive, with no overlap and easily differentiated characteristics that point us in the right direction. However, the real world will very rarely indulge us in such a way. We have to look into the muddy waters of reality and discern where our segments begin and end, often fighting through all the overlap and noise caused by the rest of the market.

The first step in targeting your segment then is to find them. Of course having defined them, as we discussed last week, gives you lots of insights as micro-segmentation is behavioral. If you know how they act, you have hints into where to find them. Not only this, but by creating segments based off of behavior, interests and other social characteristics, peer to peer marketing is much more effective. Customers that are targeted based off of their behaviors tend to know other customers with similar interests and behaviors, a major opportunity for your business.

Deciding which of your potential segments to target can be a little more difficult. It’s hard to turn opportunities down. However, if you try to chase after every potential customer segment, you tend to end up splitting resources and ultimately hurting your bottom line. There are a number of characteristics that a viable market segment ought to show in order for a company to pursue them.


Not All Segments Are Made Equal

To be a segment, it of course has to be definable. We have to know who these people are and what their needs and wants are. Stemming out from this, the segment needs to be profitable of course. We need to be able to see our company making money on this at some point, even if not right away.

The less obvious characteristics of a viable market segment: Accessibility and practicality. We need to be able to reach this group of people. While your ideal customers probably don’t all live up in the mountains, isolated from civilization, there are other potential barriers – language, culture, crowded airwaves (metaphorically), inattention, apathy, and countless others – that can make a segment less accessible. The less accessible they are, the more expensive it is to reach them, and the less profitable the segment will be. This lowers the overall attractiveness of a segment.

Practicality is business, and so if the segment you are examining could not be reached in a way that is more effective than a general campaign targeting the entire market, it simply isn’t practical to pursue, no matter how attractive it may be on paper. Segmentation needs to align with your overall strategy. So even if there was an extremely profitable, accessible segment, if your organization is moving away from offering the product that they want, it would be a misalignment to target them (it might also mean you should adjust your strategy!)


Segmenting Visually

With all of these characteristics taken together, we can start to see which segments are best for us to target. We can even start to visualize where each segment would fit into some kind of diagram. Assigning ranking based off of two or three factors allows us to determine the best segment for our needs. Characteristics to consider would be profitability, your company’s ability to serve their needs, size of segment, length of opportunity, competitor’s ability to serve their needs, etc.

When considering two of these factors at a time, we can place one on the X axis, one on they Y axis, and then draw the corresponding segments in a bubble proportionally dimensioned, based off the segment size. Although such rankings can be somewhat subjective, this allows us to see who we should be prioritizing and gives us visual justification four our decisions. This kind of chart is most often made by ranking our ability to serve the segment (competency) on the Y axis and the segments’ profitability or overall attractiveness to our company on the X axis. Seeing the largest segments in the prime areas – the upper right corner – tells us who to target.

Armed with behavioral micro-segments of the market, your company can position itself for maximum value add. Rather than selling a generic good to the whole market, you are now selling a specific, valuable good to a group of consumers whose needs are not totally fulfilled elsewhere. This is worth a price premium, and that’s something you should expect to see. Generalists compete on price, specialists compete on value.

This positioning is precisely what we will be talking about next week – now that you’ve found these consumers and you know what your product would be best for them, how do you get them to realize that? It takes a lot of work and a lot of honest, open communication. But it is an investment, because once you’ve done this you can claim your value add price, rather than a generalist’s price.

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