Build your business on a solid foundation.

The market segmentation is the foundation of your marketing strategy.

You had the greatest offer ever. Your new product was a real breakthrough. Everything was obviously being successful.
And you failed! Slow ramp-up of your business, few customers are captured, you are starving to get orders.
Like most of the business’s failures, you focus on yourself and do not spend enough time on customers.
Who are your customers? Those who value the benefits of your offers? Those who need it? Those you can access to?
To define them properly, you must create your market segmentation.
You think this article is not for you because you already have a good market segmentation? Maybe you’re right. However, you know that things are changing fast, so your market. Nowadays change is the only constant.As consequence you should challenge your existing market segmentation on a regular basis.
To select the right business opportunities through unique targeting and positioning, the market segmentation is the foundation of your marketing strategy.

Why?

I’d like to start with a quote from James D. Hlavacek :

Very few general managers realize that the definition and selection of market segments is the most important strategic decision facing every industrial manufacturer

That’s simple.
If you have no clue about what is your target, how can you aim at it?

Reductio ad absurdum!

targeted market
Do you have a target?

Let’s imagine what may happen, or happens, in business without clear targets from a market segmentation:


When a product is released on the market, communication experts are building marketing campaigns to deliver its values to customers. With no targeted audience, the campaign has no impact. Loss of energy, time and money.
Much earlier than its commercialization, the offer is created by a team of designers who are technically answering to customer’s needs.
Without a defined target from the market segmentation, it is difficult to see this offer as likely to meet anyone’s needs. 
That seems stupid! But there are many technical products which are just the result of engineering distraction.
What about a sales team? Struggling to sell an offer without knowing who are the customers that are targeted and why?

The market segmentation is the foundation of your marketing strategy.

We all agree! Market segmentation is important for your efficiency. It impacts positively your time, money and other resources.
The market segmentation is the foundation of your marketing strategy.
A wise segmentation is providing many benefits:
– Spend time on real opportunities and eliminate distractions.
– Define priorities and invest where the return is substantial.
– Reduce the risk of unsuccessful promotion campaign.
– Create the right products for your targets and therefore more satisfied customers.

Above all, working on your market segmentation will unveil some battlefields where your competitors are weak or absent.

And never forget: Not all customers want to buy the same product.

What is market segmentation?

Market Segmentation,
Market Segmentation

Now, we are all convinced that we need a market segmentation to do a good targeting and a good positioning.
But what is market segmentation?

Market segmentation is a process. It consists of dividing your customers and potential customers into small groups, your market segments.
Each group contains customers that share the same characteristics and behaviors.
Each segments are homogeneous, and different segments have different features which make them unique. 
The ultimate objective is to create a marketing mix that matches the expectations of a segment.


Let’s take an example often used to explain segmentation: the toothpaste market.
Above the cleaning aspect, first and obvious feature, different categories of customers are expecting different benefits:
some are willing teeth whitening, some others have sensitive teeth, some are focusing on fresh breath, or cavity protection, or tartar control.
Each of those criteria can define different market segments. They ultimately are leading toothpaste manufacturers to create different products with different pricings and different promotion messages.

How to do?

First and foremost

I urge you not to head down create a huge and unusable database or excel spreadsheet to do your segmentation.
First of all, you must collect information.
Collect in your company and outside your company everything you can find about:
your market (size, trends,…),
your existing or potential customers (behaviors, needs, decisions process,…),
your competitor’s position and strategy,
The technologies you use or may use,
Everything from direct and indirect connection with your business.
All those data, either quantitative or qualitative may be useful during your segmentation process. I wrote about quantitative and qualitative data in a previous article: Why you must meet customers?
Start internally! I mean starts with the gold mine in your company: understand the customers, the offers, the values, etc.
And give yourself time to do this.

A process more than a task.

Market segmentation is a process.
Market segmentation is a process. Image by Gerd Altmann from Pixabay 

Let’s now see how to do, or re-do, your market segmentation.
As written in the previous paragraph, it’s a process. 
And it takes time.
The market segmentation is the foundation of your marketing strategy. Therefore, it deserves enough time and resources to be done.
This is a process that you are not doing alone. Involve your partners, your management, and any third-party organization that could help you along the process and challenge your proposals.

Segmentation can be done following some steps:

  • Select the variables to identify possible segment
  • Evaluate the attractiveness of each segment
  • Profiling

Select the variables.

Type of business

In Business to Business, B2B, there are commonly used variables:
The first one is usually the type of business, or activity, of your customer. You can easily find a global list such as the North American Industry Classification System that I already mentioned in a previous article: What is B2B marketing?
Too complex or too many information in the NAICS, then go to the yellow pages. Businesses are already sorted by categories and you can use these classifications.

Size

The second mainly used variable is the size of the users.
Using the business size and/or the number of headcounts as statistical values will help in targeting. Depending on your offers, the way to address large quantities buyers may require a different approach than the way to address buyers of small or medium quantities:
their behavior toward pricing and purchasing is going to be different.

Work already with these 2 variables to make a first draft of segmentation. You will already be able to eliminate some segments.

Geographic

what are the geographical differences?
Photo by Bundo Kim on Unsplash

Geographic segmentation must also be considered in B2B. Differences in ways of working, values, and preferences vary a lot throughout countries, therefore it is important to recognize these differences.
Sharing my own experience on this criterion:
In one of my former position, we tried during years to deliver some software engineering tools to Chinese customers without any success. This software tool was designed upon our deep understanding of western customers and had pretty good success in Europe. However, we completely ignored the ways of working of our potential Chinese customer toward software engineering tools. A late dive in the Chinese market highlighted the key differences and allowed us to adapt the offer to this segment.
Geographic segmentation is not simply to list the countries you target but to understand what the geographical differences are. This should lead you to create a kind of sub-segmentation covering criteria such workforces, currency impact, climate impact…

Demographic

Demographic segmentation can also be one of your criteria. It divides your market upon variables such as age, gender, education level, income, and more.
Age is incredibly important for marketers to understand, its most important impact is the way to communicate efficiently.
Behaviors and expectations vary dramatically between generations. There’s a great article by Tracy Francis and Fernanda from Mc Kinsey here.

Behavior

Behavioral segmentation. As its name tells, it is grouping customers showing similar buying behavior. It usually covers the habits, the motivations and the loyalty to brand.
Let’s have a look at Apple’s segmentation with a zoom to their behavioral segmentation here. And to illustrate it, here is the behavioral segmentation that leads them to create the unsuccessful Iphone lite in 2013.

Iphone lite market segment strategy

Psychographic

Psychographic segmentation classifies your customer on their intrinsic characteristics.
Those are values, personalities, interests, attitudes, conscious and subconscious motivators, lifestyles, and opinions.
Those are key criteria in the Business to Consumer market, B2C.
In B2B, buyers make decisions that are more rational than in B2C. Consequently, a psychographic segmentation seems useless in B2B. Only seems!
In fact, decisions are made by human beings. And more you will collect information about your existing customer more you will be able to identify the emotional components in their purchasing history. So, you need to meet with customers!
What are you going to do with this?
You will create relevant content, targeting the right segment for your product or service. For example, send personalized emails that better speak to the reasons, why people need your product or service.

Benefits

Benefits segmentation. This market segmentation is based on the different benefits that different groups of customers look for in your product.
In other words, to divide the market based on the perceived benefit of the product or service. Which means that you must know who are your customers!
This is the example I used in the introduction of this article: the toothpaste market segmentation.

You don’t need to use all these different models of segmentation. Of course, select more than one. Use a mix of method that are relevant to your company, customers and offers.

Attractiveness

To select the right segments, you must define their attractiveness.
First, you cannot go and sell everywhere. Unfortunately, you have limited resources and you must optimize the profits. That’s the legendary equation of doing business.
What are the common criteria to define the attractiveness of a market segment?
The market segmentation is the foundation of your marketing strategy, so take time to answer the following items.

Is there a need?

is there a market need?

Despite this seems stupid to ask, is there a need for the solution you promise to provide in the segment?
You may have a wonderful technical idea for a new product, but no one needs it.
Just google “useless products” and have fun discovering the millions results.

Measurable?

Can you size the segment? Even an estimated value.
Can you name the competitors acting in this segment? At least the major direct competitors?
If not, either you have to search for more date, or the segment is not measurable.

Substantial?

Complementing to the previous criteria. Is the size of the segment large enough to justify the efforts?
The efforts being the creation of an offer and all the marketing tasks that are needed from offer creation to commercialization.
It’s money, time and other resources.
Your company has minimum requirements for the financial return from its investments, so it is necessary to only consider segments that are substantial enough to be of interest.

Actionnable?

marketing mix, 4 P's, Product Price Place Promotion
marketing mix

Are you able to create and implement a distinctive marketing mix for the segment?
Basically, can you describe the 4 P’s for the segment?
Want to know more about the 4 P’s of the marketing mix. Jim, from refresh:b2b and I talk about them in our podcast The B2B Beach Bar.

Accessible?

Can you reach the customers of the segment?
In other words, do you have the resources to address the right communication channels of this segment?
Moreover, ask yourself : do you have the sales force ready for it (in number of headcounts and competencies)?
Or maybe you have the available resources to recruit the right sales force?
A good way to address this topic could be also to imagine how you may re-route your existing sales forces.
If it’s a segment mainly served by a distribution network, do you have those distributors as partners? Are they opened to your proposals both for promotion and sales?
Try to estimate your expenditures to access the segment.

Profiling

Most of the above question can be easily answered by yes or no. Therefore, you can eliminate the segments that are not attractive.
Do not hesitate to really dismiss them.
There are always too many remaining. They need you to do more work.

Market data, quantitative data
Market data

After this sorting out process of attractiveness, then you’ll set up the profile of remaining segments.
This consist in giving the qualitative data to each of them:
size, potential growth, current and future profitability, competitive structure.
Once again, this step is taking time. You may not have all the data.
It’s time to wear your treasure hunter suit and dive in the web. However, not everything you need is accessible.
Therefore, buying some market studies is important. That’s nothing you can get for free. But you need several to assess your profiles with robust data.

Mistakes

Mistake, wrong, error

Segmentation is burdensome and complicated Think about it as a project more than a task.
Mistakes in the early steps are inevitable. So be aware of the most common mistakes. This may help you and your team to avoid them.

Creating too small segments.

When you’ll try to define all variables to ensure you capture everything, you will define some segments with low attractiveness due to their business value. Or you may create too small segments that do not need your offer.
Then you should revisit your proposal: grouping some “small” segments, but do not forget the rule of homogeneity.

Not updating your strategy.

Your customers are changing. People in your customers are changing. And it happens fast. Consequently, you must refresh your segmentation from time to time.
I’ll never say it enough: meet your customer to always challenge and update your understanding.

Forget the upstream impacts

Most of marketers, and I am one of them, we focus on customers in their roles of users, or buyers, or decision makers. But we tend to forget about influencers.
They have the power of words of mouth, they can be individuals or organizations … And they must be considered in your segmentation exercise.

Weak or limited data

None of your segment should be set in stone until their qualitative data is robust and up to date. Moreover, you must have large quantities of data (sorry there isn’t a magic number).
– Having wrong data, or feelings instead of values.
– Relying on data that are 3 or even 5 years old.
– Using a limited number of data.
All those will lead you to build a strategy on a foundation of sand.

is your segmentation correctly done?

Ask yourself this question.
Not so easy to answer. There are some criteria that you can use to assess your segmentation.
Those criteria can help you to answer by yes or no to the above question. However, this will not tell you if it’s a good and valuable segmentation.
What are those criteria?

  • The segments are homogeneous.
  • Segments are not overlapping.
  • Marketing mix are different for each segment.
  • The segments are substantial and sustainable.
  • The segments are accessible.

So Much to do!

Overwhelmed, busy, so much to do
Overwhelmed?
Image by annca from Pixabay 

Market segmentation requires a lot of time and energy.
The market segmentation is the foundation of your marketing strategy.
Are you ready to do or to review your market segmentation?
Then set up a project, with the right resources in people, time and money.
That’s a priority investment for the efficiency of your organization. By efficiency, I mean your return on investment.

You may not have the marketing expertise in-house to lead this process. Consequently, you should think about bringing in a consulting firm. Take it as an opportunity to also train your in-house marketing team and upskill your people.

References and web links

True Gen’: Generation Z and its implications for companies, McKinsey & Company, November 2018, by Tracy Francis and Fernanda Hoefel

Apple Segmentation, Targeting and Positioning, Posted on April 20, 2019 by John Dudovskiy

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