Properly segmenting your market, prioritizing certain market segments, and understanding them well is the basis for any successful marketing plan. Companies that take the time to understand the roots of the problem for their target segment, the objectives to be achieved and the difficulties of current solutions are in a better position to communicate their value proposition effectively and have a better rate of engagement with potential customers in addition to retaining existing customers.
Too often, I hear entrepreneurs say: “Our target market is banks,” or “we focus on IT companies,” if they are in B2C, “we target women mostly.” Unfortunately, these generalities indicate a lack of understanding of the potential customer. Don’t make the mistake of thinking that everyone can be your customer. This will lead to poorly targeted efforts and poor results.
A market segment is defined by a group of individuals who share common characteristics and react to similar marketing stimuli. So saying that you target women or any industry cannot be your market segment.
How do you segment the market?
Large companies often hire market research firms to divide the population into several segments and then make a recommendation of a few market segments to target.
Let’s take the example of a financial institution. Anyone old enough to have a bank account could be a client, so they should target everyone, right? Well, not exactly. If they were to target everyone, they would spread their marketing efforts to such an extent that they would hardly reach a given market segment.
When I started working in a financial institution, they had just completed segmentation exercises. The firm they hired had divided the population into 56 segments and recommended three market segments based on the best value fit with our cooperative financial institution.
The market segments were very specific. We knew the average age, average income, the neighborhoods they lived in, the number of children, what they liked to do on weekends, the sports they played, etc. This gave us a very good understanding of what was important to these individuals and also where we could reach them.
Segmentation for startups
But if you’re not a big company that can’t afford this kind of market research, what do you do?
First, answer this question: what problem do you solve with your solution?
Second, who has that problem?
There may be a lot of people who have this problem, and that’s normal.
Subdivide that category according to what needs to be done to solve the problem, behavioral and socio-demographic characteristics, and so on. You want to have groups of people who share common characteristics and who will respond similarly to your marketing efforts.
Segmentation for B2B startups
If you are a B2B company, you still sell to individuals – the end-user, the influencer, and the decision-maker, for example. The difference: you don’t necessarily need to know what they do on the weekend. You need to know what role they play in their team, department, or company. You need to know what their challenges and priorities are. It will help you identify who you need to talk to and how to position your solution.
Not sure where to start? Here’s one of my favorite ways to get started:
- Make a list of the companies that you think are best suited to your solution.
- Find them on LinkedIn and do a quick search for employees whose title contains relevant keywords. Some of them may have a description of what they do.
- Once you’ve found a few key job titles that match, do a job search for them. Most job descriptions indicate the top priorities for the role.
- Do a web search for studies related to this field. This can give you insights on their main challenges.
- Once this research is complete, you should have a better understanding of the different people involved in the process of deciding and purchasing a new solution, their priorities and the challenges they may face. Now it is time to look within your network to see if you can find someone to validate or clarify your assumptions.
Prioritizing market segments
Whether you are in B2C or B2B, it is normal to have too many possible market segments. It is essential to prioritize them. Why is that? Because for each market segment, you will have to develop your value proposition, your sales material, you will have to create marketing plans to reach them and assign a sales force to them. This takes a lot of resources. It is better to put all these resources on targeting one market segment rather than trying to reach several targets without conviction.
How to prioritize?
I recommend to my clients to prioritize their market segments according to three criteria:
- Potential return on investment
- Most easily accessible (a.k.a. low hanging-fruit)
- Sales potential or gross margin
With these three criteria, you will be able to choose your priority market segments strategically. It does not mean that you will forget about your other market segments or that you will refuse to sell them. On the contrary, perhaps these market segments are not part of your short-term strategy but your medium-term one instead. It only means that you will not put your limited resources on them just now.
Understand your clients so you can better engage with them
Because no single marketing strategy can work for all your market segments, you need to understand your market segment to develop tailored marketing plans that will speak to them and produce results.
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