With so many companies competing for buyers’ attention, ain’t nobody got time for irrelevant marketing. Today’s B2C and B2B customers crave information and offers that are tailored to their specific needs. That’s why your competitors are upping their game with personalized emails and targeted advertising. If you want to keep customers, drive growth and protect your market share, it’s time for you to get serious about market segmentation.
The Basics of Segmentation
What exactly is market segmentation? It’s dividing your customers into groups based on common needs and requirements, so you can tailor your marketing to better speak to their wants and needs. Applying market intelligence to more effectively target your marketing activities can lead to more sales, better customer retention, and higher ROI.
Four commonly used segmentation buckets are geography, demography, psychography (attitudes, lifestyles, motivations), and behavior (buying and usage of products and services). For B2B segmentation, organizational characteristics and decision-making structures are often used as well.
If you’re thinking this is a lot to tackle, well, you’re right. It helps to start with a framework: a step-by-step process that takes you from preliminary brainstorming to actionable plans. Fortunately for us, Rochelle Blease of Breakthrough Growth has created just such a process, and was generous enough to share it with her marketing peers at a recent AMP-RI event.
What I like about Rochelle’s market segmentation approach is that it focuses on identifying customers who have similar needs for what you’re offering. This means understanding how and why your customers make the buying choices they do, and then developing strategies to engage them. To that end, Rochelle adds an additional segmentation category: “Benefits Sought,” or what customers want from your product or service. As you’ll see below, this fifth bucket helps you better understand customers’ needs and your chances of fulfilling them.
A Segmentation Framework
Below is an overview of Breakthrough Growth’s market segmentation process, which can be applied to organizations of any size (including you solopreneurs). The key thing here, says Rochelle, is that you thoroughly identify and analyze your market before diving into execution. So fire up the Bonavita and get ready to do some deep thinking.
1. Define your potential market. Knowing which customers you don’t serve is as important as knowing which ones you do. Put some boundaries around your target audience; the more you refine your focus, the more effective your efforts will be.
2. Select 3-5 segmentation criteria that have the greatest impact on the 5 P’s of marketing: product, price, promotion, place, and personal selling. (Rochelle recommends giving product and price the most weight.) For instance, which customer characteristic most heavily determines what products you sell them ? You could end up with a 2 x 3 matrix (6 segments) or a 3 x 3 x 3 matrix (27).
3. Choose parameters for each segment. Your parameters must meet the MECE principle: Mutually Exclusive, Comprehensively Exhaustive. Let’s say “frequency of use” determines which of your product’s features are the most important to your customers. So, one-time users have different needs from regular buyers. And maybe their purchase frequencies range from 1-2 times a year to 3–6 times to 7–12+. If you define your segments using those parameters, you have three distinctly separate, mutually exclusive groups that cover the entire range, so they’re collectively exhaustive as well.
4. Score and prioritize the segments. If you’re resource-constrained (who isn’t?), you can’t do all the marketing to all the segments all the time. So, prioritize your segments by criteria such as size, growth rate, fit with your capabilities, and strength of competitive forces. Most companies will put more weight on certain criteria, such as growth potential.
5. Build a robust profile for each segment. You want a buyer persona, not a laundry list of basic characteristics. The profile is where you’re going to dig into each segment’s key buying criteria, or as Rochelle puts it, “benefits sought.” What do these customers need your product or service to do for them? Which of their problems are you solving? This will help you define a unique value proposition for each segment.
6. Assess competitive strengths and weaknesses for each segment. There are two parts to this step. First, identify the key buying criteria for these customers: what do these buyers need? Essentially, there are four simple types of buyers: user, technical, financial, and human. Next, for each prioritized segment, identify direct and substitute competitors, not just for your brand but for your products and services. Keep in mind, some substitutes are very different from your product, but they serve a similar function—so focus on the purpose, not the particulars. Substitutes can even include going without, buying used instead of new, or doing it yourself. Rochelle takes this a step further with her clients, developing a positioning map with key buying criteria to see where different segments land.
7. Develop strategies and implementation plans. Develop these around the 5 P’s, based on the actionable issues and insights you’ve gathered above. Now that you know what’s important to your most valuable customer groups, you can tailor your marketing messages and tactics and focus your resources to drive results. Need some content ideas, or help creating your messaging? Check out our low-tech content hacks and this blog on powerful messaging.
8. Measure and adjust. You’ve heard this before; it’s a requirement for any effective marketing program. Identify metrics, track your results, and adjust your approach where you see things that aren’t working. In addition, Rochelle recommends developing a critical issues list and looping it into your measurement process, to keep you focused on elements of your program that are likely to have the greatest impact on your goals.
In the end, says Rochelle, you can do an exhaustive analysis and still not find the one thing that makes people choose your product or service over others. This just means that the process (planning, measuring, and adjusting) is never done. And as markets grow and change, your perspective has to keep evolving with them. Using a simple yet robust market segmentation framework like Rochelle’s will help you sharpen your focus on existing markets and help you see opportunities beyond the ones you’re targeting today.
Rochelle Blease is the CEO of Breakthrough Growth and Co-Chair of SCORE Rhode Island. As a global business growth executive with over 30 years of experience, she has helped dozens of small and medium-sized businesses and boards be more effective.