First things First – What is a Market Segment?

When discussing markets and segments, I often hear people say things like “we target the medical segment”, or “we’re going after SME’s (small and medium sized enterprises).  Statements like this are indicators that market segmentation is NOT at work in these organizations.  First of all, these are large, broad markets with many different needs and wants, purchase behaviours, product requirements, and motivations. You cannot possible paint them all with the same brush – it's just not that simple.

So markets vs. segments – what’s the difference?

A market is …

the total set of potential buyers for a given product/service,

A segment is …

an identifiable sub-group within the market, with similar needs/wants, and who naturally tend to reference each other when considering what to buy – for example, all teachers don’t reference all teachers, or doctors to doctors, or even hotels to hotels.  So you need to look closely here at who your target buyer would see as credible when seeking advice on your product. 

A lead customer is …

a representative member of the target segment (who is ready to work with you now).  I quite often see people select lead customers based upon whoever comes through the door – what’s important is to identify and pursue lead customers who are representative of the market segment you plan to target.

In all cases, these potential customers must have a burning need or want, money to spend, and be willing to spend it.  Otherwise, there’s no viable market or segment that exists for what you offer.  If you apply these 3 conditions to every market or segment you’re considering, you’ll save yourself a lot of agony.

Kodak - A 116 Year Old Segment Strategy

It’s a Kodak moment. Kodak’s has built a supremely successful business by targeting women.  While other camera makers have been busy targeting techies with the latest gadgets, Kodak built a strong relationship with women by focusing on simple, easy to use features.  This strategy has worked.  And even as cameras have shifted from film-based to digital, Kodak has reinvented itself for its segment, delivering digital cameras that have simple controls with compact stand-alone photo printers that allow you to make prints without the need of a computer. 

It’s not that women can’t handle technical cameras downloaded to a PC, it’s just that they don’t want to.  So Kodak revamped its cameras to fit the needs/wants of this segment. The Post-Gazette reports that Kodak is now the #1 seller of digital cameras in the

USA

(according to an IDC Corp), and remains tops in stand-alone photo printers. And we all know the cash cow printer inks and photo paper can be for these companies.

3M Red Dot Electrodes

My favourite example of segmentation in the medical market is 3M defining segments for its Red Dot Electrodes.  You know those things they stick on the ends of medical devices and then place on your body to monitor your vital signs.  3M recognized that in hospitals alone there were many different sub-segments that would have different needs/wants, product requirements, and purchase behaviours for a product like a red-dot electrode.

When 3M looked at how hospital staff used red dot electrodes, they found very different applications, urgency, and product requirements.  For example, operating rooms, emergency departments, and Neo-Natal ICU, each were very different in their needs/wants, product criteria, and purchase motivations.  It’s easy to see how the red dot electrode for an infant in NICU would be unique.  But also, emergency departments had different purchase motivations than their operating room counterparts.

Segmenting is simply good business

Attacking your market segment by segment gives your entire organization a focus and the ability for everyone to put their shoulder to the same wheel. Product teams debating features and releases, sales teams chasing opportunities, marketing program investments – all of this becomes clearer with a segment focus. It’s easy to get distracted and flounder about if you’re chasing markets – everything appears on the surface to be attractive.

So today, take a close look at your target segment – is it really a segment or is it a market? And is the target segment specific enough (ie. 3M’s) to include only buyers with similar needs/wants. Do you need to do more shaping of your segment to help your team get their shoulders to the same wheel? 

Tomorrow I’ll offer some tips to help you shape the best possible segments.

Until then,

Wendy

author/advisor/lady with the flipcharts

www.wendykennedy.com

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