Segmenting a market is perhaps as much an art as it is a science. There are obviously an enormous number of different ways you can “slice and dice” a market into segments -- the trick is to do this in a way that makes real business sense.
If you haven’t already, go to my web site and read my "how-to" on brainstorming segments. I use a fishbone as a tool to begin this process. It’s a great way to get the juices flowing to include all the potential segments that might exist for your product or idea. You should really start here before jumping down below.
In shaping segments, consider these 3 questions:
1. What types of problems does your product solve for the customer – if it solves several problems, this may indicate several different customer segments are emerging.
2. What is a common problem/need customers have that you can solve with your product. For example, they are all from the banking industry and want to give the sight-impaired access to electronic banking.
3. Who does the customer reference when making a decision? These people should be grouped together.
At the highest level, segmenting the market by industry type is a good starting point. We call these vertical markets. The only problem is that segmenting by vertical is not specific enough. All banks are not the same, nor are all hotels, or hospitals, educational institutions, etc. So defining a vertical can be useful, but there’s much more to do beyond this to make segmentation work for you.
Also keep in mind, your product may have horizontal application and therefore segmenting by vertical may not be relevant.
Here’s how I go about it.
I think of slicing on two levels: Definers and Descriptors.
Definers are those things that actual carve out customers into groups with similar needs – you can actual measure the number of customers when you shape your segment using definers. Definers would be things like: size of organization: for example, dividing the hospital market by # of hospital beds – 200, 400, etc. (you could divide hotels using something like this too) or metropolitan police forces vs. rural.
Other examples of definers:
· Geographic location,
· # of locations,
· Decision making unit,
· Hardware and/or software requirements (ie. must have XP, Sun Solaris, etc.) you could even define the market based upon platforms and/or legacy systems,
· Company sales,
· Number of employees
One definer I find particularly useful to divide up the market is application – ie. How the customer uses the product. A simple example here is airlines – segmenting by business travellers, vacation travellers, families etc. Application or how the customer uses the product is a very effective way to divide up a market into groups of similar customers.
My rule of thumb is to use at least 2 definers for each segment. I want to shape the segment into meaningful groups that can be measured quantitatively when it comes to forecasting market size. So I look closely for at least two definers for each.
Descriptors
Descriptors are just that – details that paint a picture of your segment but you can’t quantitatively measure using them. An example would be if you describe the segment as being innovative, risk-takers with new products. It’s an important descriptor to profile the segment, but you can’t measure against it. .
Other descriptors include things like:
· Buying process – and familiarity with the product category
· Brand loyalty level,
· Motivation of the customer,
· Benefit sought,
· Usage
Descriptors are equally important in the shaping of segments. My rule of thumb is 2:1 – two definers to one descriptor.
Try to think about shaping your segments using definers and descriptors. It takes some effort, but the results can be a more meaningful view of the differences between buyers in your market and a better understanding of how to appeal to them.
In my next post, I’ll show you a tool I use to make this task a bit more visual and concrete.
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