One size fits all! Is that your strategy? If yes either you decided to cut costs of production to the lowest, or you only sell to one kind of customer. If you want to sell more and make more profit, you must differentiate your offer and do a market segmentation. But in the real life how many SMEs really spend time and money to take advantage of this simple concept? I’ve worked in many SME and I can tell you: "not a lot!".
The objective if this first article is to highlight the different steps in your segmentation strategy and how you can use this segments to improve your marketing actions. The second article will give you a simple but very effective method for small companies to segment your current customers.
What is "market segmentation"?
Market segmentation is the process to divide a broad market into subsets of consumers as homogeneous as possible. Each subset has its expectations (needs, interests…) to be met by a suitable offer. Thus, it is important to determine the smartest way to segment your market. Different subsets will appear on which you will focus your efforts or, on the contrary, you will decide to ignore. But how do we market segments? What marketing policy to adopt for each segment?
First step: choose your criteria
Your market segmentation criteria must be relevant. The relevant criteria are linked to the behaviour of your customers and will help you to understand their needs and expectations.
Relevant criteria in B2C:
- demographic, geographic, social and economic (age, sex, income…)
- behavioural criteria of buyers and consumers (quantities, do they buy regularly…)
- behaviour toward the brand or the product
- lifestyle and psychosocial criteria
Relevant criteria in B2C:
- criteria must be measurable
- criteria must be operational
My favorite segmentation method in B2B is the RFM method based on the purchases (recency, frequency, amount), explained in another article.
Second step: study your subsets
- Size: can you be profitable on all segments?
- Geography: are you able to communicate and deliver your products and services to the segments?
- Competition: is there a place for your company on the different segments
To make your own choices, you can rely on the Portfolio Assessment Matrix:
- Market attractiveness = market economics/profitability, market size/growth, industry structure/ competitive dynamics, environmental factors, market risk
- Competitive position = relative market share, relative profitability, sustainable command of key success factors, competitive analysis, relative strengths and ewaknesses
Third step: choose your segment(s)
At this stage, you can have three strategies:
- work on all segments: simple and economic - the risk is to be not competitive on the segments
- work on specific segments: you work on the opportunities but you may not be strong enough and make difficult choices
- focus only on one segment: you are strong on one segment but you may become rapidly weak if the market change or competitors intensify their positions
Fourth step: define your marketing strategy for each subset
A good segmentation will allow to be more innovative and focus on giving an answer to customers needs. This is a sustainable competitive advantage.
You may also be interested in reading :
- B2B marketing and B2C marketing are so different. Don't make mistake!
- Digital marketing - What Where Why How When Who? (Psst! Yes it's also for you!)
- How small business owners approach digital marketing?
- How to realise a market analysis & why is it important?
- How to realise a marketing diagnostic