Last month we introduced the concept that for every game, there two sets of rules. The official rules focus on the mechanics of playing. The second ? more important ? set of rules focus on strategies for winning.These are the rules we?re interested in, and this month we?re focused on Rule #1: Segment the Market.
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<br> The purpose and value of segmenting the market is to get crystal clear on whom you serve ? where you will spend time, energy and money pursuing business ? and just as importantly, whom you don?t. Market leaders don?t waste finite resources chasing deals and markets where they can?t effectively compete. Market leaders follow the rule that says you only fight the battles you?re in a position to win!
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<br> In all the years I?ve been helping companies market effectively, there tends to be heated discussion around the issue of market segmentation and identifying primary and secondary target markets. No company wants to limit their market and risk missing out on possible opportunities. ?Don?t say our product is designed for small businesses, we?ll scare away our chance for Fortune 500 companies!? Or, ?If you say we specialize in hotels, we might not get any hospital business.? The truth is, hopefully, you have designed your business to effectively serve an identified market, which naturally creates trade-offs making it more difficult for you to effectively serve other markets. That?s how business works.
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<br> In a recent strategy workshop a web development company remarked to me that their market was ?anyone who needs a web site . . . and since the web is a universal platform, that?s anyone around the world!? While this may seem an extreme example, it?s a common perception and a consistent mistake. The disconnect is not understanding the difference between who can potentially use your products and services and who actually makes up your primary target market ? those prospects that are the most likely to purchase.
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<br> Think of segmentation in terms of budgets. Every company has to live within a budget. If there were no spending limit, you could, in theory, chase everyone and every deal. But, because there?s a limit, you had better identify who is most likely to purchase and spend your money on them! Carefully choosing whom you will serve as your primary market lets you to concentrate your resources. It lets you identify under-served or un-served markets, and allows more efficient use of marketing resources by focusing on the best prospects for your offering.
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<br> So what?s the rule for effectively segmenting the market? Viable market segments are defined as groups of potential customers with fundamentally similar pain-points, who exhibit consistently similar patterns of behavior, are motivated by significantly similar forces, and can be accessed collectively.
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<br> Identify similar pain-points. People don?t buy products ? they buy solutions to problems. When a group has similar problems, they are likely to be receptive to similar solutions. If you provide a viable solution, you can serve this market.
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<br> Identify consistent patterns of behavior. Some people are impulse buyers; others want to analyze every alternative. Some buyers require a personal relationship with a sales person, others are happy to order from the catalog or order on-line. When the buyer?s pattern of behavior matches your selling and distribution methods, you can serve this market.
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<br> Identify similar motivational triggers. Buyers can also be grouped according to what they see as the most important attribute of your solution. They might be motivated by price, quality, convenience or selection. You are most likely to win business from the segment that places the highest value on an attribute where you clearly excel.
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<br> Identify aggregations of prospects. In order for marketing to be cost-effective you must be able to reach groups of prospects large enough to justify the expense. Do they read the same journals, visit the same web sites, attend the same conferences, or operate in the same city? A common denominator that ?groups? your target may not be evident at first glance. Be willing to think outside the box to find linkages that your competitors don?t.
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<br> And of course, the proposed segment must be profitable ? if you can?t make a profit by effectively serving the market, it?s not a viable segment regardless of any other attributes. You can project the potential of a particular segment by evaluating the purity of its composition, number of potential customers, growth projections, current saturation levels, and resources needed to extract the value from the segment (i.e. cost of sales, market barriers, competition, etc.).
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<br> To win this game there are rules to follow, but there are also some common traps to avoid. The first trap is don?t over-reach, or over-estimate your ability to be a leader in multiple markets. This mistake is will result in mediocrity in all areas of the business, and ultimately failure in the market place. Also, don?t forget to re-evaluate your analysis and keep a pulse on your segments. Buying habits change, new competitors emerge, and markets evolve. You need to be aware of how these shifts affect your business. Finally, remember current customers are a segment too! And even within this captured segment there are competitors to repel and battles to be won.
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<br> We all know the rule that says you can?t be all things to all people. Segmentation is the discipline of working this rule until you clearly identify whom you serve and whom you don?t. It enables you to concentrate your resources for greatest impact on those prospects most likely to buy your products and services. Understanding how to evaluate all potential buyers and distill discrete aggregations of prospects that are most likely to respond to you gives you a clear competitive advantage. Market leaders know that?s how you win the game.
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<br>Lon Hendrickson is president and founder of AlphaBrand Strategies, a management consultancy specializing in marketing strategy for B2B clients. Hendrickson can be reached via e-mail at lon.hendrickson@alphabrand.com
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