One of the most effective tools for growing a new business is the market segmentation tool. It is very important for startup owners to understand, study and work consistently with market segmentation in the life span of their businesses. Without market segmentation, every effort to grow the business will be like a wild goose chase. It can also be likened to the proverbial African saying of chasing two rats at once – only that in this case, there are more than two rats.
While this appears as such a big word, it is something that is easy to understand and work with. Many businesses that use market segmentation plan or approach for sales and marketing have also gotten more results than their counterparts who don’t have any market segmentation.
So what is market segmentation?
Market segmentation, according to Wikipedia.org, is a marketing strategy which involves dividing a broad target market into subsets of consumers, businesses, or countries that have, or are perceived to have, common needs, interests, and priorities, and then designing and implementing strategies to target them. Market segmentation strategies are generally used to identify and further define the target customers, and provide supporting data for marketing plan elements such as positioning to achieve certain marketing plan objectives.
That definition may have complicated things for you so let’s make this very simple. A basic illustration would be the case of two young entrepreneurs who have decided to sell clothes. The first entrepreneur raises some money, goes to the market where he or she can get clothes at wholesale price and returns with huge bags of clothes. He probably decides to take the road side approach because of the cost of renting a store. So he’s clearly cutting cost but is still not selling at the end of the day and wonders why he’s not able to sell the clothes since so many people have to buy clothes on daily basis.
The other entrepreneur wants to sell clothes as well but doesn’t run to the market to buy clothes. He talks to a few people to know how often they buy clothes and when they buy clothes. While talking to these people, he’s also noting their gender. At the end of talking to several people, he finds out that women obviously buy more clothes than men. Women also return to the market more often to get more clothes and they are always looking for accessories to match what they have bought. Armed with this information, this second entrepreneur goes to the market and buys more women clothing to sell. He’s also smart enough to get accessories to match some of the clothes he’s bought.
When you look at the businesses of the two entrepreneurs, the second one is likely to make more sales consistently because he has a ‘pre-defined’ market and also knows what they want.
Another way to explain market segmentation is to understand that you will not be selling to everyone. It is a great illusion for any entrepreneur to hope that he or she will be able to sell to everyone and try to sell to everyone. You will not only be wasting money on advertising and online campaigns, you will be wasting productive time and channeling energy into the wrong places. Worse still, you still have your goods or services unpatronised.
Preparing a simple market segmentation plan
If you are to start a business or have already started, there must be a market segmentation plan and a simple or basic one will answer the following questions:
1. What are you selling?
2. Who needs what you are selling?
3. Why do they need what you are selling?
4. How often do they need the things you are selling?
5. Where are these people who need what you are selling?
6. What social class do they belong to in the society and what’s their purchasing power?
7. Do you understand the cash flow of the people you are selling to?
Some of these things are pretty easy to answer. You also don’t have to answer them yourselves. What you have to do is to talk to people around or set up questionnaires for them to fill. You can also talk to people who have been in a similar business for a while and they will tell you who buys what and when they do.
With a well thought out and planned market segmentation, you will hit the bull’s eye.