In an ideal world, you would be able to make your product so that every single customer would get exactly what they want. But making a whole different product for every single customer is expensive, and except for a few high-end clients, it’s not profitable. (Although it’s getting cheaper with the advent of computers to assist in design, manufacturing, and delivery, so that more and more businesses are getting more and more customized.)
So, if you can’t make a unique product for every single client, the next best thing is to find a group of clients whose needs and wants are close enough that they’ll all be pretty happy with the same product. This mostly-wants-the-same-thing group is called a market segment
Finding a market segment
There’s a lot of theory that goes into this, and it’s possible that big corporations actually do this with math and science. But that’s probably not an option for you (if you have thousands of dollars to fund a research study, your business is doing well enough without my help). So you’re going to use a more qualitative, story-based segmentation approach.
Who might want your stuff?
What customers do you have already, or might have? List all the reasons you can think of that someone might come to you for help.
How could they be segmented?
Are there any trends among your customers? Do you have two or more client groups? Would different products/packages/services/options suit these two groups better than trying to give them all the same thing?
Example 1: Food
Here in Colorado, there are several segments that are easy to pick out:
- We have the spicier-is-better crowd, who are happy as long as the food they get is no blander than a jalapeno.
- We have the health-nut crowd, which could be further segmented into the vegetarian crowd, the vegan crowd, the gluten-free crowd, and the raw-foods crowd.
- We have the DIAK (Double Income And Kids) crowd, where both parents are tired after a long day at work, and neither feels like cooking.
You don’t necessarily have to select only one of these segments to target (although you could), but you definitely want to have multiple products, to serve each segment. So a restaurant that focused on chili would want to have a smokin’ hot chili, a vegetarian chili, a chili that’s certified gluten-free, and a chili that’s hardly more than tomato soup (for picky kids).
Example 2: Financial Advice
Although the fundamentals of financial advice are the same for everyone, the application of it varies from market to market, and most especially based on the life stage of the customer. Kids in middle or high school have few expenses, and are concerned primarily with income generation and with saving. Depending on the parents, this stage may continue into college, or they may begin worrying about budgeting in order to maintain positive cashflow. If the client is out of college and didn’t get the assistance with saving and budgeting, they may now want advice on paying of credit cards and student loans; those who are debt-free are likely now interested in advice on saving towards big goals like a car, a house, or retirement. Those with more income and less time ’til retirement are most interested in how best to invest their extra cashflow, and the details of IRAs, 401ks, Mutual Funds and Bonds.
Each segment has different needs, and wants different products, but the needs of recent college grads will be similar enough that the same advice will help everyone in that segment
What groups do they divide into, and how would you describe them?
What does each group need?
For each segment you listed, describe their needs with relation to your product. What’s their biggest concern? What’s the most important feature to them? What would an ideal product look like?
Which groups will you serve?
Look at the groups, and the sorts of products they want. Is there a set of segments that want similar products? Which ones would you be good at serving? Which ones would you enjoy serving? Select the target market(s) on which you want to focus.
Summary and Action Steps
Segmentation is the process of finding groups of customers whose needs are similar enough that you can make them happy with the same products/services.
- List all potential customers
- Segment them into groups with similar needs
- List needs, wants, and ideal products/services
- Select segment(s) to target