What is a Market Segment

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We can divide the overall market into segments. This divides a target market into smaller, more manageable groups. If you can describe groups of customers by common characteristics you can optimise advertising, marketing, and other sales efforts. These characteristics will typically be linked to common needs or a common response to marketing triggers. For a little more information on segmentation, there’s a great article here

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There are four factors to bear in mind to determine if you have a good definition of your market segment.

• Identifiable – can you describe your customer in real terms such as age group, industry sector, or location. What is the problem you are trying to solve for the customer.

• Accessible – Do you have the ability to reach this segment, and can you describe the interactions: how you build awareness of your product, how you get feedback and knowledge from the segment, and how you do you get your product to the customer

• Potential for success – Can you identify the benefits of reaching this segment. Typically, this is financial: do you have a good understanding of the income, costs, risks, and sensitivity for the segment. You may have other incentives for reaching the market, maybe awareness, or perhaps a call to action. Can you describe the intent and how do you measure success.

• Stable over time – Can you describe the customer lifecycle time for this segment and are your assumptions stable for the entire lifecycle.

Once you have defined the segments, you will need to decide which ones to target. This will be an iterative loop where you consider the customers in the segment, your competency, and the strength of the competition.

 

How to identify market development opportunities

You may recognise the categories below from the product development article. There will be a level of overlap between the market and the product perspectives; here will consider customer, competency, and competition in respect to market development.

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To recap the use of these categories, the work you have already completed to understand your “Why” will feed into your competency. This then provides a reference point for how well you are aligned with the needs of your customers and where your strengths and weaknesses are relative to your competition.

This is not a linear process. There is an interaction between competency, customer, and competition; you will be moving between the three as you refine your understanding. You may find that for a certain customer your competition is better placed. You may find that changes to your product move you to a new customer assumption.

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Competencies

Perhaps more than with the product development, your competency with market development is built on your “why”. Your core purpose and beliefs will have a strong influence on how you connect with your customer and how they feel about your brand and your product.

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There is a fantastic principle presented by Dennis Snow in which he talks about the Disney approach of “everything speaks”. Your customer will build a picture of you and your brand that extends beyond the products they buy: how your employees act, what your online or physical presence looks like, and your company’s reputation all form an impression of your business that you will want the customer to connect with.

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This is much easier if there is clear line that runs through why you are doing what you do, the people you have around you, the processes they create and follow, and the products and services that finally connect all these efforts to the customer and what they are looking for.

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As you work through the customer and competition perspectives described here you should be able to see this alignment, not just in what you do internally but also in what influences the customer awareness.

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Customers

As in the product development section, it is important to understand the problem the customer is trying to solve; what are the benefits they are hoping to gain from the product.

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In this case though, there is a further consideration to determine their motivations; the benefits they are seeking will go beyond just practical benefits.

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Can you describe your customers’ behaviours around the need they are trying to fulfil: what are the circumstances in which they will reach for your product, and what are the triggers that start their customer journey.

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What are their broader goals, how would you describe their personality, and what are their lifestyle references. These are important to help identify where you connect and influence the customer at the stages of the customer lifecycle.

• Need recognition – what is the problem they are trying to solve, what are the triggers for them recognizing that need.

• Information search – Where would they look to find the solution to their problem, would they think of you and your product, how would you describe your presence, how appropriate is your product to their problem, will the customer already be aware this connection.

• Evaluation of alternatives – Are the advantages of your product clear, are they exclusive, and is the customer’s attention drawn to them. How easy is it for customers to find information that helps in their comparison. Where would they look for reviews of you and your product.

• Purchase Decision – When the customer has chosen your product, how easy is it to complete the transaction. How easy is it to understand purchase or delivery options, how clear is the guidance towards secondary products such as training or warranties, and how well represented are they.

• Post purchase – How easy is it to find aftersales support, how do you respond to problems or returns, how would customers characterise your attitude to them once you have their money. Will they remain loyal and return to your brand. Does your product or brand naturally sustain a fit with their lifestyle or personality or should you interact further. Would they advocate for you to others and what would they say was good or bad about their experience through this process.

There are some tangible characteristics of the customers you should consider such as age, income, education, profession, and location. There are plenty of marketing models available to choose from that will help.

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It is critical that the output of any model you employ is an understanding of your customer in a way that can be linked to your competency and will support your comparisons to your competition.

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Expanding from your understanding of the typical customer, you will also need to understand the nature of the segment as a whole. What is the size of the segment, what is its growth rate, and are there any time limits to its opportunity.

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Competition

The relationship between you and your customer obviously doesn’t exist in isolation. Your customer’s expectations will be heavily influenced by your competition. The customer sets the value for the features and benefits you offer, but the competition will set the price and the expectations across the market.

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Every market segment will have its points of parity, the baseline expectations in the market. Often these will be obvious: you may need to adhere to certain regulations, meet typical delivery times, or an expected level of customer interaction.

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Understanding this baseline, the points of parity, should also help you identify your points of differentiation. These are the features that set you and your product apart from the competition. Clearly linked to your competencies, but also only relevant if the customer values what you do differently.

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Factors to consider

The factors you consider will vary based on your industry but may also change over time as your interactions with your markets evolve.

Reviewing these factors will help generate problem statements for idea generation sessions, but you should consider how certain you are of your conclusions. If they are true, how do you know – are they provable? This isn’t meant to imply that you can only work with certainty, just that you assign an appropriate level of uncertainty to any assumptions made.

Key factors to consider are:

• Primary features such as functionality, compatibility, ease of use, Customization

• Secondary features such as Design, Packaging, Novelty

• Service and interactions such as sales, ease of ordering, speed of service, aftersales support, training

• Intangible attributes such as company image and reputation, lifestyle signals, accreditations such as fair trade or modern slavery statement.

• Price, cheaper or more expensive, what does this say about the product

 

As you identify advantages between you and your competition, it is important to understand the magnitude of any advantages and their importance.

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If the competitor has an advantage over you, is it cost effective to try to engage with them or should you focus elsewhere. If you have the advantage, how easy is it to defend and should you be looking to strengthen it. Does it hold sufficient value to naturally draw customers that are already loyal to your competition. Is it obvious to potential customers, or do you need to build awareness.

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In either case, is the advantage in a feature that the customer finds valuable and is this value time limited?

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Changing most of these factors is vertical differentiation: you are able to draw a tangible comparison to the same features on your competitors’ products. You should also consider horizontal differentiation. This considers customer preferences that are largely subjective. Some choices are made on features that do not have a tangible effect on performance, such as different colours of the same product or even between brands when there is little discernible product difference such as with bottled water. There’s a great article  from hinge marketing that explains some of this a little further.

 

Segmentation, targeting, and positioning is a fairly common process in marketing and market development, there’s a great overview here.

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Once you have worked through the segmentation, targeting, and your position relative to your competition in meeting the needs of your customer, you will have generated a list of actions that will then form the basis of problem statements for your idea generation sessions.