If you want to sell more stuff, segment, segment, and segment again. Explore different ways to segment the customers in your industry (market segmentation). Segment the products and services that are offered (offering segmentation). And Segment the channels used to buy and sell the offerings (channel segmentation).
How does segmenting help you sell more of your product or service? Lots of ways. Two of the most important are these:
Segmentation enables you to find the least-contested segments, i.e., segments where there are fewer or weaker competitors or, better yet, no competitors at all—as Nevada gaming legend ‘Si’ Redd put it, “Boy, you gotta be where they ain’t.”
Segmentation helps you find segments where you can focus on understanding the customer’s needs and develop the capabilities to satisfy those needs. You can’t be all things to all people, so if you want to go from good to great, you’ve got to focus.
Identifying new segments requires innovation
Finding segments that enable you to “be where they ain’t” and “go from good to great” is a matter of innovation. It’s as much art as science, requiring equal measures of creativity, intuition, research, and analysis. Fortunately, there are processes to guide each of the three kinds of segmentation. In this column, we’ll focus on the process of market segmentation.
Market segmentation is about dividing customers into groupings that are in some way similar or the same. There are numerous ways of dividing the market. Some of the most common are these:
Geographic Segmentation: Divide customers into groups based on their location—continents, countries, states, SMSAs, zip codes, radius distance, and so forth.
Demographic Segmentation: Divide customers into groups based on age, income, ethnicity, gender, family size, and type of family, such as married without kids, married with kids, empty nesters, and retirees.
Firmographic Segmentation: Divide customers by the characteristics of the firm or organization, such as type of industry, employee size, revenue size, number of locations, and so on.
Lifestyle Segmentation: Divide customers into groups according to their way of living, activities, and interests. Strategic Business Insights’ VALsTM system is a frequently-used lifestyle segmentation scheme.
Purchase Occasion Segmentation: Divide customers into groups according to the purchase occasion. In the lodging industry, for example, the purchase occasion may be that the customer is traveling for business or traveling for leisure.
Benefit Segmentation: Divide customers into groups of people or companies that have a similar level of interest in a comparable set of benefits.
Benefit segmentation is a powerful way to segment the market
Benefit segmentation is a particularly effective way of identifying innovative market segments. The following three examples–all taken from the lodging industry–hint at the considerable potential of using this segmentation method to find creative, new, weakly-contested market segments.
Kimpton Hotels’ Monaco Hotel in Chicago identified a segment consisting of tall athletes traveling with sports teams who would benefit from the comfort and convenience of larger than normal accommodations. They responded by offering rooms with ten-foot ceilings and 86-inch-long beds.
Tokyo’s Imperial Hotel identified a segment consisting of high school class reunion organizers who would benefit by being relieved of the time-consuming responsibility of planning the class reunion. The hotel responded by offering a class reunion organizing service, thereby getting the beleaguered organizers to steer their reunions to the hotel.
The Adoba Eco Hotel & Suites is a “Green From The Get Go,” LEED-certified hotel brand designed by Atmosphere Hospitality Management. It provides hotel guests the benefit of knowing that they are being environmentally responsible. At the same time, Atmosphere Hospitality Management appeals to the segment of owners who want the benefit of a management company that understands green hotels.
A relatively simple way to do benefit segmentation is to first use one of the other variables to segment the market—say, the demographic or purchase occasion variables—and then seek to identify the benefits sought by each of the segments. A more sophisticated approach employs a detailed process for mapping the market, dividing it into micro-segments, and using a statistical technique called “cluster analysis” to group, or cluster, micro-segments that have a similar level of interest in a comparable set of benefits.
Whichever way you decide to segment the market, once you arrive at a potential set of segments, you’ll want to select the ones with the most potential. Four useful questions to ask are these. Is the segment large enough to warrant our attention? Is the segment sufficiently profitable? Are we able to identify the members of this segment and reach them through a sales and marketing effort? Are we able to provide superior value to this segment?
Developing answers to these questions is a subject for another post. For now, just remember that if you want to sell more of your product or service, find yourself some segments where you can “be where they ain’t” and focus on “going from good to great.”