Often-times, entrepreneurs have awesome ideas, but they fail to properly research the market. We need to determine what our market is, who is going to buy our product, what competitors are out there, and what makes us stand out. I know that you likely want to go into sales mode, but documentation and research are crucial. We need to take a look at our market segment and also our value proposition. This takes time and patience, but will make a huge difference when you are ready to launch.
Determining your market segment is not as easy as it sounds. When we look at determining our market, we can look at it on a product level as we develop our marketing plan, but I have learned that people care more about your company’s placement than the product. Sounds crazy, but it is true. Individuals and businesses put their trust in you, your company, and your team. Just like investors look at the company and not the product, we need to be company focused to get started.
As we determine our market segment, we must first determine if we are going to be operating in a consumer market or business market. If your business is going to be primarily selling products or services to consumers, then you are likely in a consumer market. If your business primarily focuses on products and services tailored for businesses, then a business market segment is a good place to start. There are some different factors in defining these segments and we will go over a strategy for each to define the criteria to establish our market segments.
The logic for segmentation is a factor that can vary among different markets, but all markets can be broken down into segments in a variety of ways. We will use a common, but useful methodology to determine our market segments. Experts agree that a segment should be clear to identify, measurable, accessible by promotion or distribution channels, stable, and substantial enough to be profitable. Making a profit is important! If our research shows that a market may not be profitable, we will want to revise our idea. You do not want to enter a market knowing that it will not contribute to your profits.
There are several ways to segment a market. As mentioned, this is different between a consumer and business market. We will begin by taking a look at segmenting the consumer market.
In the consumer market, there are four types of segments that play a role in determining our market. These include: geography, consumer demographic, physiographical, and behavioral. Each of these play a crucial role in how we decide to market and place our business. We will want to do research and determine in what areas of these four segments our company will perform best.
In the geographical segment, there are several variables or inputs that we can consider to define this segment for our business.
We should account for population growth, population density, region, and climate. These factors are all important.
Let’s say for instance that we sell winter coats. We find a geographic segment that has a growing population in a region that is close to our manufacturing facility. We fail if we didn’t research the climate. If the climate in this area is tropical, then the growth of the population doesn’t matter. That just means that there will be more people, who don’t want our coats.
A good geographic segment for our winter coat business would be: A cool region that has a frequently cold climate and snow with a population growth rate of 5.3%. That would be a perfect place for us to open up shop for our winter coats, based on geographic segmentation.
The next segment is demographic. This includes defining your ideal consumer in terms of age, gender, nationality, education, occupation, religion, income, and family status.
It may seem odd to define people in this way, but all of these details help us to define who is most likely to buy our product. If we wanted to run a high end Christian day care facility, our demographic may be something like this:
Married parents, who have college educations, practice the Christian faith, are between the ages of 28 to 49, and have a household income exceeding $120,000 per year.
In this context, we know exactly who to market our advertising effort towards. For this type of a business, the demographic and psychographic segments play a large role, but all are important.
The psycho-graphic segmentation looks at a consumer’s values, attitude, lifestyle, opinions, activities and interests.
For our high-end Christian day care service, our pychographic segment may be something like this:
Families, who engage in the Christian lifestyle, with strong moral values. They have stronger conservative opinions and are interested in a strong Christian upbringing.
Now, this would be different if we wanted to open a video game store. The pychographic may look like this:
Singles males, who prefer indoor activities. Fairly free lifestyle with few financial responsibilities and has a preference towards online socialization.
The pychographic is all about the market segments feelings, beliefs, and attitude. For some industries, this is easier to define than others.
The final type of segmentation for the consumer market is behavioral. What are your potential customer’s usage patterns? How price sensitive and brand loyal are they? What benefit is in it for them to purchase your product? These are questions that we answer as we explore this segmentation.
Alright, we have made it through identifying the different types of segmentation in the consumer market. It takes time and research, but when you master determining your segment, your sales will increase!