May 16, 2016
Digital Marketing  |  11 min read

7 Questions Small Businesses Must Answer Before Building a Segmentation Strategy

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Jake Johnson
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Are you finding that you’ve outgrown your initial marketing strategy?

This is not uncommon for many small businesses. The first growth years of a business are a time of feeling out who you are and who your customers are. This generally means casting a broad net, trying to bring in as many leads as possible with a fairly general messaging strategy. In the process, you find what works and what doesn’t.

But this can only help you grow so far. Eventually, you need to drill down on who you are exactly, the unique selling proposition of your offering, and the best target markets for that offering.

Moving to market segmentation begins with researching your market

A common first step for small businesses ready to evolve their marketing strategy is to establish their market segmentations.

Market segmentation is the process breaking down a large market into groups with shared interests, needs, and pain points. These can include a variety of factors, including demographics and psychographics, customers and non-customers, geography, and more.

(For a deep dive, technical analysis on this, you can read this article from Brooklyn College, “Market Segmentation and Targeting.”)

The benefits of market segmentation

The benefit of market segmentation is that it focuses your efforts, getting the right offers to the right people at the right time. This, of course, equals more sales and more cash money. 

Take for instance the online clothing brand Johnny Cupcakes. Before employing segmentation, they were sending the same offers to their entire email list of 80,000 people. As David Moth writes for “Econsultancy,” once they segmented their email list by “gender, customer interests, brand preferences, and media habits,” they were able to then launch a targeted campaign “with separate emails for men and women who had expressed an interest in baseball.” 

“This fairly simple segmentation resulted in:

  • 42 percent increase in click-thru rates.
  • 123 percent increase in conversion rate.
  • 141 percent increase in revenue per campaign.”

Results like that would make any business owner go:

kip yes.gif

Additionally, as you segment your markets, you get to know them better. It’s way easier to develop new products and services that meet a market’s emotional and logical needs when you have more granular insights into those market segments. Things you may have completely overlooked in the past all of a sudden become clear.

And as you get clear on who your customers are, you also get clear on who you are, which strengthens your brand and offering. In turn, you separate yourself in a meaningful way from your competitors.

Finally, market segmentation of your customers serves to allow you to increase your customer retention as you provided value-added offers and upsells that are relevant to your customer base.

The 7-question market research checklist

When you sit down to do your market segmentation, it can seem like a daunting task. This is normal. Any time you try to take something complex and break it down to simpler components, you’ll run into roadblocks.

In a post called, “How Smart Market Segmentation Leads to Stellar Revenue Results,” SBI, a management consulting firm specializing in sales and marketing, offered up eight questions to answer in building an effective segmentation.

We’ve adapted those here to give you a seven-question checklist you can utilize to develop your segmentation strategy, leaving out a question on life-cycle adoption that is more appropriately studied by disruptive tech companies. (If that’s you, take a look at this).

1. How big is your market? What is its growth rate?

Obviously, you want to be in a market that is big enough to support your business and one that has a significant growth trajectory. If it’s too niche, you run the risk of pigeon-holing yourself into future irrelevance.

For basic demographic data, the American Fact Finder is a great resource to mine the U.S. Census Bureau data. There is a wealth of information regarding age, business and industry, education, governments, housing, income, and more—all for free. You can use this data to figure market sizes and compare data sets to see growth trends.

2. What industry trends are unfolding in your market?

Staying ahead of trends is important so that you can adjust your tactics strategically rather than reactively. The classic example of this is Kodak, who invented digital photography and sat on it, grossly underestimating how quickly the physical film industry would deteriorate. They could have dominated for the next twenty years. Instead, they reactively tried to go into digital and instead went into bankruptcy.

Try subscribing to Google Alerts for topics relevant to your market. They will deliver daily, weekly, or monthly digests of relevant news right to your inbox for free.

Also, check out Google Trends to see how the world is talking about topics. For instance, I searched “marketing automation” and the resulting chart shows a significant uptick in interest in the term, cluing me into the fact that it’s a growing market.

google trends.png 

Trends also gives me valuable data on where the term is searched most geographically and related keywords people use around the search term.

Finally, if there are any journals, periodicals, blogs, forums, and more that are dedicated to your markets, make sure to subscribe to them and to carve out the time to read them. It’s an investment that pays off.

3. What are the needs of your market? How are they changing?

Check out Nielsen’s free MyBestSegments tool, which gives you 66 distinct segmentation archetypes, complete with detailed breakdowns. You can do zip code searches to see what segments are represented locally. You can use the archetype data to get a better grasp on the mindset of your markets.

Utilize your existing customer base. Send out a survey using a tool like SurveyMonkey to poll your customers on how well you’re serving them and what you can do better.

Use the information you collect to help build a segmentation plan. When creating your survey ask questions that will help you match your database of customers to the archetypes you want to attract.

For example, if you’re trying to attract “wealthy middle-aged couples with kids.” Pepper in questions like, “On a scale of 1-10 how financially wealthy do you consider yourself?”

Analyze your survey results, and if you’re attracting “upscale people without kids,” then you need to assess how you’re attracting people and why you’re not attracting the right archetypes.

Want more objective data? Check out Google’s Consumer Surveys, which polls users across the Internet in your market segments with a set of survey questions. It’s affordable and awesome. (We used it to create our “2016 Small Business Marketing Trends Report”).

4. What should be your go-to-market strategy for each product/solution?

With the cumulative answers from questions one through three, you will then have what you need to start formulating your go-to-market strategies for your products and services.

First, as venture capitalist Murray McCaig shares, you must develop a strong value proposition for your segments—how do you provide value to that market that no one else does. Then, develop a “detailed, believable plan that answers four questions:

  • What are you selling?
  • Who are you selling it to?
  • How will you reach your target market?
  • Where will you promote your product?”

All of these questions should be answerable by what you know about your markets through your research. McCaig’s talk is worth listening to for more on go-to-market strategy.

Go-to-Market Strategy - Entrepreneurship 101 2012/13 from MaRS Discovery District on Vimeo.

5. How do your competitors go to market?

In your quest to differentiate yourself and provide a unique value proposition, you should become a student of what your competitors do.

I’ve found one great way to do this is a simple competitive audit. Pick your top five or so competitors, create a spreadsheet, and audit their websites, social channels, advertising, and such.

Click here to download a free, simple competitive audit Excel spreadsheet template.

Take a look at their messaging, design, and products. How are they positioning themselves? What kind of emotions are they trying to create? What’s the way they position their products?

Additionally, use Google Alerts to keep tabs on your competitors in the media and subscribe to their blogs to keep tabs on what they’re saying.

6. What are your competitive strengths and weaknesses?

Once you have studied how your competitors go to market, it’s helpful to create a matrix of strengths and weaknesses of your competitors and then to map yourself against them. Where is the white space? What is an area of the market that you can own that your competitors do not?

Sometimes, it’s also helpful to translate this to a positioning map that compares you to your competitors on an X/Y axis representing various brand approaches. Here’s an example showing the difference between car brands.

XY axis car brands.png 

(source: Marketing Audit of Renault & Volkswagen)

For a small business owner, you could create an x-axis that contains: high-touch customer service vs. low-touch customer service, and then for the y-axis, you could have low product quality vs high product quality (if you’re a service-based business replace “product” with “service”).

7. What are your opportunities and threats in the market?

After you’ve compiled your research on your competitors and customers, it should be easier to see the patterns emerge for your opportunities and threats in the market. Demographic trends, like an aging population, for instance, might necessitate changing the design on your app to account for older eyes. If your competitor is dominating in a high price luxury market, can you provide a lower price product or service for the average Joe? By anticipating your threats and exploiting opportunities, you can better ensure long-term, sustainable growth.

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